Auto-Deleveraging in Crypto Perpetual Trading: How ADL Mechanisms Shock Advanced Traders

Auto-deleveraging (ADL) serves as the emergency protocol on crypto perpetual trading platforms, forcibly closing profitable positions when liquidation volumes exceed market depth and exchange buffers. As Ambient Finance founder Doug Colkitt explains in a detailed X thread, perpetual futures ("perps") are cash-settled derivatives without expiration that track spot prices through funding mechanisms. During market stress, ADL activates as the final safeguard when standard liquidations and insurance funds prove insufficient. Colkitt compares ADL to overbooked flights where profitable traders are "bumped" to maintain platform solvency. The ADL queue prioritizes high-leverage, large-position whales with significant unrealized profits. While frustrating for traders, ADL remains essential for preventing systemic failures in zero-sum perpetual markets where no physical assets back contracts. Modern exchanges implement transparent queues and real-time indicators to make ADL processes more predictable, though the mechanism inevitably surprises traders during extreme volatility episodes.