South Korean Lawmaker Highlights $870,000 Liquidation Triggered by Tether (USDT) Surge on Bithumb

Tether (USDT) Price Spikes 338% on Bithumb, Leading to Mass Liquidations

A dramatic price surge of stablecoin Tether (USDT) on the South Korean cryptocurrency exchange Bithumb has led to automatic liquidations totaling KRW 1.161 billion (approximately $870,000). According to Representative Kim Hyun-jung of the Democratic Party of Korea, this incident underscores key vulnerabilities in the platform and broader systemic issues in the country's crypto market.

On October 11th, during the early hours of the day, USDT—designed to maintain a 1:1 peg with the US dollar—experienced an unprecedented price spike on Bithumb, reaching KRW 5,755. This marked a 338% premium over its stable price of KRW 1,700. The anomaly triggered a cascade of forced liquidations affecting user investments. Notably, other major South Korean exchanges such as Upbit and Korbit maintained USDT prices below the benchmark KRW 1,700, revealing Bithumb’s price deviation as a platform-specific occurrence.

95 Investors Hit by Liquidations Across 660 Cases

Representative Kim’s review of settlement data from Bithumb disclosed the scope and impact of the liquidations. Between midnight and 7 a.m. on October 11th, the platform recorded 660 forced liquidation cases that affected 95 users. The combined value of liquidated assets across these cases reached KRW 1.161 billion.

The automated nature of these liquidations left affected users little room to react as the soaring USDT price created widespread chaos. This highlights significant risks tied to volatile price movements, especially for users engaged in margin trading or platforms with lending-based systems.

Bithumb’s Lending Plus Program Implicated

A critical factor identified in the mass liquidations was Bithumb's lending service known as Lending Plus. The program allows users to trade borrowed funds, typically denominated in USDT. Representative Kim pointed out that Lending Plus had accumulated over 600 million units of borrowed USDT as of August 2023.

Kim explained how this high lending volume may have contributed to the liquidation crisis: as USDT prices spiked in an environment of low liquidity, borrowed assets reached their threshold for automatic buy-ins, amplifying price anomalies and triggering further forced settlements. The rapid price movement was likely exacerbated by the unstable supply-demand dynamics during off-peak trading hours.

Regulatory Oversight Under Fire

In addition to criticizing Bithumb’s lending practices, Representative Kim accused South Korea’s financial regulators of negligence for failing to enforce safeguards against high-risk financial products. Kim emphasized that Bithumb had faced a similar liquidation issue earlier in July, amounting to KRW 83.6 billion. Despite the severity of that incident, no remedial measures were implemented to prevent future crises.

“This latest incident underscores regulatory malpractice,” Kim said. “It is unreasonable that financial authorities have not intervened, even after prior alarms. Such inaction amounts to a failure in protecting investors and ensuring the stability of the crypto market.”

Regulators have come under increased scrutiny after repeated incidents on South Korean cryptocurrency exchanges, fueling calls for stronger oversight and stricter compliance standards. Stakeholders are urging the introduction of clearer rules to manage the inherent volatility and risk of high-leverage products offered by cryptocurrency platforms.

Looking Ahead: The Need for Robust Crypto Regulation

This case serves as yet another cautionary tale for South Korea’s burgeoning cryptocurrency industry. The Tether (USDT) price aberration, coupled with a lack of sufficient supervision, reveals systemic flaws that demand immediate attention. As calls for action grow louder, regulators are expected to implement measures designed to improve investor protections, enforce better risk management frameworks, and ensure the reliability of price stability mechanisms in the crypto space.

Ultimately, addressing the root causes of these crises requires a collaborative effort among crypto exchanges, lawmakers, and regulators.