Germany’s financial watchdog BaFin has ordered Ethena GmbH to immediately halt sales of its USDe stablecoin and freeze reserves, citing violations of the EU’s Markets in Crypto-Assets Regulation (MiCAR). The March 21 directive follows months of scrutiny over the token’s compliance with securities laws and reserve transparency.
Ethena Labs, the project’s developer, described the move as “disappointing” but promised to explore other options. Meanwhile, regulators stressed the importance of protecting investors amid broader EU efforts to strengthen crypto oversight.
BaFin’s investigation found Ethena GmbH violated MiCAR by offering USDe and sUSDe tokens without an approved prospectus, and labeled them as potential unregistered securities. The regulator froze reserves backing USDe, shut its website, and barred new clients, citing compliance gaps in reserve and capital requirements. Secondary trading remains active.
Ethena issued most of its USDe tokens under transitional rules before MiCAR but failed to meet the updated standards. Relying on transitional rules for pre-MiCAR token issuance was insufficient, as BaFin deemed its compliance framework inadequate for the updated regulations. BaFin’s actions align with EU efforts to enforce stablecoin transparency under MiCAR, prioritizing investor protection amid broader regulatory scrutiny.
What Ethena Has to Say About USDe
Ethena Labs responded to BaFin’s actions with a statement on X, expressing disappointment, while asserting that USDe reserves remain unaffected. The company clarified that redemption services are still operational through its British Virgin Islands (BVI) entity, Ethena BVI Limited. Ethena emphasized its compliance efforts, noting that most of the 5.4 billion USDe tokens in circulation had been issued outside Germany before MiCAR rules took effect. However, BaFin’s decision has raised questions about the firm’s regulatory preparedness.
Despite the setback, Ethena stated that it is exploring alternative regulatory frameworks to continue operations. They said their British Virgin Islands (BVI) entity continues minting/redemption, claiming reserves are intact. The company also highlighted its reliance on algorithmic hedging to maintain USDe’s $1 peg, which has so far remained stable.
EU Stablecoin Rules Tighten Oversight
The EU’s MiCAR rules target stablecoins like USDe to protect users and financial systems. These tokens combine cryptocurrency with traditional money, raising questions about safety and oversight. Experts warn that Ethena’s algorithmic methods could fail during market stress. BaFin’s crackdown shows the EU’s push for transparency in reserves and compliance.
Globally, regulators are tightening rules. The United States now demands full reserves for stablecoins, while Singapore enforces strict redemption rules. These steps aim to prevent risks and ensure accountability.
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