Regulation
MEV reporting and compliance requirements
The European Union (EU) has labeled maximum mineable value (MEV) as illegal market abuse under the Cryptocurrency Markets Regulation (MiCA).
This significant move aims to curb sophisticated market manipulation and allow all participants to engage equally.
EU regulatory measures and definitions
MEV refers to the profit that block producers can earn by reordering, including or excluding transactions within a block. This manipulation can make the system unfair, giving an advantage to those with greater resources and technical knowledge. Patrick Hansen, Circle’s head of European strategy and policy, underlined the seriousness of the issue.
“The well-known MEV, where a miner/validator rearranges transactions to execute specific transactions and make a profit, clearly suggests market abuse,” he explained.
The European Securities and Markets Authority (ESMA) outlined measures to address the MEV. According to ESMA, trading platforms are required to monitor and report suspected MEV activityand the proposed standards include detailed procedures for exploit detection.
ESMA’s draft model is not final and may undergo changes in the coming months. The regulator has set a deadline of June 25 for interested parties to submit feedback on the draft standard.
To know more: What is the maximum extractable value (MEV)?
MEV has been a subject of controversy in the blockchain community since 2018, inflating transaction costs and undermining the network safetyand the promotion of unfair trade. By rearranging transactions, miners gain value, leading to higher fees and inefficiencies.
Prominent faces from the cryptocurrency industry suggest various ways to solve this problem. Vitalik Buterin, co-founder of Ethereum, recently addressed MEV problems. He proposed reducing MEV through protocols that hide transaction details until confirmation and separating transaction proponents from block builders to limit unfair value extraction.
US financial regulators are also aware of the MEV threat. The United States Department of Justice (DOJ) announced the arrest of two brothers for using the MEV tactic to steal $25 million from Ethereum. They are charged with fraud and money laundering, with potential sentences of 20 years in prison.
ESMA’s draft standards propose a collaborative enforcement approach, encouraging 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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