Hyperliquid ADL boosts trader returns, limits HLP risk
Hyperliquid ADL has defended traders by prioritizing user gains over immediate protocol revenue during its October 10 market crash response. The automated deleveraging (ADL) mechanism closed profitable short positions at favorable prices, returning hundreds of millions to users instead of maximizing HLP token profits. Founder Jeff Yan explained that deeper liquidations could have boosted HLP earnings but would have increased risk exposure. Hyperliquid ADL uses a simple, transparent queue based on leverage and unrealized P&L—mirroring centralized exchanges—to shift potential losses from HLP back to traders while safeguarding protocol capital. Yan contrasted this on-chain transparency with opaque CEX reporting, citing Binance’s underreporting of liquidation events by up to 100×. Ongoing research aims to refine ADL logic without sacrificing clarity. This development underscores the trade-off between protocol revenue and trader protection in decentralized perpetual exchanges.
Bullish
The clear focus on trader protection and on-chain transparency boosts confidence in the HLP token. By capping protocol profits to safeguard capital, Hyperliquid ADL reduces systemic risk and strengthens user trust. In the short term, this may temper protocol revenue but immediately alleviates FUD and demonstrates robust risk management. Over the long term, enhanced transparency and refined ADL logic are likely to attract more liquidity and traders to the platform, supporting HLP demand and price appreciation.