Auto-deleveraging (ADL) is an exchange mechanism that forcibly closes profitable leveraged positions to cover losses from underwater accounts and maintain platform solvency during extreme volatility. When liquidations cascade faster than the exchange can process, ADL systems automatically close winning traders' positions, taking their profits, to ensure the exchange doesn't become insolvent. This typically affects 0.5-2% of highly profitable positions during crashes, meaning your hedge or winning short can disappear exactly when you need it most.
Example:
During the October 2025 Bitcoin crash, long positions got liquidated as Bitcoin dropped from $126,000 to $105,000. Traders who held profitable short positions (betting on the crash) expected to profit from the decline. However, Hyperliquid's ADL system forcibly closed approximately 1% of the most profitable short positions to cover the exchange's exposure from liquidated longs. These traders had their winning positions closed automatically at $108,000, missing the further drop to $105,000. The ADL system protected the exchange at the expense of successful traders.