Ethena Labs, the developer behind the synthetic stablecoin USDe, is ceasing its operations in Germany after regulatory scrutiny from the country’s top financial watchdog raised alarms over compliance issues tied to the dollar-pegged asset.

The Federal Financial Supervisory Authority (BaFin) and Ethena confirmed in a Monday statement that the two had reached an agreement to terminate activities through Ethena’s local subsidiary, Ethena GmbH.

BaFin had already flagged “deficiencies” in USDe last month, when minting and redeeming of the asset was halted on March 21.

Ethena Stops German Operations Following BaFin Intervention
Source: Ethena Labs

Ethena’s Model Faces Scrutiny Under MiCA Framework

Instead, “Ethena Labs is discontinuing the MiCAR authorization in Germany,” the company says, in reference to the EU’s Markets in Crypto-Assets Regulation, which is a far-reaching legal framework intended to bring more stringent digital asset regulation to the entire EU.

In April, BaFin had already said there were compliance failings and possibly breaches of securities laws in connection with the USDe operations in Germany. Since the March freeze, there has not been any minting or redeeming activity from Ethena GmbH.

However, the company assured that all previous users of the German arm have migrated to Ethena (BVI) Limited, located in the British Virgin Islands.

USDe, the fourth largest stablecoin with the $4.9 billion circulating supply according to CoinMarketCap, differentiates itself from other traditonal stablcoins, such as USDt and USDC, via an automated delta hedging model. There is no fiat backing of any sort but rather an implementation based on spot holdings, on-chain custody, and liquidity buffers.

Ethena Stops German Operations Following BaFin Intervention

The regulatory stance in Germany is a continuation of that across Europe trying to get stablecoin issuers into compliance that is put forward by MiCA, which sets out strict borders on the reserve management and segregation, alongside continuous reporting.

At a certain stage, MiCA has approved 15 stablecoins (10 euro-pegged, five dollar-pegged). Some of those include offerings from Circle, Crypto.com, Societe Generale, and Membrane Finance.

Leaving most notably, Tether, the issuer of the world’s most traded stablecoin USDt, has also opted not to seek MiCA registration in the meantime, a sign that regulators are starting to put a spotlight on the company, while the strategy is dividing among the leading stablecoin providers.

The retreat from Germany is not just a regulatory setback, but a broader cautionary tale to the vast number of crypto firms looking to expand into Europe’s largest economy that compliance is no longer an option.