Paradigm Urges ESMA for More Clarity on Crypto Market Abuse Prevention
Summary:
Venture capital firm Paradigm has responded to the European Securities and Markets Authority's (ESMA) consultation paper on enforcing abuse prevention in the crypto assets market. Paradigm raised concerns about ESMA's perspective on market abuse, specifically Maximum Extractable Value (MEV), and stressed the need for more clarity and nuance in regulation. The firm suggested that existing rules cannot be extended to systems with fundamentally different structures, and that ESMA should encourage industry innovation for consumer welfare maximization without bias on product design. Paradigm didn't, however, propose a concrete solution to MEV misuse.
Paradigm, a venture capital company, has formally voiced their view about a consultative document put forth by the European Securities and Markets Authority (ESMA), focusing on the implications of potential abuse in the cryptocurrency market. The consultation paper by ESMA aims to put into practice the measures proposed in the Markets in Crypto Asset (MiCA) Act, which is set to take effect from June 30. The main issue raised by Paradigm, echoing previous commentators, revolves around ESMA's perspective on “market abuse”, especially the notable Maximum Extractable Value (MEV). More clarity in understanding MEV is required by ESMA.
ESMA is drawing misguided comparisons between traditional market abuses, seen in centralized financial settings, and the conduct of base layer participants, according to Paradigm. They pointed out the current absence of a universally accepted method to distinguish negative or suspicious MEV-related activities. Hence, mandating the ecosystem to monitor and deter such uncertain behavior might lead to inconsistent applications and unintended outcomes. As per Paradigm, ESMA must develop a more nuanced comprehension of MEV. They also state that it is fundamentally incorrect to regulate base-layer blockchain microstructures.
Paradigm infers that such regulation might have prevented the invention of various offline tools that return MEV profits to users, harmonizing protocol effectiveness and security with the maximization of user welfare. Paradigm also pointed towards the use of rollups and flash bots, through a document released on their website in 2021. Nevertheless, their conclusions were not optimistic, stating hopes for the upcoming year to bring more clarity on MEV and Ethereum's future path.
The fair and equitable usage of MEV is still an aspiration, as evidenced by ongoing "sandwich" attacks. Paradigm mentions that the regulations mentioned in MiCA about requirements for individuals executing transactions professionally should be enacted with “nuance”. Paradigm, in their response, emphasized that existing regulations cannot be blindly applied to a system with a fundamentally different structure, which ESMA should acknowledge.
Paradigm concluded their response encouraging ESMA to allow the industry to construct products that collectively enhance consumer welfare, without imposing any biased view on product design. However, Paradigm did not propose an alternative to the misuse of MEV.
Published At
6/27/2024 10:10:25 PM
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