ESMA has labeled MEV ‘market abuse’ in a recent consultation paper.
The European Union Securities and Markets Authority (ESMA), one of the three regulatory bodies overseeing the region's financial landscape, has released the findings of its third consultation package under the Crypto Asset Markets (MiCA) framework.
According to the proposed guidelines, ESMA proposes that mining extractable value (MEV), an arbitrage algorithm based on re-ordering of transactions within blocks, should be adopted for verifications and third-party builders to generate maximum profit margins. Market abuse under existing MiCA rules.
Section 19 of the ESMA paper states: “The MCA will clarify that orders, transactions and other aspects of distributed ledger technology may indicate the existence of market abuse, for example, a known maximum extractable value (MEV) by a miner/verifier to randomly reorder certain transaction(s).” ) can use its ability to operate and therefore profit.
Related: Protecting Web3 user integrity by preventing malicious MEV — here's how
Patrick Hansen, senior director of EU strategy and policy at Circle, criticized ESMA's policy proposals, saying the process of complying with the proposed rules is tedious and unrealistic.
As the policy expert explained: “Almost all regulated crypto businesses (exchanges, brokers, etc.) in the EU must detect and report MEV cases through complex “suspicious transaction or order reports” (STORs). Only ESMA's STOR template is 6.” pages long)”.
Hansen concluded by imploring all parties involved in MEV practices to respond with input to ESMA's proposed regulatory reform by the June 25 deadline.
MEV continues to be an issue in decentralized finance, with network developers and industry giants offering unique solutions to the problem.
Ethereum founder Vitalik Buterin recently touched on a multi-faceted approach to combating the growing problem, including MEV quarantine strategies, MEV simplification, inclusion lists, and node hardware requirements.
Buterin explained that MEV, which has enough room to allow protocols like Cowswap to operate and protect users from MEV's hidden taxes, is an issue that requires mitigation rather than outright bans on the practice.
