German Regulator BaFin Halts the Sale of Ethena GmbH's USDe Token

The German financial regulator BaFin has halted the sale of Ethena GmbH's USDe token because of critical noncompliance issues.

German financial regulator Bundesanstalt für Finanzdienstleistungsaufsikt (BaFin) has put a halt to Ethena GmbH’s USDe token sale due to crucial noncompliance issues.

According to an official statement on Friday, BaFin took action as Ethena GmbH violated the European Union’s Markets in Crypto Assets (MiCA) regulations and distributed unregistered securities.

As a result, BaFin has ordered Ethena GmbH to freeze the assets backing the token and deactivate its website portal.

BaFin’s order prevents Ethena GmbH from onboarding new clients and prohibits sales activities. The German financial regulator believes that Ethena GmbH is distributing sUSDe tokens without the relevant prospectus documentation.

While BaFin’s directive prohibits initial token launches and new token issuance, secondary market activities remain unaffected and redemptions are temporarily restricted.

Ethena GmbH had submitted its application for MiCA approval to BaFin on July 29. However, BaFin denied this request as the company had critical operational flaws in its business activities.

Moreover, BaFin stated that Ethena GmbH failed to comply with MiCA requirements for asset reserves and capital requirements.

BaFin’s action follows a deep investigation of USDe token operations and structure, discovering that the token’s connection to sUSDe tokens may represent distribution of unregistered securities under German law.

Furthermore, BaFin has appointed an official representative to oversee the situation and ensure compliance with the law.

In response to the regulator’s measures, Ethena GmbH announced its pursuit of other regulatory structures. The company highlighted that no assets were frozen as the USDe tokens are fully backed by assets.

Discussing the disruption, Ethena stated that it would not impact the current listings or minting through its subsidiary Ethena (BVI) Limited.

Ethena, a yield-generating protocol, saw a substantial decrease in ENA token value after BaFin made its announcement. ENA token decreased by 6.5% in the last 24 hours as the market reacted to the development.

Despite the setback, Ethena announced plans to explore alternative jurisdictions and regulatory solutions. The firm claims all of its business operations outside Germany proceed without disruption.

According to Ethena, users can still access and redeem USDe through its BVI-based platform. A spokesperson for the firm confirmed that the company would revise its policies based on BaFin’s decision.

Ethena will issue additional updates about the situation and pursue other regulatory frameworks. The company continues to resolve the issue despite operational hurdles in Germany due to the ban.

Market participants should closely monitor the development of legal and regulatory challenges in the rapidly evolving cryptocurrency landscape.