Author | Azuma (@azuma_eth)
If you were to ask what the most talked-about concept is in the global capital markets this year, the answer would undoubtedly be memory.
As AI infrastructure construction continues to advance, HBM (High Bandwidth Memory) is in short supply. Major memory manufacturers like SK Hynix, Samsung, and Micron have once become the focus of market hype. Surging capital has driven their stock prices to soar rapidly. Even after experiencing significant recent pullbacks, their year-to-date gains remain quite substantial.
When a stock keeps rising, there will always be people in the market who feel "it's not rising fast enough." Thus, a type of product that was once relatively niche has rapidly entered investors' sight — Single Stock Leveraged ETFs. Unlike traditional ETFs that track a basket of stocks or an index, these products track only a single stock and use financial derivatives like swaps and futures to amplify the stock's daily price movements by 2 times or even 3 times. In other words, if the underlying stock rises 10% in a day, the corresponding 2x leveraged ETF would theoretically rise by about 20%; conversely, if the stock falls 10%, the product would also lose about 20%.
Because of this, single-stock leveraged ETFs are becoming a new tool for increasingly aggressive investors to bet on popular AI stocks. This year, as hot money seeking to amplify returns from the AI and memory trends continues to pour in, the scale of single-stock leveraged ETFs centered on hot AI concept companies like SK Hynix has also been expanding.
However, what many investors overlook is that on the flip side of amplified returns, risks are amplified by the same multiple — under extreme market conditions, the underlying stock might still stage a rebound, but a single-stock leveraged ETF may not even have the chance to wait for that rebound.
A Vivid Case: The Delisting Path of a 2x Leveraged ETF
Don't think this is alarmist. A case that occurred during the US stock market session the night before last is enough to reveal just how dangerous single-stock leveraged ETFs can be.
The chart above shows the recent stock price movement of the American electric vehicle manufacturer Lucid (LUID). On the evening of July 14th local time, rumors suddenly circulated during the trading session that Lucid was considering filing for bankruptcy protection. Impacted by this negative news, LUID's stock price plummeted by up to 57%, triggering multiple trading halts during the session and marking its largest intraday decline since its listing.
However, the plot soon reversed. Lucid subsequently issued a statement clarifying that while the company had indeed hired the consulting firm AlixPartners to conduct a comprehensive review of its operations to optimize performance, cut costs, and advance new model development, the rumors about filing for bankruptcy were "completely false." Lucid also emphasized that it currently has sufficient liquidity to support operations until next year and that AlixPartners was only engaged for operational optimization work and had not made any bankruptcy recommendations to management or the board.
As Lucid rushed to dispel the rumors, market sentiment quickly recovered, and Lucid's stock price rebounded from its intraday low, ultimately closing with a loss narrowed to about 16%. For investors holding Lucid stock, this was more like a thrilling "roller coaster" ride.
Yet, for another group of investors, the story ended at the moment the crash occurred.
During Lucid's plunge, the 2x Long ETF tracking its stock performance — the GraniteShares 2x Long LCID Daily ETF (LCDL) — was directly wiped out. The fund manager, GraniteShares, subsequently confirmed via announcement that the fund had liquidated all its LCID holdings that day. As its net asset value had turned negative, the fund would formally initiate the delisting process.
This means that when Lucid's stock price subsequently rebounded rapidly, this ETF no longer held any positions to recover its net asset value. For all holders of LCDL, there was also no longer any opportunity to participate in LCID's subsequent rise.
This is precisely the biggest difference between a single-stock leveraged ETF and an ordinary stock. A stock, even after a crash, offers investors a chance to wait for a rebound as long as the company still exists; but once a single-stock leveraged ETF "triggers a death mechanism" during extreme volatility, even if the underlying stock recovers its losses later, investors may never live to see that day.
Social Issues Emerge, South Korean Government Begins to Fear
The delisting of LCDL is by no means an isolated case. In fact, as single-stock leveraged ETFs rapidly gain popularity on hot AI stocks, regulators have begun to re-examine the systemic risks such products may bring.
Among them, South Korea's stance is particularly representative.
In mid-July, according to a report by The Korea Times, South Korea's four major financial authorities — the Ministry of Economy and Finance, the Financial Services Commission, the Financial Supervisory Service, and the Bank of Korea — will hold a special meeting under the framework of the government's Macroeconomic and Financial Issues Coordination Mechanism (F4) to discuss the risks and regulatory measures for single-stock leveraged ETFs. Market discussions are focusing on directions such as raising margin requirements, limiting daily price fluctuation ranges, and reducing leverage multiples.
In recent years, as South Korean retail investors have continued to pour into the stock market, the AI trend has almost evolved into a nationwide investment frenzy. Heavyweight stocks like Samsung Electronics and SK Hynix have become the focus of capital pursuit, and leveraged ETFs centered on these individual stocks have further amplified market sentiment and stock price volatility. The concern of regulators is that as more and more investors start using high-leverage products to chase popular stocks, the impact of a sharp market swing is no longer just a change in numbers on investment accounts but may further evolve into a social problem.
And as the memory concept faces pressure and corrects, multiple extreme events have occurred consecutively in the South Korean capital market. On one hand, rumors of suicide incidents triggered by failed stock investments have appeared on social media; The Chosun Ilbo also reported yesterday that a YouTuber who runs a stock investment channel in Busan was stabbed multiple times on the street by a man in his 20s. Preliminary police investigations show the suspect was a subscriber to the channel. Believing in the stock recommendations made by the channel's host and suffering significant losses, he harbored resentment and carried out the attack.
Although the above-mentioned incidents were not directly caused by single-stock leveraged ETFs, for regulators, the signals they release are highly consistent — when high-risk investment tools continuously lower the participation barrier and overlap with dissemination channels like social media and live-streamed stock recommendations, financial risks may ultimately spill over into social risks.
For the South Korean government, this is the most frightening prospect.
