Kospi Surges 30% Year-to-Date Driven by Won-Pegged Stablecoin Hype

South Korea’s stock market has experienced a significant surge, driven by investor speculation surrounding won-pegged stablecoins. The Kospi index has risen nearly 30% year-to-date, reaching a four-year high and making South Korea the best-performing market in Asia during the first half of 2025. This surge is largely attributed to the optimism surrounding the potential growth of won-pegged stablecoins, which are digital currencies pegged to the value of the South Korean won.

ME2ON Co., a gaming company, has seen its shares jump by nearly 290% in just three weeks. This dramatic increase is fueled by investor confidence in the company's potential role within the stablecoin ecosystem, especially as new policies and regulations are expected to be implemented. Similarly, Kakao Pay, a digital payments company and subsidiary of Kakao Corp., has also seen a strong rally, with its share price gaining more than 140% since early June. This surge has allowed Kakao Pay to surpass its initial public offering price for the first time in years, positioning it as a key player in the future of won-pegged stablecoin payments.

Despite warnings of speculation and potential overvaluation risks, Kakao Pay's share price continued to rise. On June 20, it was listed as an investment warning stock by the Korea Exchange, but its share price increased by an additional 46% over the next three trading days, leading to a temporary suspension of trading. This frenzy highlights the speculative nature of the current market sentiment.

Governor Rhee Chang-yong of the Bank of Korea has expressed concerns about the low capital requirements proposed for stablecoin issuers. The ruling Democratic Party's proposed Digital Asset Innovation Act suggests that companies with as little as 10 billion won in capital could issue stablecoins. This proposal has raised concerns about the potential risks to the financial system, as it would allow undercapitalized firms to issue stablecoins, creating new liabilities. The Electronic Financial Transactions Act currently requires companies to have at least 50 billion won to run electronic financial services and 20 billion won to operate as prepaid payment providers, making the proposed capital level for stablecoin issuers significantly lower.

Governor Rhee has cautioned that stablecoins issued by non-banking entities could undermine the central bank’s monetary policy management capacity. He advocates for banks to lead the issuance of stablecoins under tight regulations. This debate is part of a broader global discussion on whether the use of stablecoins should be limited to the banking sector or opened to tech companies and startups. South Korean lawmakers plan to present the bill in July, which will further shape the role of digital assets in the country's economy.

Despite the lack of official government support and a clear legal framework for stablecoin issuers, investors remain optimistic. An analysis by Korea Economic Daily revealed that thirteen of the thirty biggest gainers on the Kospi and Kosdaq since June 2 are companies linked to stablecoin concepts. This indicates that investor confidence in the stablecoin market remains high, even in the absence of regulatory clarity.