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@0xdoug Avatar @0xdoug Doug Colkitt

Doug Colkitt, likely the founder of Hyperliquid, has been explaining how perpetual swap markets and auto-deleveraging (ADL) work. He recently noted that Lighter, a perp exchange, experienced an issue with its L2 contract on Ethereum, which stopped producing batches. Colkitt also explained that ADL is a necessary mechanism to prevent exchange insolvency, where profitable positions are closed to maintain market balance.

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Social category influence cryptocurrencies XX% finance X% exchanges #5274

Social topic influence hyperliquid #346, price of #325, positions #98, number of 2%, bucks 2%, ads 2%, prediction 2%, 6 months 2%, insurance 2%, events X%

Top accounts mentioned or mentioned by @fogochain @thebookofjoey @robertsagurton @thebookofmajor @oldtora2077 @fogeeshub @koldovantus @kevinwshpod @fogochainindia @ni_celeb @lizzaali11 @womandefi84133 @seanlippel @crypt_emerald @okta_gracia20 @realmadridrmtop @mrt1379 @mrkiel_web3 @laurashin @jungtyra

Top assets mentioned Ethereum (ETH)

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Top posts by engagements in the last XX hours

"One major problem with prediction markets is that a lot of markets will generate an enormous number of eyeballs media coverage and attention. Yet these markets often have literally no more than a few hundred bucks in liquidity. Wouldnt a logical way to recapture the information externalities be to use web2 ads to monetize the lookie loos who never actually bet then use that revenue to fund liquidity mining incentives"
X Link @0xdoug 2025-10-08T15:03Z 49.4K followers, 31.2K engagements

"Lot of people on the TL suggesting that ADL is a Hyperliquid only thing and that Lighter doesnt have ADL. Thats absolutely not true. Lighter has ADL and in fact uses essentially the same set of rules for the waterfall cascade as HL. All perp exchs have ADL one way or another"
X Link @0xdoug 2025-10-11T04:37Z 49.4K followers, 63.6K engagements

"@poordart Best I can do is imprisoning a Tornado Cash dev for X months without any formal charges"
X Link @0xdoug 2023-03-05T17:04Z 49.4K followers, 4991 engagements

"12/ And typically the vault tends to be quite profitable over time because it has the chance to buy at deep discounts and sell at high spikes. For example the Hyperliquid vault made about $XX million in an hour tonight"
X Link @0xdoug 2025-10-11T03:21Z 49.4K followers, 67.9K engagements

"11/ Typically the next step in the waterfall is a vault or insurance fund that steps in. The vault is a special pool of capital supported by the exchange. Its willing to step in and absorb the other side of liquidations during extraordinary liquidity events"
X Link @0xdoug 2025-10-11T03:21Z 49.4K followers, 69.4K engagements

"21/ ADL is kind of like reaching the end of the Truman Show. Perps markets build this very beautiful simulation of the underlying spot But at the of the day its all imaginary. Most of the time we dont have to think about it but sometimes we hit the edge of the simulation"
X Link @0xdoug 2025-10-11T03:21Z 49.4K followers, 73K engagements

"Interesting hangover from Friday night's liquidation and one that goes to the discussion about the difference between HLP and LLP. The Lighter vault appears to be trapped in a YZY short since Friday night. LLP makes up nearly XXX% of the OI in the market. Even if it tried to force exit through the book at any price there's not enough liquidity to exit even half the position. The stuck position is bleeding about 2.5%/day in funding. Just to be clear this is a pretty de minims position relative to the total size of LLP. ($500k notional versus $300m+ of deposits). Even in the worse case scenario"
X Link @0xdoug 2025-10-14T03:44Z 49.4K followers, 48.4K engagements

"19/ Think of it like being on a hot steak in poker. You show up to a casino and crush everyone at the table. And then you go to the next table and crush everyone there. And then the next table. Eventually everyone else at the casino runs out of chips. Thats ADL"
X Link @0xdoug 2025-10-11T03:21Z 49.4K followers, 63.4K engagements

