Venture capital firm Paradigm has submitted a response to the European Securities and Markets Authority (ESMA) consultation paper regarding the enforcement of abuse prevention measures within the crypto assets market. ESMA’s paper focuses on implementing regulations outlined in the Markets in Crypto-Assets (MiCA) Act, with the first phase slated to begin on June 30th.
Paradigm’s primary concern, echoed by previous commentators, revolves around ESMA’s approach to market abuse, particularly the concept of Maximum Extractable Value (MEV). According to Paradigm, ESMA’s current understanding of MEV draws erroneous parallels between traditional market abuses and the actions of base layer participants. Paradigm emphasized the necessity for ESMA to attain a clearer comprehension of MEV dynamics.
Paradigm argued against regulating the microstructure of base-layer blockchains, asserting that such measures could stifle innovation. They contended that regulatory oversight might have prevented the emergence of tools designed to redistribute MEV proceeds among users, thereby balancing protocol efficiency, security, and user welfare maximization.
Highlighting their concerns, Paradigm referred to rollups and flash bots as potential countermeasures against MEV exploitation, referencing a 2021 paper published on their website. However, the conclusions drawn in the paper did not offer reassurance, leaving uncertainties about Ethereum’s future path regarding MEV.
Moving forward, Paradigm stressed the importance of fair and equitable utilization of MEV, particularly in light of ongoing “sandwich” attacks. They advocated for nuanced application of MiCA regulations, cautioning that existing frameworks may not appropriately fit systems with fundamentally distinct organizational and architectural principles.
In conclusion, Paradigm urged ESMA to foster an environment where industry innovation can enhance consumer welfare collectively, without imposing restrictive design preferences. They refrained from proposing a definitive solution to MEV misuse, emphasizing the complexities involved in balancing regulatory oversight with technological advancement.
Source: Adam Sternbach