Germany's BaFin Bans Public Sale of Ethena Labs' USDe Token for MiCAR Violation

The regulator has banned the public sale of Ethena's USDe token, a synthetic dollar. The entity violated the European Union's Markets in Crypto-Assets Regulation (MiCAR).

Germany’s financial watchdog, BaFin, has taken decisive action against Frankfurt-based crypto firm Ethena GmbH, shutting down the public sale of its USDe stablecoin, a synthetic dollar token.

The regulator, which granted permission for Ethena to continue operating under the European Union’s Markets in Crypto-Assets Regulation (MiCAR), has reason to believe that the entity was engaging in selling activities that were not covered by the granted permission.

The supervisory authority BaFin has discovered severe flaws in the way Ethena approves its tokens. The regulatory authority commanded the company to maintain all its asset reserves frozen.

The supervisory authority BaFin both controlled the asset management authority of the company executives and designated a special compliance oversight representative. The regulatory actions focus on protecting investors as well as implementing regulations.

Ethena Labs stated on the X platform that backing for USDe tokens continues without disruption. Users maintain the ability to exchange tokens through Ethena BVI Limited while BaFin imposes restrictions.

Ethena stated that the token stability is protected by an algorithm which implements hedging derivatives. BaFin has voiced concern about Ethena Labs’ capacity to comply with MiCAR requirements.

Because it does not meet the requirements for asset reserve management and capital compliance.

BaFin Investigates sUSDe Tokens for EU Securities Breach

MiCAR came into effect in 2024 and stipulates that asset-referenced tokens must undergo and receive regulatory approval for public selling.

Ethena, together with other issuers, was granted permission to continue operating through a transition rule that approved ongoing activities but restricted new initiatives.

Ethena submitted its authorization request to BaFin on July 29, 2024, but regulatory standards have now shown that the company failed to meet essential requirements for continuing operations.

Holders of USDe tokens should not try to exchange their tokens for direct payment from Ethena GmbH.

Trading activities on secondary markets remain unchanged. BaFin is carrying out an investigation into sUSDe linked tokens from Ethena because they generate extra value for token investors.

The regulator believes that the linked token meets EU security classifications, presenting additional legal challenges for Ethena.

The regulatory actions by BaFin against Ethena highlight the increasing government oversight within the crypto market space.

Businesses operating in cryptocurrency must ensure absolute compliance with legal regulations to avoid facing regulatory action from authorities.

Both the industry sector and Ethena will be observing BaFin’s response to the company, and any upcoming legal actions against Ethena.