"It looks like the Lighter L2 contract on Ethereum stopped producing batches XX minutes ago (normally a batch is posted every few minutes at most). It does seem like two (small) withdraw transactions managed to go through XX minutes ago"
X Link @0xdoug 2025-10-11T04:51Z 49.4K followers, 42.6K engagements

"@therobotjames @SoccerMomTrades I traded Turkish equities for years. Literally just found out a month ago that EREGL is a steel company. I always thought it was a football club for some reason"
X Link @0xdoug 2021-11-19T21:35Z 49.4K followers, XX engagements

"18/ People naturally get upset at ADL because it feels unfair. Youre forced out of a position right when youre winning the hardest. But it does need to exist at some level. No exchange no matter how great can guarantee you an infinite stream of losers on the other side"
X Link @0xdoug 2025-10-11T03:21Z 49.4K followers, 53.3K engagements

"Back of the envelope math. At $100/point and 250k points per week Lighter liquidity mining incentives translate to about XXX bps/$ volume. Over a similar period Uni liquidity mining incentives translated to about XXX bps/$ volume. Surprisingly close despite very different market types fee structures etc"
X Link @0xdoug 2025-10-08T17:36Z 49.4K followers, 10.1K engagements

"2/ First of all its helpful to zoom out and think about what a perp market is and what it does at a very abstract level. When you have a perps market like BTC a fun fact is theres no actual BTC in that system at all. Theres just a big pile of cash sitting doing nothing"
X Link @0xdoug 2025-10-11T03:21Z 49.5K followers, 116.2K engagements

"@notnotstorm Are these calculations based on the actual realized ADL prices or just the mark prices at the time of ADL Because ADL also includes a component of socialized loss where the fills are outside mark. I have no idea just how large this was on HL but it could be significant"
X Link @0xdoug 2025-10-15T01:39Z 49.4K followers, 1127 engagements

"5/ Along the way the price of BTC moves too far and some participants lose all their cash. At that point theyre kicked out (liquidated) Remember longs can only win if shorts have money to lose (and vice versa). So no more money means you cant play at the table anymore"
X Link @0xdoug 2025-10-11T03:21Z 49.4K followers, 88.5K engagements

"1/ Since a lot of people are waking up to see their perps positions closed and wondering what the hell Auto-Deleveraging means heres a quick and dirty primer. What is ADL How does it work And why does it exist"
X Link @0xdoug 2025-10-11T03:21Z 49.5K followers, 1.8M engagements

"20/ The beautiful thing about perps markets is theyre all zero sum so the system can never be insolvent in the aggregate Theres not even real BTC to lose value. Just a big boring pile of cash. Like thermodynamics in the system as a whole value is never created or destroyed"
X Link @0xdoug 2025-10-11T03:21Z 49.5K followers, 68.8K engagements

"4/ The most important rule: There are longs and there are shorts and longs have to exactly balance shorts. Or else it doesnt work. And both put cash (in the form of margin) into the pile. The pile then gets shuffled around depending on if the price of BTC goes up or down"
X Link @0xdoug 2025-10-11T03:21Z 49.5K followers, 112K engagements

"17/ Typically what happens is the ADL system will select positions on the winning side to close out using a ranking system based off 1) most profit; 2) leverage; and 3) size. Ie the biggest most profitable whales get sent home first"
X Link @0xdoug 2025-10-11T03:21Z 49.4K followers, 56.6K engagements

"We made a perp dex. You should check it out. Now in @FogoChain testnet"
X Link @0xdoug 2025-08-05T14:58Z 49.4K followers, 45.5K engagements

"3/ All a perps market (or any derivatives market for that matter) does is shuffle a big pile of cash around among its participants. It uses a set of rules engineered to create a synthetic BTC like instrument within a system that actually has no BTC"
X Link @0xdoug 2025-10-11T03:21Z 49.5K followers, 106.4K engagements