German regulator BaFin has ordered stablecoin issuer Ethena to wind up its German business and redeem its tokens. It is the first time BaFin has imposed measures under Europe’s crypto MiCA regulations. Apart from forcing the shuttering of the business in Germany, the regulator also earlier prevented the managing directors from disposing of reserves, a serious move. However, the stablecoin issuer has shrugged it off, and appears to have shifted any remaining activities to the British Virgin Islands.
Ethena’s backers include asset managers Fidelity and Franklin Templeton.
BaFin’s actions related to USDe, an asset referenced token which maintains a stable value by using ETH derivatives. While the main affected stablecoin, USDe, has dropped in market capitalization from $5.8 billion at the end of February to $4.9 billion today, Ethena Labs’ new fiat backed stablecoin USDtb has grown from $90 million to $1.4 billion during the same period. In other words, the combined Ethena total value has expanded during the period.
While Ethena Labs portrayed the withdrawal from Germany as an “agreement” with BaFin, the formal announcement made it clear it was an order. This is the second contradictory statement from Ethena Labs after it denied any temporary suspension of redemptions in March, contrary to BaFin instructions (see below).
BaFin’s concerns
Prior to the winding up instruction, BaFin said it found “serious shortcomings in the company’s business organisation as well as violations of the requirements under MiCAR, such as those relating to the reserve of assets and compliance with own funds requirements.” Own funds requirements refer to the need for the company to have sufficient of its own assets (or capital), beyond reserves, in order to cope with unforeseen circumstances. So, Ethena GmbH didn’t have enough capital. BaFin didn’t elaborate on the important issue regarding reserves.
Initially the USDe token was exclusively issued via Ethena GmbH, but since early this year it has also been issued via Ethena BVI (British Virgin Islands). As of yesterday, all issuance is via BVI according to a post on X. Ethena had applied to BaFin for a MiCAR license, but when the regulator reviewed its application it became concerned.
BaFin’s action against Ethena in March
In March the regulator forced the German arm of Ethena to “freeze the reserve of assets“, stop issuing new tokens, restrict how the directors could interact with the reserves, and required the appointment of a special representative to oversee compliance with BaFin’s instructions. At the time it also stated that it suspected the staking option, sUSDe was a security being issued without an appropriate license. Additionally, BaFin stated:
“Holders of USDe tokens can temporarily no longer redeem them with Ethena GmbH. However, trading in USDe tokens on the secondary market is currently unaffected by BaFin’s measures.”
In response, a post by Ethena Labs on X appeared to contradict this (excerpt):
“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. Contrary to reports, no assets have been “frozen” and all remain available for redemption.”
The statements are contradictory because BaFin implies there ARE tokens under Ethena GmbH’s remit, whose reserves had been frozen and temporarily cannot be redeemed.
Ethena GmbH failed to comply, so a couple of weeks later BaFin imposed a €600,000 coercive fine and banned payments and sales so that the company could meet redemption demands.
As a result, Ethena GmbH withdrew its MiCAR application, requiring it to exit the EU.
That said, there’s a website ethena.gmbh which doesn’t mention the winding up order.
Crypto markets don’t care?
The crypto markets appear surprisingly relaxed, given some of BaFin’s actions appear serious, particularly the step of limiting the ability of managing directors to dispose of reserves. These are important issues that could do with greater detail from BaFin, particularly given Ethena is an otherwise respected crypto player which is also about to launch its own blockchain. Investors need to know whether this is a matter of crossing T’s and dotting I’s or something more substantial. Ethena Labs seems to imply the former, but the regulator’s order reads as something more serious.
