The Securities and Markets Authority (ESMA) of the European Union, one of the three regulatory bodies overseeing the region’s financial sector, has released the results of its third consultation package, which outlines regulatory measures for cryptocurrencies under the Markets in Crypto Asset (MiCA) framework.
In its proposed guidelines, the ESMA suggested that miner-extractable value (MEV), an arbitrage strategy that involves rearranging transactions within a block to maximize profits for validators and third-party builders, should be considered a form of market abuse under the existing MiCA rules.
According to Section 19 of the ESMA’s paper, MiCA makes it clear that activities related to distributed ledger technology, such as orders and transactions, may indicate market abuse, including the well-known Maximum Extractable Value (MEV) where a miner or validator takes advantage of their ability to reorder transactions and profit from front-running specific transactions.
Patrick Hansen, senior director of EU strategy and policy at Circle, criticized ESMA’s policy suggestions, stating that complying with the proposed regulations would be burdensome and impractical for most regulated crypto businesses in the EU. He pointed out that these businesses would need to identify and report instances of MEV through complex suspicious transaction or order reports (STORs), with the ESMA STOR template alone being six pages long. Hansen urged all parties involved in MEV practices to provide feedback on ESMA’s proposed regulatory overhaul before the June 25 deadline.
MEV remains a concern in the decentralized finance sector, with network developers and industry leaders proposing various solutions to address the problem. Ethereum co-founder Vitalik Buterin recently discussed a multi-faceted approach to combat Ethereum’s MEV problem, which includes utilizing MEV quarantine strategies, minimizing MEV, implementing inclusion lists, and reducing node hardware requirements to tackle the growing issue. Buterin emphasized the need to mitigate MEV rather than outright banning the practice, allowing protocols like Cowswap to operate while safeguarding users from the hidden costs of MEV.