"Kakao Pay's Two-Week Rollercoaster: Mirage or the Start of a Storm? [Stock of the Week]"

Stablecoin Leader Surges 102% Last Month
Plunges 33% from Peak after Bank of Korea Warning, Volatility Rises
"Strong Competitiveness from Affiliate Synergy and Collateral Capacity"

Editor's NoteDear retail investors dreaming of successful investments, how much do you really know about the stocks you purchase with your own money? In an online environment flooded with unfiltered information, Asia Economy aims to be your hands, feet, eyes, and ears, delivering accurate information about companies. Each week, we focus on companies that ranked high in search queries on FnGuide, a financial information provider, and offer everything from basic company information to analyses of related partners, clients, and investors. We will break down the company's financial status, performance, and future value in an easy-to-understand way. Under the name "Stock of the Week," we will bring you these insights every week.

Recently, stablecoins have been heating up the market, and Kakao Pay is undoubtedly at the center of this trend. If the policy becomes reality, expectations are high that Kakao Pay, which operates a platform ecosystem spanning from messenger to banking and securities, will take the lead. Experts point to Kakao Pay as the biggest beneficiary of stablecoin adoption, while also warning of the potential for a bubble to form.

Three Trading Halts...A Rollercoaster in Two Weeks

President Lee Jaemyung made the introduction of a won-based stablecoin a campaign pledge, and with the National Assembly proposing the "Digital Asset Basic Act" to allow it, market interest in related theme stocks has intensified. Among these, Kakao Pay surged by over 102% last month alone, hitting the upper price limit twice and becoming the leading stock in this sector. As investment overheated, the Korea Exchange suspended trading of Kakao Pay shares twice, on the 24th and 26th of last month.

However, as is often the case with theme stocks driven solely by expectations, Kakao Pay's upward trajectory quickly hit a snag. On the 25th of last month, Kakao Pay soared to KRW 114,000 during trading, setting a new 52-week high, but on the same day, a report from the Bank of Korea warning of potential risks associated with stablecoins was released. By the market close on the 30th of last month, Kakao Pay's share price had plummeted by about 33% from its peak, closing at KRW 76,700. On that day, short selling was also banned for a day.

With Kakao Pay's share price volatility increasing, not only investors but also Kakao Pay employees who acquired shares through the employee stock ownership association are becoming increasingly concerned. After three and a half years since listing, the share price finally seemed poised to break through the IPO price of KRW 90,000, but the rally ended after just three days. At the time of its listing in November 2021, Kakao Pay allocated a total of 3.4 million shares to approximately 850 employees through the employee stock ownership association. This means each person purchased an average of 4,000 shares, worth KRW 360 million. Although the price soared to KRW 248,500 within a month of listing, employees could only watch due to the lock-up period (typically one year).

A Kakao Pay representative said, "While the share price finally approached the IPO level, considering the opportunity cost and interest over the years, we are still at a loss," adding, "We are concerned that if Kakao Pay is seen as a theme stock with no substance, volatility may increase further." As of the end of the first quarter, Kakao Pay's employee stock ownership amounted to 682,458 shares, about 20% of the original subscription volume. This indicates that most employees could not withstand the prolonged decline in the share price and sold their holdings.

Stablecoin Rally: Bubble or Opportunity?

If the introduction of a won-based stablecoin is legislated, how competitive will Kakao Pay be? Contrary to concerns from company insiders, experts believe Kakao Pay will be the biggest beneficiary in the stablecoin industry. Thanks to the Kakao group ecosystem?including KakaoTalk, KakaoBank, and Kakao Securities?analysts expect Kakao Pay to enjoy a significant first-mover advantage.

Yoon Yudong, an analyst at NH Investment & Securities, said, "If Kakao Pay directly issues a stablecoin, it is easy to imagine its high utility within the Kakao ecosystem," adding, "The company has successfully penetrated consumers' daily lives with Kakao Pay Money through aggressive marketing, so a strong first-mover effect can be expected." In terms of distribution, Kakao Pay's network of over one million domestic and international merchants is expected to maximize the coin's utility.

Stablecoins are digital assets designed to address the high price volatility of traditional cryptocurrencies by pegging their value 1:1 to stable assets such as the US dollar or gold. The current global stablecoin market is estimated at approximately $230.7 billion (about KRW 315 trillion), accounting for about 6.8% of the total cryptocurrency market. Yoon forecasts that by 2030, the domestic stablecoin market will reach KRW 35 trillion, with the Kakao group capturing a 50% market share. He has significantly raised his target price for Kakao Pay from KRW 38,000 to KRW 130,000.

Kakao Pay's large prepaid balance is another reason experts rate the company's competitiveness highly. Since stablecoins require cash-equivalent reserves equal to the total issuance, a larger prepaid balance means greater collateral capacity and potential for higher operating profits. According to Eugene Investment & Securities, as of the first quarter, Kakao Pay's prepaid balance stood at about KRW 591.9 billion, more than three times that of competitors such as Naver Pay (about KRW 157.6 billion) and Toss (about KRW 137.5 billion).

Cho Taena, an analyst at Eugene Investment & Securities, explained, "Unlike banks, which use an 'account-to-account' transfer system, Kakao Pay operates on a 'charge-then-transfer/payment' model, making it the most natural fit for integrating stablecoins into its system," adding, "Even if Kakao group only issues stablecoins equivalent to its prepaid balance, the expected operating profit in 2030 would exceed KRW 1 trillion."

Are There Any Risks?

However, persistent policy uncertainty and the lack of guaranteed system stability are expected to weigh on the share price. The Bank of Korea is also taking a cautious stance on the introduction of a won-based stablecoin, warning of the potential for a "coin run" (large-scale coin withdrawals) and "depegging" (when a stablecoin's value diverges from its underlying asset).

Kim Hyunjung, an analyst at Kiwoom Securities, pointed out, "Unlike the US, Korea's regulatory framework has not been fully established, and concerns persist that stablecoins, as a new form of currency, could undermine the stability of the existing financial system," adding, "It is important to pay attention to the Bank of Korea's position during the stablecoin legalization process." Previously, in the US, the passage of the GENIUS Act, which established the framework for stablecoin regulation, caused Circle Internet's share price to jump by over 60%, but these gains were later reversed.

There are also concerns that, unlike dollar-based stablecoins, won-based stablecoins lack global demand, which limits their scalability and profitability. In fact, the current stablecoin market is dominated by dollar-based Tether (USDT) and Circle (USDC), which account for 62.1% and 24.6% of the market capitalization, respectively.

Lim Minho, an analyst at Shin Young Securities, said, "Won-based stablecoins, which are not based on a key currency, are likely to be limited to internal movement of domestic liquidity," adding, "Structural differences in the financial system and low global demand restrict the expansion of won-based stablecoin distribution and act as fundamental constraints on profit growth."

Another challenge is breaking away from annual operating losses and dependence on payment service revenue. Kakao Pay achieved its first operating profit (KRW 4.4 billion) since listing in the first quarter thanks to improved performance from its securities subsidiary, but on an annual basis, it still posted losses of KRW 45.5 billion in 2022, KRW 56.6 billion in 2023, and KRW 57.5 billion in 2024.

Park Junkyu, an analyst at Samsung Securities, said, "Last year, payment services, financial services, and other services accounted for 63.9%, 31.9%, and 4.2% of total revenue, respectively, indicating a continued high dependence on the payment segment," adding, "To see a re-rating of the share price, the key will be proving the financial platform's ability to generate profits."