Ethena's USDe Stablecoin Sales Blocked by German Regulator Over 'Serious Deficiencies'

Ethena Labs' USDe, the fourth-largest stablecoin by market cap, can no longer be offered for sale by the firm’s German subsidiary Ethena GmbH after BaFin—the country’s financial supervisory authority—identified “serious deficiencies” in the licensing approval process. 

In addition to no longer offering the Ethereum-based USDe, BaFin placed multiple supervisory measures on Ethena GmbH to protect customers, including blocking the asset reserves, blocking its website, and appointing a special representative to monitor the measures.

The regulator said that Ethena was able to offer its stablecoin by launching it just under the wire before Markets in Crypto Assets regulation, or MiCA, took effect across the European Union.

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Markets in Crypto Assets (MiCA) is a piece of European Union regulation that will likely become law in July 2023, with some of its rules taking effect in July 2024 and others by January 2025. It is part of a wider digital finance package that has been put together within the EU, and has been hailed as the most significant crypto-specific regulation anywhere in the world. But what does it involve? What does MiCA apply to? According to the most recent available version of the text, MiCA applies to...

“Ethena GmbH took advantage of a transitional arrangement under the European [MiCA] regulation to enter the German market,” the BaFin release states, citing that Ethena GmbH was able to issue the asset-referenced tokens only because it applied to do so one day prior to a July 30, 2024 deadline.

By applying for authorization on July 29, Ethena GmbH was essentially grandfathered in and allowed to issue the tokens until they were granted or denied authorization. Ethena Labs said Friday that it's pursuing other options for MiCA certification.

“Since its inception, Ethena has been exploring various options and jurisdictions when it comes to regulatory frameworks globally that would be conducive to our business," posted Ethena Labs on X (formerly Twitter). “And as a result we have multiple entities within our structure facilitating minting and redemption. A [MiCA] authorization via Ethena GmbH was one of various options we have been pursuing.”

While holders of USDe can no longer redeem them via Ethena GmbH, the measures placed on the Ethena Labs subsidiary do not affect USDe trading on secondary markets. 

“To be clear, the decision will in no way disrupt any current listings of USDe, or minting and redemption via Ethena (BVI) Limited (which services the vast majority of our mint users), and USDe remains fully backed,” the stablecoin issuer posted.

While BaFin’s measures are not yet final, it also indicated it has suspicion that Ethena GmbH “is publicly offering securities in Germany [...] without the required securities prospectus.” 

Earlier this week, Ethena Labs and Securitize announced a new Ethereum Virtual Machine-compatible blockchain that will use stablecoins for gas fees. 

The firm’s native token, ENA, is down more than 6% in the last 24 hours to $0.358, over 76% off its all-time high price.

Edited by Andrew Hayward