Unchained The Chopping Block: Hyperliquid vs. Tarun, ADL Transparency & The Coming Perps Arms Race - Ep. 981
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Dec 17, 2025 
Vladimir Novakovski, Founder and CEO of Lighter, dives into the tumultuous world of crypto derivatives, sharing insights from a recent liquidation shock. He explains Lighter's approach to auto-deleveraging, which aims for transparency and fairness, contrasting with traditional models. The discussion touches on zero-fee trading, the evolving market dynamics with perps, and the implications of token launches. Notably, they explore the tensions between token holders and dev teams as crypto structures shift, making for a riveting conversation on the future of finance.
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ADL Socializes Losses When Liquidations Fail
- Auto-deleveraging (ADL) socializes losses when positions cannot be liquidated profitably and evolved from exchanges trying to stay solvent.
- Tarun's paper showed ADL algorithms vary and that predictability and transparency matter to traders.
Fix ADL Or Return To FCMs
- Don Wilson warned that if crypto can't fix ADL, markets will revert to TradFi FCMs where third parties custody risk for fees.
- That threat motivated Tarun to research ADL design to keep perps self-custodial and competitive.
There Is No Perfect ADL Algorithm
- No perfect ADL algorithm exists; trade-offs include fairness, moral hazard, and computational limits.
- Combining greedy and socialized approaches may be ideal but has practical complexity and parameter choices.