Auto-Deleveraging: How Crypto Exchanges Handle Massive Losses

When a trader’s position blows up on a leveraged crypto exchange, Auto-Deleveraging, a system that forcibly closes losing positions to protect the exchange and other users. Also known as ADL, it’s the quiet mechanism that stops one trader’s failure from dragging down the whole platform. This isn’t something that happens in theory—it’s been triggered on Binance, Bybit, and OKX during crashes like the 2022 Terra collapse or the 2023 FTX meltdown. When prices swing too fast and margin calls go unmet, the exchange doesn’t just let the loss sit. It starts taking money from other traders who are still in profitable positions. That’s auto-deleveraging: you win, but someone else’s loss pays for it.

It’s not random. The system picks the most highly leveraged traders first—the ones who are betting big and have the least buffer. If you’re long Bitcoin at 50x leverage and the price drops 5%, you’re likely the first to get hit. But if you’re holding a small, well-protected position and the exchange needs cash to cover a total collapse, you might still lose part of your profit. This isn’t theft—it’s a rule baked into the terms of service you agreed to. Most exchanges rank traders by profitability and leverage, then shave off a portion of the winner’s gains to cover the loser’s debt. It’s brutal, but it keeps the exchange solvent. Without it, platforms like Vauld or Celsius would collapse faster than they already did.

Related systems like liquidation, the automatic closing of a position when collateral falls below a threshold. Also known as margin closeout, it’s the first line of defense. But when liquidations aren’t enough—when the market moves too fast, or too many people get liquidated at once—the exchange has no choice but to go to auto-deleveraging, the next layer of risk containment. You’ll see this in action during extreme volatility, like Iran’s $4.18 billion crypto outflow in 2024 or when Myanmar shuts down bank accounts for USDT traders. In those moments, exchanges aren’t just watching prices—they’re scrambling to avoid total failure.

What you won’t find in most exchange FAQs is how often this happens, or how much you stand to lose. Some platforms hide ADL triggers behind vague language. Others, like DeepBook Protocol, avoid it entirely by using on-chain order books that don’t allow leverage. But if you’re trading on centralized platforms with high leverage, auto-deleveraging is part of the game. It’s not about being right or wrong—it’s about who’s holding the most risk when the system breaks. The best defense? Lower leverage, tighter stop-losses, and knowing which exchanges have never triggered ADL. Below, you’ll find real cases where this system saved—or ruined—traders. Some posts show you how it works behind the scenes. Others warn you which platforms still use it as a hidden profit tool. This isn’t theory. It’s how your money disappears when the market turns.