The Securities and Markets Authority (ESMA) of the European Union, one of the regulatory bodies overseeing the region’s financial landscape, has released the results of its third consultation package outlining crypto regulatory measures 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 existing MiCA rules.
According to Section 19 of the ESMA’s paper, “MiCA clearly states that orders, transactions, and other aspects of distributed ledger technology may indicate the presence of market abuse, such as the well-known Maximum Extractable Value (MEV), where a miner/validator can take advantage of its ability to arbitrarily reorder transactions to front-run a specific transaction(s) and make a profit.”
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. He explained that nearly all regulated crypto businesses in the EU, including exchanges and brokers, would need to detect and report instances of MEV through complex “suspicious transaction or order reports” (STORs), with the ESMA STOR template alone spanning six pages.
Hansen urged all parties involved in MEV practices to provide input on ESMA’s proposed regulatory overhaul before the June 25 deadline.
MEV remains a concern within decentralized finance, with network developers and industry leaders proposing various solutions to address the issue. Ethereum co-founder Vitalik Buterin recently discussed a multi-faceted approach to combat Ethereum’s MEV problem, which includes implementing MEV quarantine strategies, minimizing MEV, using inclusion lists, and lowering node hardware requirements. 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.