Liquidations and Auto-Deleveraging (ADL)

Hyperliquid uses a multi-stage liquidation system designed to minimize unnecessary forced closures while ensuring the protocol remains solvent. The system escalates through standard liquidation, backstop liquidation, and finally auto-deleveraging (ADL) only as a last resort.

What Triggers a Liquidation

Cross-Margin Accounts

Liquidation is triggered when your account equity falls below the maintenance margin threshold:

account value (including unrealized PnL) < maintenance margin × total open notional

Isolated Margin Positions

The same condition applies, but only the isolated collateral and that position’s notional value are considered.

Maintenance Margin

The maintenance margin equals half the initial margin at maximum leverage. Depending on the asset, this ranges from 1.25% to 16.7% (corresponding to 3×–40× max leverage assets).

Mark Price

Hyperliquid uses a composite mark price for all margining and liquidation calculations — not the raw order book mid-price. The mark price combines external CEX oracle prices with Hyperliquid’s own order book state, making liquidations more robust against sudden price spikes or thin market conditions.

Standard Liquidation

When your equity falls below the maintenance margin threshold:

1. The system sends market orders to the open book to close your position.
2. For large positions over $100,000 USDC notional, only 20% is liquidated initially, with a 30-second cooldown before additional orders are sent. This prevents unnecessary cascading liquidations.
3. If orders partially fill and maintenance margin requirements are restored, the remaining collateral stays with you.

Backstop Liquidation

If your equity falls below 2/3 of the maintenance margin and the standard book liquidation has not succeeded, the liquidator vault — a sub-strategy of HLP (Hyperliquid Protocol Vault) — intervenes.

The liquidator vault takes over the underwater position and its remaining collateral. The maintenance margin buffer is not returned to the user in a backstop liquidation; it ensures backstop liquidations remain profitable on average. All PnL from liquidations flows back to the community through HLP.

Insurance Fund (HLP)

HLP (Hyperliquid Protocol Vault) serves two roles:

1. Market making — providing liquidity across markets to tighten spreads.
2. Backstop insurance — absorbing losing liquidated positions that cannot be closed on the open market.

HLP is community-owned: anyone can deposit into it. It is subdivided into child vaults covering different markets to reduce concentration risk. A portion of fee revenue flows to HLP to keep it well-capitalized.

Auto-Deleveraging (ADL)

ADL is the last-resort mechanism, activated only when a position’s value goes negative — meaning HLP cannot fully absorb the loss.

How ADL Selects Counterparties

Profitable traders on the opposite side of the underwater position are ranked by:

(mark_price / entry_price) × (notional_position / account_value)

This formula combines price appreciation performance with position size relative to equity (effective leverage). The most leveraged profitable traders are deleveraged first.

How ADL Works

• Selected traders have their positions partially closed at the previous mark price, not the current market rate.
• Traders with no open position are fully protected — ADL cannot socialize losses onto non-participants. This is a strict protocol invariant.
• Backstop-liquidated positions can still be ADL targets and receive no queue priority.

ADL in Practice

In October 2025, Hyperliquid triggered cross-margin ADL for the first time in over two years of operation. An extreme market dislocation exhausted HLP’s capacity, activating ADL automatically. The protocol described the event as a successful demonstration of the safety system functioning as designed.

Summary

Stage	Trigger	Mechanism
Standard liquidation	Equity < maintenance margin	Market orders sent to order book
Backstop liquidation	Equity < 2/3 maintenance margin	HLP liquidator vault takes over position
Auto-deleveraging	Position value goes negative	Most-leveraged profitable counterparties are partially closed