Hyperliquid Insurance Fund and ADL Explained

1. Hyperliquid ADL: when it happens and who gets closed

Auto-deleveraging (ADL) is the last stage of Hyperliquid’s liquidation waterfall. In the docs’ words it “strictly ensures that the platform stays solvent”. It runs only when an account’s value, or an isolated position’s value, becomes negative: by then a market liquidation on the book and the HLP backstop have both failed to close the position before its equity went below zero. Someone still has to take the other side of that loss, so the engine picks traders on the opposite side, ranked by:

(mark price ÷ entry price) × (position notional ÷ account value)

If a short account goes bankrupt, the counterparties are longs. The more a long is in profit (a high mark/entry ratio) and the more leverage it runs (high notional per dollar of account value), the earlier it is closed. Closed positions are settled at the previous mark price. You keep the profit up to that price, but lose the position and any further move. Backstop-liquidated positions get no special treatment in the queue, and a user with no open positions never socializes losses.

From Hyperliquid’s Auto-deleveraging and Liquidations docs and the app’s trade-history labels, re-checked October 15, 2026.

ADL is not a fee or a penalty. It is a forced close at a fair price. The real cost is being taken out of a winning trade at the worst moment, for example during a cascade when you would have liked to hold. It is rare in normal markets, but it ran at scale on October 10, 2025 (section 6). A worked ranking example, and how Lighter and Aster order their queues: section 9.

How to check if you were auto-deleveraged on Hyperliquid

• Trade History tab: an ADL fill shows “Auto-Deleveraging” as its direction. The app attaches this explanation: “Your position was auto-deleveraged because the opposite side could not be liquidated.” Your own liquidations look different: “Market Order Liquidation” (sent to the book) or “Backstop Liquidation” (taken over by HLP at a clearance price).
• API: the same fill returned by the userFills info request has its dir field set to “Auto-Deleveraging”, the value the app reads to apply that label. A liquidation of your own position instead carries a liquidation object with method “market” for a book liquidation, “backstop” for an HLP takeover (details below).
• Your PnL: the fill closes at the previous mark price, so its closed PnL is the profit up to that price. Nothing stops you from reopening the trade straight away.

2. What an insurance fund does on a perpetuals exchange

A leveraged position is liquidated when its equity falls below the maintenance margin. If the engine can close it before equity reaches zero (the bankruptcy price), the trader keeps the rest. If prices gap or the book is thin, the close happens beyond bankruptcy and a deficit appears. The winners on the other side still have to be paid in full. On centralized exchanges such as Binance and Bybit, that deficit is covered by an exchange-run insurance fund, which is filled partly by the liquidation (clearance) fees taken from liquidated traders. When it is not enough, the exchange falls back on auto-deleveraging. Hyperliquid solves the same problem, but the backstop is a vault anyone can deposit into, and the ordinary liquidation charges no fee.

3. Hyperliquid’s liquidation waterfall

From the official Liquidations and Auto-deleveraging pages, re-checked October 15, 2026 (unchanged since our September 25, 2026 read).

Key details from the docs:

• Maintenance margin is half of the initial margin at the asset’s maximum leverage: 1.25% for BTC (40x), 2% for ETH (25x), 2.5% for SOL (20x), 5% for 10x alts and 16.7% for 3x assets. Assets with margin tiers step up above set notional sizes. Isolated or cross changes which collateral is at risk: Hyperliquid cross vs isolated margin.
• Mark price, not last trade. Liquidations use the mark price, a median of Hyperliquid’s book, the oracle plus a 150-second EMA and external perp prices, updated about every 3 seconds. The docs warn that in volatile markets the mark can differ “significantly” from the book price. How the three prices relate: mark price vs last price vs index price.
• Liquidation profit goes to users. “On most venues, this profit goes to the exchange operator or privileged market makers who internalize the flow. On Hyperliquid, the pnl stream from liquidations go entirely to the community through HLP.”
• Liquidating flow is open to everyone. If your resting order fills against a liquidation, the app notes the fill “was more favorable to you than the price chart at that time, because your order provided liquidity to another user’s liquidation”.

In your Trade History a liquidation shows up as a “Market Order Liquidation” (sent to the book at the mark price that triggered it) or a “Backstop Liquidation” (“taken over by the protocol at a clearance price”). The app defines the clearance price as including “the maintenance margin buffer for the liquidator”. That buffer is the money you lose in a backstop.

Liquidation and ADL data from the Hyperliquid API

The same distinction is in the API, which is free and needs no key for reading. Every fill returned by the userFills info request, or streamed on the userFills and userEvents WebSocket subscriptions, can carry a liquidation object with liquidatedUser, markPx and method (“market” for a book liquidation, “backstop” for an HLP takeover). userEvents also pushes a liquidation event with the liquidated notional and account value, userNonFundingLedgerUpdates lists liquidations in an account's ledger next to deposits and withdrawals, and an ADL fill is marked by its dir (“Auto-Deleveraging”). All of these are per account (Hyperliquid API docs, re-checked October 15, 2026). Requests, Python examples and rate limits: Hyperliquid API guide.

