- EU plans to restrict MEV in crypto to minimize ‘market abuse.’
- Industry analysts present mixed opinions on the proposal.
As a crypto investor with some experience in the industry, I’m closely monitoring the European Securities and Markets Authority (ESMA) plan to restrict Maximum Extractable Value (MEV) in crypto transactions. The potential impact of this regulation is significant, and as someone who keeps an eye on market trends and regulatory developments, I’m sharing my perspective on this issue.
ESMA intends to limit the maximum leverage that cryptocurrency miners and validators can utilize, according to their plans at the European Securities and Markets Authority.
According to Patrick Hansen, the EU’s top strategy and policy executive at Circle, the EU intends to outlaw Market Making and Execution (MEV) practices.
“The European Union’s MiCA rules draft suggest that MEV be considered a blatant case of market abuse, according to their definition.”
The MEV restriction forms part of the ESMA’s instructions for applying different rules under MiCA (Markets in Crypto Assets Regulation).
Impact and reactions to EU’s MEV regulation plan
As a crypto investor, you might not be familiar with the concept of Miner Extractable Value (MEV) yet. In simpler terms, MEV refers to the additional profits that miners and validators can earn by strategically reordering transactions in their blocks. They prioritize transactions that come with higher fees, effectively extracting value from the market inefficiencies.
In the ESMA’s plan (page 10), the ‘re-ordering’ aspect of MEV is viewed as ‘market abuse.’
According to ESMA, MiCA explicitly states that certain features of distributed ledger technology, such as orders, transactions, and their sequencing, may indicate potential market abuse. For instance, the Maximum Extractable Value (MEV) is a well-known phenomenon where a miner or validator can exploit their ability to arbitrarily order transactions to gain an unfair profit by front-running specific ones.
Feedback from stakeholders is required on the draft standards by the end of June. Subsequently, if these standards are implemented, intermediaries such as brokers and crypto exchanges will have an obligation to report any suspicious transactions or re-orders to the relevant authorities.
Hansen highlighted the complexities of carrying out the proposed plan, pointing out that every MEV instance would need to be accounted for. Furthermore, potential legal consequences such as indictments and accusations could be directed towards MEV operators.
“Actors involved in MEV could become the target of investigations and enforcements.’
As a crypto investor, I’ve noticed that the European Union (EU) has taken action following similar moves by the United States. Not too long ago, the US Department of Justice indicted and charged two brothers for allegedly defrauding investors to the tune of $25 million. They reportedly used a complex Miner Extractable Value (MEV) technique on the Ethereum network to execute trades ahead of others and pocket the difference in value.
For the first time, a MEV-linked situation resulted in accusations. However, with the EU’s proposed plan, it appears that more operators may be held accountable.
On his part, Robert Sasu of MultiversX claimed that ‘MEV’ was theft and supported the EU’s plan.
“MEV represents an unfair take of funds within the blockchain ecosystem. The ethos of this technology was initially envisioned to usher in a more equitable and improved society, rather than fueling a craze for self-interest.”
However, the crypto analysis platform Coinalyze criticized the EU’s proposal.
As a crypto investor, I’ve noticed a strong determination among EU regulators to curb the growth of the cryptocurrency industry within their borders. Amongst all central banks, the European Central Bank (ECB) expresses an exceptional disdain towards cryptocurrencies.
As a analyst, I want to point out that the current state of this proposal is as a draft standard. Yet, if it gets adopted, the potential consequences would be significant, particularly for validators and miners residing in the EU and beyond.
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2024-05-28 17:43