Ethena Labs’ USDe Stablecoin Rejected by EU Regulators, Operations Halted
1min read German financial regulators have taken a significant step by rejecting Ethena Labs’ application for its USDe stablecoin under the Markets in Crypto-Assets (MiCA) framework. The decision has led to a series of actions, including the halting of EU operations, freezing of asset reserves, and a prohibition on offering new services. The regulators have identified serious deficiencies in Ethena GmbH’s authorization process for the USDe token, which has led to this stringent action.
Ethena Labs, the issuer of the USDe stablecoin, operates differently from traditional stablecoins. Instead of being pegged to the USD through reserves, USDe is a “synthetic dollar” that correlates with the USD through financial derivatives and algorithmic mechanisms. This unique approach has raised concerns among regulators, who have ordered Ethena GmbH to cease offering its USDe token to the public and to freeze the corresponding asset reserve.
The rejection of Ethena’s MiCA application comes despite the fact that USDe did not receive prior approval, but its application was submitted before the July 2024 deadline. This allowed Ethena to continue offering USDe services until a decision was made. However, the regulators found “serious deficiencies” in the approval process, leading to the current restrictions.
Ethena GmbH, the German branch of Ethena Labs, has been found non-compliant with MiCA’s rules concerning reserves and capital requirements. Additionally, there are suspicions that the firm is offering securities without the necessary prospectus. To address these issues, regulators have instructed Ethena GmbH to close business with new EU customers and refrain from accessing its asset reserve.
In response to the decision, Ethena Labs has stated that Ethena GmbH is just one of several “options and jurisdictions” it has been exploring for its global strategy. While disappointed by the ruling, Ethena Labs plans to continue exploring other options, particularly through offices other than Ethena GmbH. The company has clarified that the decision will not disrupt current listings of USDe or the minting and redemption processes via Ethena (BVI) Limited, which services the majority of its mint users. Contrary to reports, no assets have been frozen, and all remain available for redemption. Ethena Labs will be revising its terms accordingly.
Despite its innovative approach, USDe has faced criticism due to its lack of a traditional peg. Critics are concerned that flaws in its reserve metrics could lead to a collapse of the stablecoin. With this decision, EU exchanges are likely to be compelled to delist Ethena’s USDe, similar to what happened with Tether USDT. This move underscores the regulatory scrutiny that stablecoins face in the EU, highlighting the importance of compliance with MiCA regulations.
