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Home»TRADING NEWS»Why Regulators Are Interested in Cryptocurrency Practices
TRADING NEWS

Why Regulators Are Interested in Cryptocurrency Practices

By Crypto FlexsApril 5, 20243 Mins Read
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Why Regulators Are Interested in Cryptocurrency Practices
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Increasing scrutiny of maximum extractable value (MEV) by regulators is highlighting the need for oversight of the cryptocurrency ecosystem.

While some experts tout the efficiency benefits of MEVs, regulators’ eyes are sharpening their darker implications.

Why are regulators concerned about MEVs?

The European Securities and Markets Authority (ESMA) recently designated MEV as a concern under MiCA regulations, hinting at possible market manipulation. MEV allows blockchain operators to reorder transactions for their own benefit, often to the disadvantage of regular users.

In the past seven days, traders have made nearly $1 million in profits utilizing various types of MEV techniques.

Read more: What is Maximum Extractable Value (MEV)?

MEV type performance. Source: EigenPhi

MEV, sometimes referred to as an “invisible tax,” can lead to practices such as preemptive trading and compromising trade order integrity. As a result, ESMA is considering expanding its market abuse rules to cover blockchain operational activities within the MiCA framework.

These developments have sparked industry discourse, including questioning the scope of MiCA’s MEV applications. However, incidents such as the MEV bot flash loan attack that stole $1.27 million in Blackhole Tokens (BH) highlight the urgency of regulatory clarity.

Anja Blaj of the European Crypto Initiative distinguishes between harmful and benign MEV tactics, highlighting the need for a nuanced understanding. ESMA’s consultation aims to pinpoint which MEV measures may represent market abuses and guide effective regulation.

“Scenarios and tactics that have an impact similar to market abuse are very limited. We must continue to emphasize this point, as the original purpose of MEV was to reward good actors for their verification work,” Blaj told CoinDesk.

Regulatory attention to MEV is part of broader efforts to ensure stability and fairness in digital asset markets. For example, last year, malfunctioning MEV bots resulted in losses of more than $400,000, further highlighting the risks of unregulated MEV practices. These incidents demonstrate the real risks and financial implications of MEVs without proper oversight.

Read more: What is Marketplace for Cryptocurrency Assets (MiCA)?

The European Union’s proactive stance on digital asset regulation, led by the MiCA framework, paves the way for a clear MEV directive. This dialogue between regulators and the cryptocurrency sector is essential to establish the limits of acceptable MEV practices.

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