Kakao Pay Stock Drops 15% After Regulatory Warnings on Stablecoin Plans

Kakao Pay Corp., a leading fintech company in South Korea, recently faced a significant setback in its stock performance. The company's shares, which had surged by 200% in June due to investor excitement over its potential entry into the stablecoin market, experienced a sharp decline of 15% in a single day. This downturn came after the company received warnings from regulators regarding the risks associated with stablecoin issuance.

The regulatory warnings highlighted the financial and regulatory risks tied to Kakao Pay's stablecoin initiative. The South Korean authorities flagged concerns over the rapid and abnormal price increases in the company's stock, which had been driven by investor enthusiasm for the stablecoin theme. This move was aimed at preventing potential overheating in the market and protecting investors from excessive speculation.

Kakao Pay had been seen as a potential leader in the stablecoin market, benefiting from new South Korean legislation on stablecoins. The company had filed a patent for a Korean won stablecoin, selecting the ticker KPKRW. However, the new requirement tying stablecoins only to commercial banks means that crypto companies will not have an advantage in launching the digital won. This regulatory hurdle has significantly impacted Kakao Pay's plans and investor sentiment.

The expectation of having a new Kakao-based stablecoin had also boosted KAIA, the native token of Kakao’s new chain. KAIA rallied to a three-month high above $0.20, but recently took a step back to $0.17. The South Korean market, known for its conservative approach, offers a predominance of fiat trading pairs. The ability to mint stablecoins remains limited, as South Korea’s central bank warned about the rushed unrolling of new assets. In the country, stablecoins can only be issued by licensed commercial banks, limiting the venue for DeFi projects and unregulated crypto-backed stablecoins.

Despite the setback, South Korean investors remain keen on the stablecoin narrative. In the past month, Circle became the most widely purchased foreign stock in the country, with significant investment from Korean retail. Kakao’s ecosystem still uses stablecoins for decentralized activities. Kaia chain carries $106M in bridged stablecoins, mostly USDT for decentralized transactions. Kaia’s stablecoins are used in other regions, with no limitations for on-chain tokens outside South Korea.

South Korea remains a crypto powerhouse, with exchanges logging over $663B in trades for the year to date. The country is a significant source for retail adoption, with a penetration rate among regular users and retail traders ranging from 22.6% to 30%. The Korean Won still carries around 1.8% of BTC trading and over 2.5% of ETH volumes. South Korean exchanges also have a marked effect on altcoins, often following Upbit and Bithumb listings.

South Korean traders draw attention to a different selection of altcoins compared to other markets. The country remains a factor in reviving demand and providing use cases for multiple platforms from previous bull markets. With more conservative listing requirements, South Korean exchanges were not overwhelmed by a wave of memes, still providing liquidity for a shorter list of assets.