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EU Declares MEV Illegal Under New Crypto Market Regulations

2 mins
Updated by Daria Krasnova
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In Brief

  • EU's MiCA regulation labels Maximum Extractable Value (MEV) as illegal market abuse to curb crypto manipulation.
  • ESMA requires trading platforms to monitor and report suspicious MEV activities, with a draft template due for feedback.
  • EU risks falling behind the U.S. if it doesn't act decisively on MEV, warns Patrick Hansen of Circle.
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The European Union (EU) has labeled Maximum Extractable Value (MEV) as illegal market abuse under its Markets in Crypto-Assets (MiCA) regulation.

This significant move aims to curb sophisticated market manipulation and allow all participants to engage fairly.

EU’s Regulatory Measures and Definitions

MEV refers to the profit block producers can gain by reordering, including, or excluding transactions within a block. This manipulation can make the system unfair, giving an advantage to those with more resources and technical knowledge. Patrick Hansen, Circle’s EU Strategy and Policy Head, emphasized the issue’s severity.

“The well-known MEV, where a miner/validator reorders transactions to front-run specific transactions and make a profit, clearly suggests market abuse,” he explained.

The European Securities and Markets Authority (ESMA) outlined measures to tackle MEV. According to ESMA, trading platforms are required to monitor and report suspicious MEV activities, and the proposed standards include detailed procedures for detecting exploits.

ESMA’s draft template is not final and might undergo modifications in the coming months. The regulator set a June 25 deadline for stakeholders to submit feedback on the draft standards​​.

Read more: What Is Maximal Extractable Value (MEV)? 

MEV has been contentious in the blockchain community since 2018, inflating transaction costs, undermining network security, and promoting unfair trading. By reordering transactions, miners capture value, leading to higher fees and inefficiencies​​.

Prominent faces of the crypto industry are suggesting various ways to solve this problem. Vitalik Buterin, Ethereum’s co-founder, recently addressed MEV issues. He assumed reducing MEV through protocols that hide transaction details until confirmed and separating transaction proposers from block builders to limit unfair value extraction.

The US financial regulators are also aware of the MEV threat. The US Department of Justice (DOJ) announced the arrest of two brothers for using MEV tactics to steal $25 million from Ethereum. They face charges of fraud and money laundering, with potential 20-year prison sentences.

ESMA’s draft standards propose a collaborative enforcement approach, urging cooperation between authorities within and outside the EU. Once finalized, these standards will shape the EU’s crypto regulatory environment and set a precedent for other jurisdictions.

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Shota Oba
After interning at a domestic blockchain media company while enrolled at a university in international relations, he worked as an intern trainee at two foreign crypto asset exchanges. Currently, as a journalist, he focuses on the Japanese crypto asset market, both technical and fundamental analysis. He has been trading crypto assets since 2021 and is interested in economic and social affairs.
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