The Maximum Extractable Value (MEV) at the core of tensions between the EU and the crypto sector

The European Securities and Markets Authority (ESMA) recently indicated that the reorganization of blockchain transactions to maximize profits, known as maximum extractable value (MEV), could constitute a form of market abuse under the MiCA regulation. However, some crypto industry experts are calling for a more nuanced view of this stance.

The ESMA Position on MEV in the Context of MiCA

In its latest regulatory proposals related to the MiCA regulation on crypto assets, ESMA expresses its concerns regarding MEV (or Maximum Extractable Value). The regulatory authority equates market strategies in which blockchain operators rearrange users’ transactions with the intent to optimize their own profits to market abuse.

These tactics, like Frontrunning or sandwich attacks, can indeed diminish the earnings of end-users, acting as an “invisible tax.” ESMA highlights that MiCA extends existing EU market abuse rules to include suspicious activities related not just to transactions, but to the operational aspects of the blockchain itself.

Although the MiCA text does not explicitly mention MEV, ESMA considers it falls within the scope of this law. Peter Kerstens, advisor to the European Commission, acknowledges that MEV can raise market integrity questions and trigger abuses such as Frontrunning.

The Crypto Industry’s Nuanced Position on MEV

In response to the ESMA’s position, several players in the crypto industry advocate a more nuanced approach. Anja Blaj, policy expert at the European Crypto Initiative (EUCI), argues that we must stop equating MEV with a negative practice. She asserts that in reality, only a minority of scenarios constitute true market abuses.

She emphasizes that MEV primarily aims to reward validators for their essential work in the blockchain’s functioning. The EUCI warns against potential overregulation if MiCA were to be applied too broadly to MEV.

Industry experts are thus asking ESMA to precisely clarify which MEV scenarios would constitute market abuse, as well as the responsibilities in the case of proven malicious practices.

The public consultation currently conducted by ESMA is expected to clarify shortly the regulator’s official position on the complex and divisive issue of MEV. Sector participants have until June 25 to make their voices heard.