Introduction to the Regulatory Action
The German financial supervisory authority, BaFin, has announced the discovery of significant deficiencies in Ethena’s USDe token, a cryptocurrency the company positions as a synthetic dollar. As a result, BaFin has mandated an immediate halt to the public offering of this token.
Background on MiCA Regulations
The European Union’s Market in Crypto Assets (MiCA) regulations, which govern the issuance of stablecoins—tokens whose value is linked to other assets—came into effect on June 30, 2022. Ethena GmbH began issuing the USDe token just two days prior, on June 28. Under these regulations, companies were permitted to continue issuing tokens while seeking a MiCA license, unless explicitly ordered to cease operations.
BaFin’s Findings
During the ongoing licensing review, BaFin uncovered “serious deficiencies” in Ethena’s business organization, including violations of MiCAR requirements related to asset reserves and capital compliance. The regulator emphasized that these issues must be addressed before the token can be offered to the public.
Understanding USDe and Its Mechanism
BaFin classifies USDe as an asset-referenced token, meaning its value stability is maintained by referencing other assets, rights, or currencies. Ethena markets the USDe token, which boasts a market capitalization of $5.4 billion, as a “synthetic dollar” pegged to a value of $1. The token is backed by cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), which are paired with an equivalent value of short perpetual futures positions across various exchanges.
This innovative strategy generates income for the protocol when perpetual funding rates are positive, allowing Ethena to pass on a portion of this income as yield to users who stake their USDe (referred to as sUSDe). In addition, the protocol also issues the USDtb stablecoin, which is supported by BlackRock’s tokenized Treasury bill fund.
Concerns Over Securities Offering
In addition to the deficiencies related to USDe, BaFin has raised concerns that Ethena GmbH may be offering securities in Germany in the form of ‘sUSDe’ tokens from Ethena OpCo. Ltd. without the required securities prospectus, further complicating the company’s regulatory standing.
Ethena’s Response and Market Reactions
Following the notification of the suspension of their MiCA application, Ethena communicated via X that they will continue to explore alternative regulatory frameworks. In the wake of this announcement, Ethena’s governance token, ENA, experienced a decline of 6.5% within 24 hours, reflecting growing investor concerns.
Conclusion
The regulatory scrutiny from BaFin highlights the challenges faced by crypto projects in complying with evolving regulations. As Ethena navigates these issues, the future of the USDe token and its market position remain uncertain.
