Automated Deleveraging

Automated deleveraging is a risk management mechanism that automatically closes positions or reduces exposure when a protocol reaches a critical state of risk. In the context of rebase protocols, this might involve forcibly reducing the supply of tokens held by users who have borrowed against their positions or provided liquidity.

The goal is to prevent the protocol from becoming insolvent or losing its peg during extreme market volatility. While it protects the system as a whole, it can be extremely disruptive for individual users who see their positions closed without their consent.

It is a trade-off between the survival of the protocol and the autonomy of the user. Effective implementation requires clear communication and predictable triggers so that users can manage their risk before the automated process takes over.