The adjustment algorithm still requires blocks to be generated before it adjusts. If enough miners shut down at the same time, time between blocks will skyrocket, pushing the difficulty adjustment forward even further and crippling the transaction throughput.
Different mechanism, Bitcoin's difficulty adjusts based on how quickly blocks are mined so that on average 1 block is mined every 10 minutes.
The protocol adjusts every 2016 blocks, if it takes longer than two weeks (20160 minutes) to mine the 2016 blocks then the difficulty decreases, if it takes less than two weeks to mine 2016 blocks then the difficulty increases.
As it becomes unprofitable miners stop, and the difficulty drops so that it becomes cheaper to mine, until it reaches an equilibrium