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Auto deleveraging (ADL) is a last-resort mechanism Notional can use to reduce system risk when ordinary liquidations and market execution are not enough. ADL is not part of the normal trading path. It exists to protect protocol solvency during severe margin-liquidity stress, especially when the protocol needs to reduce exposure quickly or free exchange margin. ADL sits behind Notional’s other controls, including collateral haircuts, protocol caps, leverage targets, and liquidations. When ADL is needed, Notional ranks accounts by market and side so exposure reductions can be applied deterministically. Rankings use current account values and deterministic tie-breaking. Auto deleveraging can occur when:
  • A market undergoes extreme volatility and ordinary liquidation paths cannot safely reduce risk.
  • Exchange liquidity is too thin to close risk normally.
  • The protocol needs to immediately free exchange margin or reduce concentrated exposure.
ADL will not redistribute exposure until required market and collateral pricing is ready. This prevents ADL during degraded collateral pricing. Affected traders can see ADL activity in their account history.