BaFin Halts USDe Token Issuance, Citing Serious Compliance Failures

The Federal Financial Supervisory Authority (BaFin) has taken decisive action against Ethena GmbH by halting the issuance of its USDe token. The decision comes after identifying severe compliance failures within the company‘s authorization process. According to BaFin, Ethena GmbH has not met the required standards set by the Markets in Crypto-Assets Regulation (MiCAR), raising serious concerns about the company’s financial stability and its ability to meet investor obligations.

Key Compliance Violations

Stabilization Strategy

Ethena GmbHs primary business model involves issuing asset-referenced tokens (USDe), which are designed to maintain a stable value by being pegged to the US dollar. To achieve this stability, Ethena GmbH employs a complex hedging strategy that utilizes derivatives to balance value fluctuations. In theory, this mechanism ensures that one USDe token remains equivalent to one US dollar.

MiCAR Compliance and Transitional Challenges

Ethena GmbH initially leveraged transitional provisions under MiCAR to continue issuing USDe tokens without immediate full compliance. According to MiCAR, companies that issued asset-referenced tokens before June 30, 2024, could continue operations until they receive or are denied authorization, provided they applied before July 30, 2024. Ethena GmbH filed its application just before the deadline, on July 29, 2024.Although the USDe token was initially issued exclusively by Ethena GmbH, since January 1, 2025, the token has also been issued by Ethena BVI Limited, a company domiciled in the British Virgin Islands. This dual issuance structure has raised additional regulatory concerns, as the involvement of an offshore entity complicates oversight and compliance under MiCAR.

BaFin identified that Ethena GmbH failed to comply with essential financial requirements, including maintaining adequate asset reserves and own funds, as stipulated by MiCAR. This discrepancy led to the decision to halt the issuance and conduct further investigations.

Suspected Unlawful Securities Offering

Apart from compliance failures related to the USDe token, BaFin has also raised concerns regarding the sUSDe tokenissued by Ethena OpCo Ltd., an affiliate of Ethena GmbH. These tokens, tied closely with USDe, allow investors to exchange USDe for sUSDe while promising additional yields. BaFin suspects that Ethena OpCo Ltd. has been offering these tokens to the German public without an approved prospectus, violating securities regulations.

Supervisory Measures Implemented

BaFin has moved swiftly to address the compliance issues identified with Ethena GmbH and its issuance of the USDe token. To mitigate risks and protect investor interests, the regulator has enforced a series of measures, which, while immediately effective, remain provisional pending further investigation and potential adjustments.

BaFin has outlined the following actions:

1. Asset Freezing: Orders to freeze the reserves held for USDe tokens to secure the assets and prevent further issuance.

2. Management Restrictions: Limiting the authority of Ethena GmbHs directors over the frozen assets.

3. Business Suspension: Immediate cessation of new business activities related to USDe tokens, including the deactivation of Ethena GmbHs website.

4. Appointment of a Special Representative: An independent monitor to ensure compliance and oversee the enforcement of the imposed measures.