Looking for every liquidation on the exchange rather than your own? Hyperliquid has no market-wide liquidation stream or endpoint in its API: a liquidation is flagged in the liquidated account’s own fills, and the only complete record is the node fill archive on S3. Where the clusters sit right now and which tools reconstruct them: Hyperliquid liquidation map and liquidation data.

Related:Hyperliquid Order Types (2026): Limit, Post-Only, Reduce-Only

4. HLP: the vault that plays the insurance role

Hyperliquidity Provider (HLP) is a protocol vault that, per the docs, “provides liquidity to Hyperliquid through multiple market making strategies, performs liquidations, supplies USDC in Earn, and accrues a portion of trading fees.” It is community-owned: anyone can deposit USDC and share its PnL, with a 4-day lock-up after each deposit. Trading fees go entirely to the community: to HLP, to the assistance fund (which converts fees to HYPE and burns it) and to HIP-3 and spot deployers. None goes to a team treasury.

Live: HLP held $179.1M at a displayed APR of 3.5% on October 20, 2026 (public API, refreshed on every site build). Snapshot (API vaultDetails, October 15, 2026, 06:55 UTC): PnL +$42,344 over the last day, +$116,403 over the week, +$617,940 over the month and +$138.70M all-time. The leader takes no commission. Of the $179.8M account value at that moment, only about $40.1M sat in HLP’s own perps account; the rest is spread across seven child vaults. The largest, HLP Strategy X, reported about $100.51M of account value but only $1,000 in its perps account, so that capital sits outside perp trading (the docs say HLP also supplies USDC in Earn). The seven child vaults:

Public API (vaultDetails and clearinghouseState), October 15, 2026, 06:55 UTC. The parent’s $40.1M plus the seven child vaults add up to HLP’s $179.8M. The four Liquidator vaults held no open positions at the time. Child-vault PnL figures are reported per vault and move over time.

Two things stand out. The liquidation strategies are the biggest earners in HLP’s history (about +$74.7M across the four), which matches the docs’ claim that backstops are profitable on average. And not every strategy wins: Strategy B and Liquidator 3 are negative all-time. The app shows HLP depositors a blunt warning: returns are not guaranteed, “you may lose some or all of your deposit”, and “there is no compensation in case of loss”.

5. Worked example: book liquidation vs backstop

You hold a $50,000 BTC long at 40x with $1,250 of isolated margin. Maintenance margin is 1.25% = $625, and two-thirds of it is about $417.

• BTC falls 1.25%: your equity reaches $625 and a market sell is sent to the book. Suppose it fills with $300 of equity left. You keep the $300 and pay no liquidation fee, only the taker fee on the fill and the slippage.
• The book gaps instead: equity drops below about $417 before the order fills. The position and its margin go to the liquidator. You end with zero on that position, and HLP owns it at the clearance price.
• A stop-loss at a 0.9% drop would have closed the trade with roughly $800 of the $1,250 left (a $450 loss plus fees). Setting one up: Hyperliquid stop-loss and take-profit orders.
• The same trade at 5x ($10,000 margin): maintenance margin is still $625, so liquidation is only reached after a drop of roughly 19%.

The vault’s size does not protect you; your leverage and your stop do. HLP protects the counterparties and the platform. Further reading: leverage limits by asset, how to avoid liquidation cascades.

6. Stress tests: JELLY (March 2025) and October 10, 2025

JELLY, March 2025

According to Halborn’s post-mortem, a trader opened a large short in the small-cap JELLY perp, JELLY’s price was then pumped by more than 400% within an hour, and the short was liquidated into HLP. The short was worth about $4.1M when it was opened; HLP inherited it, and when its loss reached about $12M the validators acted. Hyperliquid’s official account posted on March 26, 2025 (15:47 UTC): “After evidence of suspicious market activity, the validator set convened and voted to delist JELLY perps. All users apart from flagged addresses will be made whole from the Hyper Foundation. This will be done automatically in the coming days based on onchain data.” A follow-up said users with JELLY long positions at the time of settlement would be refunded by the Foundation as if their position had settled at a closing price of 0.037555. Halborn reports that positions were settled at $0.0095.

Two lessons. HLP’s risk includes being handed toxic positions in thin markets. And the validator set can, and did, intervene in a market. Whether you see that as protection or as a centralisation risk, it is part of how Hyperliquid works.

