Germany's first decision on MiCAR: the Frankfurt Administrative Court on Ethena

Case law on financial regulatory issues is rare. It often takes years before an initial decision is issued on a new regulation or implemented directive. This was not the case with MiCAR, however, as it took less than a year for a German court to issue its first decision in connection with MiCAR. In detail:

The background

To take advantage of the transition periods, Ethena GmbH submitted an application to the Federal Financial Supervisory Authority (BaFin) on 29 July 2024 to issue the asset-referenced token (ART) ‘USDe’. 

BaFin processed the application and subsequently published a consumer warning on 21 March 2025, highlighting deficiencies in the application. At the same time, BaFin expressed suspicion that the 'sUSDe' token issued by Ethena OpCo. Ltd. was a security being offered by Ethena GmbH without the required prospectus.

On 3 June 2025, BaFin published a further warning, expressing its justified suspicion that Ethena (BVI) Ltd. was in breach of prospectus requirements by offering the 'sUSDe' tokens issued by Ethena OpCo Ltd., as was Ethena GmbH without the required prospectus. BaFin justified this assumption by referring to Article 3(1) of the EU Prospectus Regulation. BaFin also called on consumers to only invest in securities on the basis of the required information or the relevant prospectus.

In the meantime, however, on 3 April 2025, Ethena GmbH withdrew its application for authorisation, thereby ending the authorisation procedure. Consequently, the company could no longer rely on the transitional arrangement under Article 143(4) MiCAR and was no longer permitted to conduct business within the EU.

An application was filed with the Administrative Court (VG) in Frankfurt am Main against the BaFin's publications.

Rejection of the applications – violation of the Prospectus Regulation

In its decision of 2 May 2025 (Ref. 7 L 1257/25), which was partially anonymised in the publication, the VG rejected Ethena GmbH's application for interim relief against BaFin's public announcement of 21 March 2025.

In this announcement, BaFin stated that it had sufficient grounds to suspect that the offer of tokens referred to as ‘Z.’ tokens in the anonymised decision by Ethena GmbH violated the prospectus requirement pursuant to Art. 1 (1) in conjunction with Art. 3 (1) of the Prospectus Regulation (ProspektVO).

Prospectus requirement due to classification as a security

The Administrative Court of Frankfurt am Main first ruled that the applicant was to be classified as an 'offeror' under Article 2(i) of the Prospectus Regulation, despite the fact that the tokens were generated in a decentralised and automated manner via smart contracts.

The court's assessment was based on the fact that the 'Z.' tokens fulfilled the characteristics of a security as defined in Section 2(1)(1) of the WpPG, in conjunction with Article 2(a) of the Prospectus Regulation and Article 4(1)(44) of MiFID II. The court justified this on the grounds that the tokens were transferable and tradable on crypto exchanges. Furthermore, the tokens embodied property rights as they guaranteed holders not only the return of the 'P.' tokens they had contributed, but also an additional, albeit variable, return in the form of further tokens. The 'Z.' token thus constituted a type of debt instrument with securities-like rights, triggering a prospectus requirement.

Consequently, the BaFin publication serves to protect investors and the integrity of the capital market, which is why the announcement is proportionate, appropriate, necessary and reasonable in order to inform the public of a sufficiently substantiated suspicion. It must also be acknowledged that this is merely a warning and not a final determination by BaFin.

However, classifying the 'Z.' token as a security appears particularly questionable.

It is problematic that the Administrative Court of Frankfurt am Main based its decision exclusively on a letter from BaFin, despite the fact that BaFin is the defendant in the proceedings.

Substantively, the assumption of standardisation must be questioned, since the redemption value of the token depends on the individual staking duration and therefore there is no uniform, homogeneous structure. Although the tokens are tradable on crypto exchanges, this does not necessarily indicate standardisation within the meaning of MiFID II.

Staking has hardly been addressed in case law to date and plays only a minor role in the publications of BaFin and ESMA. Nevertheless, the European Commission defines staking as the immobilisation of crypto assets to support proof-of-stake consensus mechanisms in the ESMA Q&As, for which validator privileges and block rewards are granted. As MiCAR contains no specific staking regulations and does not prohibit it, direct staking by users without special authorisation is possible.

The situation is different for staking services ('staking-as-a-service'), where providers hold and stake their customers' crypto assets on their behalf. These are subject to MiCAR custody service regulations and require appropriate authorisation. In particular, customer assets must be protected, liability for losses must be ensured, and customers must give express consent in advance. Moreover, customers are entitled to repayment of their staked crypto assets; however, this does not correspond to the legal characteristics of a classic claim under the law of obligations, but derives from the specific relationship between the customer and the service provider in the crypto environment.

Consequently, the token does not confer traditional membership rights or clearly defined property rights; rather, it represents a technically controlled reversal transaction via a smart contract.

Therefore, it seems questionable whether existing securities law can be applied to such innovative, automated token models, as these instruments were not considered in the original regulatory design and do not readily fall under traditional categories.

Inadequate proportionality assessment

Furthermore, the decision of the Frankfurt am Main Administrative Court reveals shortcomings regarding the proportionality of publication and the protection of Ethena GmbH's corporate personality rights. In this respect, the court denied the need for legal protection in the form of preventive interim relief (Section 123(1) VwGO), stating that subsequent provisional legal protection is generally sufficient and that preventive legal protection is only considered in exceptional cases. However, this argument falls short, as the potential economic damage resulting from the naming and consideration of less severe means of disclosure were not sufficiently taken into account.

Follow-up

Now that the authorisation procedure for the issuance of ARTs by Ethena GmbH has been ended, the transitional business must be wound up. On 25 June 2025, BaFin ordered the winding up, and USDe holders can exchange their tokens until 6 August 2025. BaFin will supervise the redemption process with a special representative.

Conclusion

The Administrative Court Frankfurt am Main has confirmed the formal and substantive legality of BaFin's announcement. This is an important court ruling, particularly with regard to the classification of (staking) tokens, and it may impact other use cases. Nevertheless, the decision can be criticised from legal and constitutional perspectives, both with regard to the classification of the ‘Z.’ token as a security and the inadequate proportionality test.

With the kind support of Franka Förderer – student assistant