The post How Auto-Deleveraging Works on Crypto Perp Platforms and Why It Can Cut Winning Trades appeared on BitcoinEthereumNews.com.

Auto-deleveraging is the emergency brake in crypto perpetuals that cuts part of winning positions when bankrupt liquidations overwhelm market depth and a venue’s remaining buffers, as Ambient Finance Founder Doug Colkitt explains in a new X thread. Perpetual futures — “perps” in trading shorthand — are cash-settled contracts with no expiry that mirror spot via funding payments, not delivery. Profits and losses net against a shared margin pool rather than shipped coins, which is why, in stress, venues may need to reallocate exposure quickly to keep books balanced. Colkitt frames ADL as the last step in a risk waterfall. In normal conditions, a blown-up account is liquidated into the order book near its bankruptcy price. If slippage is too severe, venues lean on whatever buffers they maintain — insurance funds, programmatic liquidity, or vaults dedicated to absorbing distressed flow. Colkitt notes that such vaults can be lucrative during turmoil because they buy at deep discounts and sell into sharp rebounds; he points to an hour during Friday’s crypto meltdown when Hyperliquid’s vault booked about $40 million. The point, he stresses, is that a vault is not magic. It follows the same rules as any participant and has finite risk capacity. When those defenses are exhausted and a shortfall still remains, the mechanism that preserves solvency is ADL. The analogies in Colkitt’s explainer make the logic intuitive. He likens the process to an overbooked flight: the airline raises incentives to find volunteers, but if no one bites, “someone has to be kicked off the plane.” In perps, when bids and buffers will not absorb the loss, ADL “bumps” part of profitable positions so the market can depart on time and settle obligations. He also reaches for the card room. A player on a hot streak can win table after table until…

---

Filed under: News - @ October 12, 2025 12:07 am