October 10, 2025

More than $19B of positions were liquidated across the crypto market in about 24 hours (CoinGlass annual report; CoinDesk, October 17, 2025). A February 2026 academic study (arXiv 2602.15182) measured $2.10B of Hyperliquid liquidations in the 21:16–21:27 UTC window and about 16 rounds of ADL. In other words, the final stage of the waterfall did run at scale, and profitable traders were closed out. If you trade high leverage through a crash, expect that you can be deleveraged even while winning.

7. HIP-3 markets and validator powers

Builder-deployed perps (HIP-3, such as trade.xyz’s stock and commodity markets) inherit HyperCore’s margining and order books, but each deployer runs its market: it defines the oracle, sets leverage limits and can settle the market at the mark price with the haltTrading action. Deployers must keep 500,000 HYPE staked, and validators can vote to slash it for malicious or irregular operation. The docs stress that slashed stake is burned, not paid to affected users. So on HIP-3 markets, read the deployer’s own rules too. More: trade.xyz stocks on Hyperliquid.

8. What it means for your trading

• Never let the engine close you. A stop-loss or manual exit before the liquidation price keeps the maintenance margin that a backstop would take. Know that price before you size the trade (calculator below).
• Leverage below the maximum means a much wider gap between price and liquidation, and a lower rank in the ADL queue.
• Big winners on high leverage are ADL candidates. In a crash, take partial profit or reduce leverage instead of assuming you will be paid in full at any price.
• Thin markets carry extra risk: small-cap perps and HIP-3 markets can gap, and settlement rules can change by validator or deployer action.
• HLP is an investment, not insurance for you. Depositing earns a share of market-making, fee and liquidation PnL, with a 4-day lock-up and real drawdown risk.

Came here for a liquidation price calculator or a liquidation API? Your own liquidation price: our liquidation price calculator, which applies the docs’ formula with each asset’s maintenance margin. Where everyone else’s liquidations sit: Hyperliquid liquidation map and liquidation data. Which order types protect you before either matters: every Hyperliquid order type explained.

9. Insurance funds and ADL across DEXs: Hyperliquid vs Lighter vs Aster

Every perp venue needs the same three layers: close the position on the book, hand what cannot be closed to a backstop pool, and deleverage winners if the pool cannot absorb the loss. What differs is who owns the pool, when it steps in, what the liquidated trader pays and how the ADL queue is ordered. Here are the three venues we cover side by side, from their official docs (re-checked October 15, 2026).

From Hyperliquid docs (liquidations, auto-deleveraging, protocol vaults), Lighter docs (liquidations and LLP, LLP strategies) and Aster docs (liquidations, auto-deleveraging); Aster’s fee field from its public exchangeInfo API; pool sizes from each venue’s API (HLP live at build time, LLP on October 15, 2026).

Lighter: the LLP is the insurance fund

Lighter has no separate insurance wallet either. Its Lighter Liquidity Pool (LLP) market-makes across the exchange and doubles as the insurance fund. Each market has three margin fractions, initial, maintenance and close-out, and the account moves through five stages:

1. Healthy: account value at or above the initial margin requirement. Anything goes, as long as the account stays healthy afterwards.
2. Pre-liquidation: below initial but above maintenance. Only operations that do not increase any position and do not worsen the account’s value-to-margin ratio are allowed.
3. Partial liquidation: below maintenance, above close-out. The engine cancels all open orders, then sends immediate-or-cancel orders for each full position at its “zero price”, the price at which the trade leaves the account’s health unchanged, so any fill can only improve it. It stops once a fully executed trade lifts the account above maintenance. If a fill beats the zero price, up to a 1% liquidation fee goes to the LLP.
4. Full liquidation: below close-out. The LLP takes over the positions one by one, in ascending order of unrealized PnL, but only while doing so keeps the LLP itself above its own initial margin requirement. Positions it cannot take are auto-deleveraged instead.
5. ADL: when an account is negative and the LLP cannot cover it, the bankrupt positions are matched against opposite-side positions ranked by leverage and unrealized PnL, and only where their zero prices align. The ADL trade is never worse than the counterparty’s zero price, so it cannot reduce that account’s health; it only ends the trade.

The margin fractions come from Lighter’s API (October 15, 2026): BTC and ETH 2% initial (50x), 1.2% maintenance, 0.8% close-out; SOL 4% / 2.4% / 1.6%; HYPE and XRP 5% / 3% / 2%. Worked example, using BTC’s price on September 25, 2026 ($83,744) as the entry: 0.1 BTC is $8,374 of notional. At the 50x maximum the initial margin is $167.49, maintenance $100.49 and close-out $67.00, so partial liquidation starts about 0.81% below entry and the LLP takes the position about 1.21% below. At 10x those points are 8.9% and 9.3% away (the percentages do not depend on the price).

