EU Agency Proposes Treating MEV as Market Manipulation under MiCA Rules
Summary:
The European Union's Securities and Markets Authority (ESMA) has proposed to classify miner-extractable value (MEV) as a form of market manipulation under existing MiCA regulations. This proposal is part of the third round of consultation on cryptocurrency regulations. Critics say compliance will be cumbersome and impractical, as regulated crypto businesses would have to detect and report MEV instances. The deadline for responses to these regulatory proposals is June 25. The problem of MEV continues to challenge the industry, with leaders proposing unique remedies, emphasizing mitigation rather than outright ban.
The European Union's Securities and Markets Authority (ESMA)—one of three entities overseeing the region's financial sector—has disclosed the results of its third consultation package, detailing cryptocurrency regulation proposed under the Markets in Crypto Asset (MiCA) model. In its suggested regulatory steps, the ESMA hinted that miner-extractable value (MEV)—an arbitrage approach reliant on reorganizing transactions within a block to maximize profit for validators and external developers—could be viewed as a form of market manipulation under existing MiCA regulations. The ESMA's document’s Section 19 states, "MiCA explicitly suggests that elements like orders, transactions, and other facets of the distributed ledger technology might imply the presence of market abuse, such as the well-known Maximum Extractable Value (MEV), wherein a miner/validator may benefit from their ability to randomly shuffle transactions and front-run specific transactions thus turning a profit."
Patrick Hansen, senior director of EU strategy and policy at Circle, was skeptical of ESMA's policy proposals, arguing that adhering to the suggested rules would be ponderous and impractical. He clarified, "Nearly all crypto businesses governed by EU regulations, like exchanges, brokers, etc., would need to identify and report cases of MEV via complex 'suspicious transaction or order reports' (STORs). By itself, the ESMA STOR template is six pages long." Hansen ended his critique urging all parties engaged in MEV activities to voice their opinions on the ESMA's suggested regulatory revamp before the June 25 deadline.
MEV continues to pose a challenge in the realm of decentralized finance, prompting developers and major industry players to put forward unique remedies to the issue. Vitalik Buterin, Ethereum's co-founder, recently discussed a multi-tiered solution for dealing with Ethereum's MEV problem, including employing a mix of MEV isolation methods, MEV reduction, inclusion lists, and easing node hardware prerequisites. Buterin highlighted that mitigating MEV's impact was essential, instead of a complete prohibition, offering enough flexibility for protocols like Cowswap to operate, yet safeguarding users from MEV's concealed levy.
Published At
5/28/2024 7:47:07 PM
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