The European Securities and Markets Authority (ESMA) categorized the maximum extractable value (MEV) algorithm as market abuse. Regulated crypto companies in the EU will be required to identify and report instances of its use in special reports.

MEV Algorithms Can Manipulate Crypto Market

According to the third consultation package issued by the ESMA as part of the MiCA bill, maximum extractable value (MEV) is a clear example of market abuse. The regulator claims that validators using MEV algorithms manipulate the market.

In the report, the ESMA points to the need for measures to control and regulate MEV algorithms. All crypto companies licensed to operate in the EU must identify instances of MEV use and report it in comprehensive “reports on suspicious transactions.” These reports will be reviewed by the ESMA in cooperation with regulators in other jurisdictions to adjudicate in penalizing violators.

Patrick Hansen, Expert on Crypto Regulation in the EU, noted that the regulator’s approach was meticulous, as the template form for such reports alone took up six pages. In his opinion, validators using MEV could be subject to investigation and enforcement action by European authorities. Hansen also said that the ESMA initiative is only a draft of standards for the EU crypto industry. Still, they may be finalized and officially adopted within the next few months.

Vitalik Buterin, Co-Founder of Ethereum, called the use of MEV algorithms one of the three main problems threatening the network’s decentralization.

Author: Molly Wilson
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