Cake DeFi in Germany – Current status of the BaFin investigations

+++ Update: On 28.07.2023 BaFin withdraws the advisory notice – press release by Bake +++

According to the official press release , BaFin has been investigating since January 7th, 2022  pursuant to Section 37 (4) of the German Banking Act (KWG) against Singapore-based Cake Pte. Ltd. The reason for this is that under German law it does not have a license to conduct banking business or provide financial services. BaFin assumes that Cake DeFi is conducting unauthorized banking transactions in Germany on the website, for which a license is required in Germany. Except for a warning message for users, no far-reaching restrictions have arisen at this point in time. Lending and liquidity mining services can be used as before. However, since 14.04. No more referral rewards for German users in 2022. A “ban” on Cake DeFi would likely have far-reaching consequences for the DeFiChain ecosystem, as Cake DeFi is a central gateway to the DeFiChain for many users.

Meldung zur BaFin-Ermittlung gegen CakeDeFi
Report on BaFin’s investigation into Cake Pte. ltd

How does Cake DeFi react?

As a first reaction, the CEO and founder Dr. Julian Hosp a short statement on Youtube and another long live stream to make it clear that all services are available as usual and there are no risks for investments. Furthermore, the German language was removed from the website on February 9th, 2022, as was the case with Binance, or Kraken, for example, and reference was made to the company’s headquarters in Singapore via Twitter.

It should also be mentioned that Cake DeFi could only report to the investigation after the announcement by BaFin, as Cake DeFi had not received any official communication from BaFin in advance. Instead, only an anonymous support ticket was received by Cake DeFi, where one could not directly assume an official communication on the part of BaFin.

Twitter message from Cake DeFi on BaFin communications

In the next step, Hosp also announced in a mailing list on March 7th, 2022 that Cake DeFi is in the process of applying for a crypto license for the EU area. This license is similar to the Payment Services Act already in use in Singapore, which allows cryptocurrencies to be offered as a means of payment. The current EU decrees of the Markets in Crypto Assets (MiCA), which are expected to come into effect in summer 2024, will make it possible to use this license throughout the EU. Furthermore, Hosp claims to proactively take care of such a crypto license in order to continue to give German and European customers security and transparency of the platform.

Twitter-Meldung von CakeDeFi
Cake DeFi Twitter message on the BaFin investigation

Will Cake DeFi be banned in Germany?

Nobody can anticipate the exact test results, but we can draw conclusions about this procedure from known procedures (cf. e.g. Binance & Kraken).

From my individual point of view, it is rather unlikely that the BaFin investigations will have far-reaching consequences. The existing precedents (cf. Binance, only led to changes in the offer but not to a ban on use for German users. I also like the proactive communication of the Cake DeFi team around Julian Hosp. Questions about the status of the investigation are (as far as possible) open and in different formats, e.g. on Twitter Spaces, discussed intensively. Even with provocative questions, the Cake DeFi team remains calm and communicates clearly. Furthermore, the application for the crypto license for the EU should be positively emphasized. The team is thus signaling that it is proactively approaching the supervisory authorities and state institutions. The aim is constructive communication and support and not destructive behavior. But enough of my assessment

How does the market react?

As a convinced market economist, you know that the free market usually prices information in very quickly and, in particular, that risks are taken into account in pricing. After the BaFin report became known, the DFI price fell by a few percentage points and was quoted at a low of around USD 2.44 or around 0.00006 BTC per DFI. Despite the report, the price rose sharply in the three months that followed. The current price (as of April 30th, 2022) is around 4.34 US dollars or around 0.0011 BTC per DFI. In my view, this is another indication that the market and investors are relaxed about the BaFin review. Whats your opinion? Write to us in the comments or on Telegram!