Stablecoin Issuer Ethena Ordered To Halt Operations By German Regulator Over MiCA Breaches
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Germany’s financial watchdog, the Federal Financial Supervisory Authority (BaFin) recently made its first enforcement move under the EU’s crypto regulatory framework, the Markets in Crypto-Assets Regulation (MiCA).
The regulator ordered Ethena GmbH, a Frankfurt-based stablecoin issuer, to immediately shut down its operations and liquidate its USDe stablecoin business. The order was issued this Monday, April 14, amid a broader push to impose tighter regulations on crypto companies across the bloc.
BaFin instructed Ethena to stop all authorized business activities, and settle its outstanding obligations.
The regulator previously identified several issues with Ethena’s organizational setup and compliance with MiCA, which it described as “serious deficiencies.” This led to supervisory sanctions in March, only for it to now go a step further and order it to completely halt its operations.
In a statement regarding the order, BaFin said that Ethena took advantage of a transitional arrangement under MiCAR, using it to enter the German market. Based on this arrangement, issuers that issued asset-referenced tokens under the law applicable prior to June 30, 2024, are allowed to continue to do so until they are either granted or denied authorization.
In its response, Athena said that it has agreed to wind down all activities of Ethena GmbH, and will no longer pursue the MiCAR authorization in Germany.
Why Is BaFin Targeting Ethena?
Ethena GmbH is a subsidiary of a stablecoin developer Ethena Labs. It issued a dollar-pegged stablecoin called USDe, and it claimed to maintain its value using a mix of crypto-backed reserves and delta-hedging strategies.
However, according to BaFin, the company failed to meet the requirements involving transparency, reserve adequacy, and asset segregation. The regulator explained that the company tried to operate under MiCA’s transitional rules, which allowed pre-existing issuers to function temporarily while they await full authorization.
But, the firm withdrew its license application on April 3, ending its legal basis to operate in the EU. BaFin quickly prohibited further transactions and ordered a structured redemption of all circulated USDe tokens. Now, the company has to execute the process under the regulator’s supervision and pay a € 600,000 coercive penalty.
