Author: Chamath Palihapitiya

Translation: Shenchao TechFlow

Shenchao Overview: After nine weeks of retail investors crazily buying single-stock leveraged ETFs, the one-day plunge of Samsung and SK Hynix triggered a KOSPI circuit breaker, resulting in a market value evaporation of $2.18 trillion. Leopold Aschenbrenner's $45 billion AI hedge fund was forced to sell assets to Citadel at a low price due to four times leverage. This crisis has demonstrated how leverage tools can amplify market fluctuations, serving as a bloody warning to investors who rely on high leverage strategies.

The Leverage Game Behind Korean Stock Trading

The KOSPI index in South Korea triggered the circuit breaker mechanism consecutively this week. At its lowest point, the index erased nearly 40% of the gains from the historical high of 9,380 points set more than a month ago. The market capitalization in Seoul evaporated by $2.18 trillion.

Nine weeks ago, on May 27, South Korea launched single-stock leveraged ETFs. These funds promised to provide double the intraday volatility of individual company stocks, leading to a surge of retail capital into products tracking Samsung and SK Hynix.

On July 29, both stocks were severely impacted: SK Hynix dipped nearly 20% at one point during the day, closing down 9.6%; Samsung fell by as much as 14%, closing down 5.2%. As these two companies account for over half of the KOSPI index weight, their plummets significantly dragged down the entire index. To maintain a twofold intraday exposure, these funds typically increase positions after an uptrend and reduce positions after a downtrend, creating further volatility and chain risks.

In addition to this month’s comprehensive re-evaluation of AI trading, China’s largest DRAM producer, Changxin Memory Technologies (CXMT), surged 466% on its debut in Shanghai on July 27, becoming the highest-valued listed company in mainland China. Although Changxin still lags behind Korean manufacturers in scale and advanced memory technology, this listing raised concerns about how rising Chinese production capacity might depress traditional memory prices. Looking further back, the KOSPI is still up over 50% this year, making it the strongest performer among major markets.

On July 31, South Korean Finance Minister Koo Ryn-cheol announced a plan to launch a new sovereign wealth fund next year, dedicated to long-term investments in strategic domestic industries such as AI, chips, robotics, defense, and biotechnology. Seoul will invest 200 trillion won (about $14 billion) into the fund, with 160 trillion won coming from its holdings in state-owned financial institutions and 40 trillion won from inheritance and gift taxes.

Escalation of the AI Governance Dispute

On July 27, NVIDIA and dozens of partners initiated the Open Safety AI Alliance; six days earlier, OpenAI disclosed that an internal network assessment revealed that an intelligent agent had escaped and invaded Hugging Face.

Closed AI tools hindered some forensic work at Hugging Face, while the self-hosted open-weight model GLM 5.2 reviewed over 17,000 operations, helping to contain the intrusion. Open weights make the trained parameters of the model publicly available, allowing organizations to run and inspect them on their own infrastructure. Hugging Face joined the alliance, while leading closed labs such as OpenAI, Anthropic, and Google did not.

During the same period, three other documents presented differing positions. NVIDIA's letter, "Open Weights and U.S. AI Leadership," dated July 24, initially had 25 signatories, quickly growing to over 230. Anthropic remained absent and responded on July 27, stating its opposition to a full ban on open weights but supporting regulations on advanced chips, limitations on industrial-scale model replication, and mandatory safety testing for sufficiently powerful models.

On July 28, over 1,100 industry employees signed a letter titled "Slowing the Frontier," calling for Washington to establish an international mechanism to slow the development of automated AI. Anthropic CEO Dario Amodei and OpenAI Chief Scientist Jakub Pachocki signed this statement, which both companies endorsed.

These documents focused on how to govern and deploy powerful models, with recent emphasis on open-weight models. Starting in August, an executive order from June 2 directed the Treasury, the Department of Defense (through the NSA), and the Department of Homeland Security (through CISA) to establish confidential benchmark testing processes and voluntary pre-release frameworks for covered frontier models.

Citadel Takes Over Situational Awareness’s Fire Sale of Assets

Leopold Aschenbrenner launched the Situational Awareness fund in late 2024 with hundreds of millions in seed capital, naming it after his article on general artificial intelligence, positioning it as a concentrated long bet on AI stocks.

The fund saw a return of 439% after fees in the first half of 2026, with reported peak asset size reaching $45 billion. Reports indicated that the fund's total exposure reached up to four times its capital. At this level, every $100 of equity supported $400 of positions. If the portfolio experienced a 10% adverse fluctuation, approximately $40 would be wiped out, equating to 40% of the fund's capital. As losses eroded this buffer, the main broker could demand more collateral or force liquidation.

Following the AI stock sell-off this month, on July 30, Leopold sold most of his public equity investment portfolio to Citadel. Situational Awareness still holds about $10 billion in assets, with the largest being private companies like Anthropic.