Auto-deleveraging

If you’re winning against an account that runs out of money, auto-deleveraging (ADL) can close your position. Losses beyond an account’s collateral would leave the winners’ profits unbacked: bad debt. The docs set a strict invariant instead: under all operations, a user with no open positions does not socialise any platform losses.

Three steps from negative equity to a forced close

ADL follows market and backstop liquidation (leverage and liquidation).

1. Trigger: an account value (cross) or isolated position value goes negative.

2. Rank the opposite side by unrealised PnL and leverage:

   adl_index = (mark_price / entry_price) * (notional_position / account_value)

   The first factor is the price move since entry; the second, effective leverage (notional over the equity behind it).

3. Close at the previous mark price against the underwater user, off the book. The docs say this ensures the platform has no bad debt.

A ranking, worked

Say three longs sit opposite an underwater short, with the mark at 150:

Trader	Entry	Notional	Account value	Price factor	Leverage factor	Index
A	100	15,000	3,000	1.50	5.0	7.50
B	140	15,000	7,500	1.07	2.0	2.14
C	100	3,000	3,000	1.50	1.0	1.50

A has B’s notional with a larger gain and less equity, so the highest index; C has A’s gain without leverage, so the lowest. The docs do not state the queue’s direction; read as a profit-and-leverage measure, A goes first.

Each HIP-3 dex is its own solvency domain

Each HIP-3 dex margins independently, with an on-chain backstop liquidator that is an independent user (table). The docs say it makes cross-enabled assets significantly less likely to see ADL in high volatility, and that scaled-out backstop liquidators will reduce the need for ADL.

Implied but not spelled out: a noCross or strictIsolated asset has no per-dex backstop, so if the book cannot close such a position before it goes negative, the next documented step is ADL.

The numbers

Item	Value
Trigger	account value (cross) or isolated position value below 0
Who is closed	users on the opposite side of the underwater position
Sorting index	(mark_price / entry_price) * (notional_position / account_value)
Execution price	previous mark price
Counterparty	the underwater user; no order book
Backstop-liquidated positions	no special treatment in the queue
Invariant	a user with no open positions never socialises losses
Place in the sequence	after market liquidation (below maintenance) and backstop liquidation (below 2/3 of maintenance)
HIP-3 backstop liquidator	0x4000000000000000000000000000000000000000 + dex_index; cross-enabled assets only; falls back to ADL

What ADL means for your positions

• ADL risk sits with the winners, in proportion to gain and leverage. Taking profit, or adding collateral to run the same notional at lower leverage, lowers your index.
• The exit price is not yours: it is the previous mark, off the book. A hedge held elsewhere is left open.
• Only a flat account is fully protected by the invariant.

Monitoring your index from code

adl_index = (markPx / entryPx) * (positionValue / accountValue)

markPx         metaAndAssetCtxs, or the activeAssetCtx subscription
entryPx        clearinghouseState.assetPositions[].position.entryPx
positionValue  clearinghouseState.assetPositions[].position.positionValue
accountValue   clearinghouseState.marginSummary.accountValue (see the gaps below)

• No documented field, fill flag or order status marks an ADL close; liquidation fills carry liquidation.method "market" or "backstop" only. Reconcile position size from clearinghouseState (or its subscription) after volatile moves, and treat unexplained changes as possible ADL.
• A delta-neutral strategy should alert on a one-sided change and re-hedge or unwind: ADL removes one leg only.
• A HIP-3 deployer can fund the backstop with hip3LiquidatorTransfer (liquidation). It helps only on cross-enabled assets, and enabling cross is irreversible and subject to validator eligibility checks (operating a perp dex).

Unresolved gaps in the docs

• Shorts: the index is written once for both sides. For a profitable short, mark_price / entry_price is below 1 and falls as profit grows; the docs do not say whether it is inverted.
• Which account value: for an isolated position account_value is undefined; isolated margin plus PnL is the plausible reading, not a documented one.
• Which previous mark: marks update about every 3 seconds; “previous” is not defined further.
• Cross-dex margin: how an ADL queue is scoped when an account sharing margin across dexes (unified account or portfolio margin) goes negative is undocumented.
• Portfolio margin: liquidations go directly to the backstop liquidator at 0xbbb...b; the docs say nothing about ADL for these accounts.
• No history: no documented info request lists past ADL events.

For who shares collateral, see Margin. For HLP, whose liquidator vault is the validator-operated backstop, see Vaults.