Two details matter for depositors and traders. First, LLP Strategies: the pool’s collateral is split into strategy buckets (for example crypto perps, FX, equities/RWAs), each market is assigned to one, and losses are isolated per strategy. If a strategy’s allocated collateral is fully depleted, that strategy is subject to ADL while the others are unaffected. So the backstop behind a given market is its bucket, not the whole pool. Second, the LLP is a real investment with real drawdowns: on October 15, 2026 it held about $86.1M with a displayed APR of 15.04%; its worst share-price fall since launch was 8.94% (March 2025), and it lost 5.35% in the October 10–11, 2025 sell-off. Depositing requires staked LIT (10 USDC of LLP per LIT), and the deposit screen states that “Lighter offers no compensation for losses.”

Aster: a classic insurance fund, with an ADL gauge

Aster’s order-book perps use the CEX-style design. When margin (initial collateral plus realized and unrealized PnL) drops below maintenance on the mark price, the engine (1) cancels all open orders, (2) sends one large IOC order, (3) rechecks margin after realized losses and the liquidation fee and stops if it is enough, (4) otherwise closes the rest at the bankruptcy price and transfers it to the insurance fund, and (5) if the balance is still negative and the fund cannot cover it, triggers ADL. Profits or leftover assets from bankrupt positions stay with the insurance fund, and part of every liquidation fee is paid into it, shown in your transaction history as “Insurance clear”. Aster’s public exchangeInfo API lists a liquidationFee of 0.025 on BTCUSDT, ETHUSDT and SOLUSDT (the API docs call it the liquidation fee rate). We found no public endpoint or page that reports the fund’s balance.

A negative balance after liquidation is settled from the fund automatically only if all four conditions hold: it is in a USDT perpetuals account, no positions are open, the deficit is at most 5,000 USDT, and nothing was transferred in afterwards. Otherwise you go through Aster support.

Aster’s ADL ranking uses PnL percentage (unrealized profit ÷ position notional) and effective leverage (notional ÷ (account balance + unrealized profit)): winners are ranked by PnL% × effective leverage, losers by PnL% ÷ effective leverage, and the result is converted into a quantile across all users. The Pro interface shows it as a four-bar LeveragePnLQuantile indicator (four bars = high ADL risk). Aster’s docs name two ways to lower it: reduce leverage, or close and reopen the position to reset your priority. If you are deleveraged, the position is reduced without warning, and you can re-enter at any time. More on Aster’s margin tiers and liquidation: Aster margin and leverage guide.

How the ADL queue ranks you: worked example

Two traders are long the same market from $100, and the mark is now $120. Trader A holds $120,000 of notional on a $10,000 account (12x); Trader B the same notional on $60,000 (2x). On Hyperliquid, index = (mark ÷ entry) × (notional ÷ account value): A scores 1.2 × 12 = 14.4, B scores 1.2 × 2 = 2.4. If a short in that market goes bankrupt and HLP’s backstop cannot absorb it, A is closed first, at the previous mark price, even though both made the same trade. Aster’s and Lighter’s formulas differ in detail but point the same way: profit multiplied by leverage puts you at the front of the queue.

Ways to move down the queue on any venue:

• Cut effective leverage. Every ranking multiplies by it. Adding margin to a winning isolated position, or trimming size, does it directly.
• Realize part of a large winner. A reduce-only partial close turns unrealized PnL into realized PnL, which no longer counts in the ranking.
• Isolate speculative positions. On Hyperliquid and Lighter, ADL is triggered by the account or isolated position that goes negative; keeping a risky leg isolated keeps its failure contained.
• Watch crowded markets. ADL happens in cascades like October 10, 2025, when one side of a market is liquidated faster than the book and the backstop can absorb.

Other venues at a glance

From each venue’s documentation as recorded in our fact registry (September–October 2026).

The structural difference: on Hyperliquid and Lighter the backstop is a pool ordinary users can join and earn from, and on Hyperliquid the ordinary liquidation charges nothing. On the fee-charging venues, a liquidated trader pays a fee on top of the loss. Whether a vault backstop is “safer” than a CEX-style insurance fund depends on its size relative to open interest: HLP’s $179.1M sits against about $11.05B of open interest on Hyperliquid’s validator-run perps (API, October 20, 2026), and Lighter’s $86.1M LLP against about $498.7M of open interest on its perps (API, October 15, 2026). That is why ADL exists on all three as the final guarantee.

10. FAQ

Comparing venues? See the best DEX guide, or Lighter (code 718610TD) for an LLP-backed alternative. New to DEXs: what is a DEX and how to use Hyperliquid.

Disclosure: HOLYGRAIL and 718610TD are our referral codes; we earn a share of fees paid by referred accounts. Mechanics are from Hyperliquid’s official documentation and app; dated HLP figures are from the public API on October 15, 2026, live ones from the build on October 20, 2026. Incident details are attributed to their sources. Not financial advice.