Auto-deleveraging, or ADL, might sound like complex trader jargon, but it’s one of the most important — and frustrating — mechanisms in crypto perpetual futures trading. It’s the last-resort safety feature that activates when massive liquidations threaten a trading platform’s solvency.

As Doug Colkitt, founder of Ambient Finance, explained, ADL steps in only after all other risk buffers, like insurance funds and liquidity vaults, are exhausted. When markets crash fast and deep — like during Friday’s $20B crypto meltdown — liquidity can disappear, leaving exchanges unable to fully cover losing positions. In that case, ADL automatically reduces part of profitable traders’ positions to balance the books.

Think of it like an overbooked flight. If nobody volunteers to give up their seat, the airline has to choose someone. Similarly, ADL “bumps” profitable traders from their winning positions when there’s no liquidity left to pay out losers. It’s not a punishment — it’s how exchanges prevent bigger collapses and keep the market functioning.

Colkitt explained that exchanges rank traders in the ADL queue based on three factors: unrealized profit, leverage level, and position size. This means the most profitable and highly leveraged traders are reduced first. Naturally, this frustrates those who were on the right side of the trade — but it’s a structural part of zero-sum perpetual markets.

Auto-deleveraging should be rare, but when it happens, it reminds everyone that crypto markets are synthetic systems built on shared risk. The more transparent exchanges are about ADL rules, the more predictable — and less shocking — these events become.

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