Germany's BaFin Suspends Sales of Ethena GmbH's USDe Token, Citing MiCAR Violations

Germany's financial regulator BaFin has taken action against Ethena GmbH's USDe token, suspending all sales to the public. It listed a number of contraventions of the European Union's MiCAR regime, which governs crypto assets.

Germany’s financial regulator BaFin has taken the unusual step of suspending the sale of Ethena GmbH’s stablecoin, USDe, to the public.

The regulator highlighted a number of contraventions of the European Union’s MiCAR regime, which governs crypto assets.

Ethena GmbH, which applied for a license to operate a crypto service provider in July 2024, had failed to meet regulatory standards, particularly with regard to reserves for assets and compliance with capital requirements, according to BaFin.

This prompted immediate supervisory action, with the agency instructing custodians to place Ethena GmbH’s asset reserves on hold. The move also saw the firm’s USDe issuance process halted.

However, despite using MiCAR’s transition provisions to gain access to the German marketplace, Ethena GmbH’s application has not been approved.

With approximately 5.4 billion USDe tokens outstanding, BaFin is now considering whether the firm issued unauthorized offerings of securities.

While much of the issuance occurred before MiCAR came into force, BaFin asserts that the company ignored continuous authorization duties.

Compliance Failures and Market Impact

The regulator’s investigation reveals serious deficiencies regarding the company GmbH’s operations, especially its business organization and the asset-backed promise of stability for the stablecoin.

Ethena GmbH’s stablecoin, USDe, was meant to maintain parity with the dollar through a system of algorithmic hedging as compared to fiat reserves.

However, regulators found that the company’s buffers of capital were inadequate, raising issues of investor protection.

In response, BaFin imposed stringent actions, including barring the company from conducting new business and freezing token-related reserves. It has also appointed a special representative for compliance with Ethena GmbH.

Secondary transactions of the USDe token will not be affected by this measure, but direct redemption through GmbH is temporarily suspended.

Holders of the USDe token are now awaiting updates, as the regulator’s proceedings may have further impact on the token’s liquidity.

Ethena GmbH’s troubles do not end with BaFin’s current restrictions. The regulator has also raised concerns regarding possible offenses related to the issuance of sUSDe tokens, which are backed against USDe holdings and offer additional returns.

If these tokens are deemed unregistered securities, Ethena GmbH might face further fines and enforcement measures.

BaFin’s move represents a tightening noose on crypto regulation within the EU, particularly under MiCAR. The European Central Bank, European Banking Authority, and European Securities and Markets Authority are also expected to take note of the regulator’s actions.

Ultimately, the outcome of Ethena GmbH’s licensing process will determine whether it will remain operational or face stricter regulatory punishment.