Germany bans public sales of Ethena Labs' USDe token, citing MiCAR violations

BaFin, the German financial regulatory authority, has prohibited all public sales of Ethena GmbH's USDe — a synthetic dollar — claiming that the token violates the European Union's MiCAR regulations and accused the firm of selling unregistered securities in the region.

German financial services regulator BaFin has banned the public sale of USDe tokens issued by Ethena in the country.

According to a translated statement by the regulator, the firm’s token is said to violate the European Union’s MiCAR regulations, and accused the firm of selling unregistered securities in the region.

The regulator has ordered the firm to freeze the reserve assets that back the token, close down the website portal, and has ordered the firm to stop taking new customers.

“The USDe and sUSDe tokens are interconnected in such a way that investors can receive a sUSDe token in exchange for a USDe token,” the regulator wrote.

However, despite the ban on primary sales and issuance of the token, the regulator said that secondary sales of the token will not be prohibited or affected. But redemption via the Ethena GmbH exchange has been temporarily blocked by the regulator.

Ethena GmbH files for MiCA approval

Ethena GmbH had submitted a request for regulatory approval under MiCA on July 29, 2024, with the firm expecting to be "grandfathered" into the existing regulatory framework.

However, BaFin denied the application, citing "serious deficiencies in the business organization" and a lack of compliance with the MiCA framework.

According to BaFin, the company's organizational structure and internal control systems did not meet the requirements for a credit institution or e-money institution.

BaFin also noted that Ethena GmbH's activities in offering the USDe token and sUSDe token could not be covered by the relevant provisions of MiCA.

The regulator acknowledged that there are currently about 5.4 billion Ethena tokens in circulation. However, many of these tokens were minted outside of the German jurisdiction and before MiCA took effect.

This is a developing story, and further information will be added as it becomes available.