Venture capital firm Paradigm has submitted a response to the European Securities and Markets Authority (ESMA) consultation paper regarding the enforcement of abuse prevention in the crypto assets market. ESMA’s paper pertains to the implementation of measures outlined in the Markets in Crypto-Assets (MiCA) Act, the initial phase of which is set to take effect on June 30th.
Paradigm’s primary contention, shared by earlier commentators, revolves around ESMA’s approach to “market abuse, such as the well-known Maximum Extractable Value (MEV).” According to Paradigm, ESMA’s understanding of MEV needs clarification. The firm argues that ESMA mistakenly draws parallels between market abuse in traditional centralized financial markets and the actions of base layer participants.
Paradigm emphasizes that regulating the microstructure of base-layer blockchains is inherently flawed. Such regulation, they argue, could stifle innovation, pointing out that several tools have emerged outside of protocol to redistribute MEV proceeds to users. This, they suggest, balances protocol efficiency and security with maximizing user welfare.
Paradigm’s concerns touch upon rollups and flash bots, as discussed in a 2021 paper available on their website. Despite this exploration, uncertainties persist regarding MEV and the future trajectory of Ethereum.
Fair and equitable use of MEV remains a future objective, especially in light of ongoing “sandwich” attacks. Paradigm stresses that the enforcement of MiCA’s requirements for those professionally arranging or executing transactions should be nuanced. They assert that existing regulations are ill-suited for a system with fundamentally different organizational and architectural principles.
In their letter, Paradigm calls on ESMA to foster an environment where industry can develop products that enhance consumer welfare without dictating design specifics. While highlighting these concerns, Paradigm does not propose a definitive solution to combat MEV misuse.
Source:
Adam Sternbach
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