Ethena Halts German Operations Due to Regulatory Non-Compliance

Ethena GmbH, the creator of the fourth-largest stablecoin USDe, has been forced to cease operations in Germany due to regulatory pressures. The German Federal Financial Supervisory Authority (BaFin) determined that Ethena did not comply with local laws and regulations, particularly the Market in Crypto Assets Regulation (MiCA).

On March 21, BaFin identified significant deficiencies in Ethena's regulatory procedures, leading to the imposition of various restrictions. These included blocking Ethena's asset reserves and website, effectively halting its operations in Germany. Ethena responded by changing its name to Ethena Limited and relocating its operations to the British Virgin Islands, including its stablecoin USDe. The company assured regulators that no minting activity had occurred since the warning on March 21.

Ethena's transition process involved moving all users who minted their token to the new entity in the British Virgin Islands. BaFin's decision was based on the determination that Ethena's staking process resembled that of an unlicensed securities firm. As a result, BaFin took immediate action to stop Ethena from conducting a public token sale of USDe, citing violations of MiCA requirements. MiCA, a regulatory body of the European Union, mandates that stablecoins be fully backed by reserves and have regulatory approval.

Despite the regulatory setback in Germany, Ethena's global operations have allowed it to continue its business model with minimal disruption. BaFin continues to focus on ensuring that tokens do not fall under the category of unlicensed securities, reflecting Europe's commitment to regulating the crypto industry. Ethena's attempt to release a USDe stablecoin compliant with MiCA requirements was unsuccessful, leading to a ban on releasing securities in Germany. Ethena has stated that no customer-owned assets have been frozen, but the company remains uncertain about the timeline for regulatory approval in Germany.

BaFin's conclusion that Ethena's yield-making process and potential for investor profit made it an unlicensed securities firm highlights the evolving regulatory landscape in Europe. MiCA is transforming the crypto regulatory framework, emphasizing the need for stablecoins to be fully backed by reserves and to have regulatory approval. Ethena's experience in Germany underscores the challenges faced by crypto projects in navigating complex regulatory environments and the importance of compliance with local laws and regulations.