Over the past year, Kakao Pay had shown little price fluctuation, but it has risen by more than 50% this month alone. This surge is attributed to expectations that the new government will prioritize Kakao Pay for policies related to won-based stablecoins and local currencies. However, experts assess that, contrary to investors' expectations, there is still a long way to go before the issuance and utilization of stablecoins in Korea.
On the 11th, Kakao Pay closed the market at 59,100 won, up 2.96% from the previous day, marking a three-day consecutive increase. Kakao Pay had risen to its price limit on the 8th, recording a 16% increase to 57,400 won the day before. It has risen 56.14% since June. The related virtual asset KAIYA is currently trading at 224 won, up 29.11% from the previous day. KAIYA is a newly integrated virtual asset combining the virtual assets Klaytn and Finsia, which were issued by Kakao and LINE Tech Plus, respectively.
◇ The reason for strength is 'the possibility of non-bank issuance of stablecoins'
The Lee Jae-myung administration's push for the promotion of the virtual asset industry and the introduction of won-based stablecoins has heightened expectations for the expansion of the payment market, which is interpreted as contributing to Kakao Pay's strength. The day before, the Democratic Party of Korea's lawmaker Min Byung-deok's office proposed a digital asset basic law that includes the legal basis for issuing won-based stablecoins.
Stablecoins are virtual assets that maintain a stable value, unlike volatile virtual assets such as Bitcoin. The won-based stablecoins promoted by the government are designed to be pegged to the value of the Korean won. If the stablecoin market becomes activated, it will expand the existing payment market, shorten the time taken for payment transactions, and lower merchant fees. Payments made at stores using stablecoins will be settled in won on the blockchain and immediately paid to the merchant.
The market has high expectations that if the legal grounds are established for the issuance of won-based stablecoins, the issuing entities will likely be fintech companies, including Kakao Pay. If a wallet (account) for virtual asset payment transactions is created, as currently discussed in politics and industry, it would likely be limited to payment purposes only, unlike regular deposit accounts. As of March this year, tether (USDT) accounted for 62% and circle's USDC for 25.7% of the stablecoin market.
In this case, it will not be able to pay interest like a bank account, nor will it be protected like deposits. Therefore, banks, which already provide Korean won accounts and can freely manage deposits, have no reason to incur expenses to issue stablecoins. On the other hand, fintech companies will be able to issue customer wallets for virtual asset payment transactions, opening up opportunities to attract new payment markets and customers.
◇ "Now, the proposed basic law is piled up with amendments to the electronic financial transaction law and capital markets law"
Kakao Pay has previously conducted identity verification service projects using blockchain, indicating a relatively high level of understanding of blockchain. Meanwhile, Toss, a competing payment fintech, is focusing all efforts on its initial public offering in the U.S. Nasdaq market next year, while Naver Pay is also busy expanding into new business areas such as expanding online payment and offline payment markets.
However, industry experts point out that it is still a long way from actually issuing stablecoins. The biggest obstacle remains the regulatory issues. The basic law for issuing won-based stablecoins was just barely proposed the day before, and it is uncertain how long it will take to pass through the National Assembly. In addition to establishing the basic law, significant amendments to related laws, including the electronic financial transaction law, capital markets law, foreign exchange transaction law, and specific financial information law, are necessary.
Moreover, even if the issuance of won-based stablecoins is legally allowed, it will take time for fintech companies to prepare and develop. Currently, none of the major fintech companies have an internal organization dedicated to blockchain. Additionally, a regulatory framework for the new form of payment must be established by financial authorities. JP Morgan recently noted regarding the surge in Kakao Pay's stock price that "it is premature to conclude that it is a beneficiary of the stablecoin policy."
Hyun Jeong-hwan, a professor at Dongguk University’s International Trade Department, said, "For fintech to issue stablecoins, allowing them to handle currency is essential, requiring the enactment of related laws and discussions with financial authorities, which will likely take considerable time. If stablecoins are issued by non-bank entities, there could be risks of non-payment, which would impact the entire domestic financial system, leading to more stringent supervision in the early stages."