Paradigm urges European market regulator to exhibit nuanced approach towards MEV

Venture capital firm Paradigm has submitted a comment letter in response to the European Securities and Markets Authority’s (ESMA) consultation paper on enforcing abuse prevention in the crypto assets market. ESMA’s paper focuses on implementing measures outlined in the Markets in Crypto-Assets (MiCA) Act, with the first measure set to take effect on June 30. Paradigm’s primary concern, along with other commenters, is ESMA’s stance on market abuse, particularly the Maximum Extractable Value (MEV). Paradigm argues that ESMA lacks a clear understanding of MEV and regulating the base-layer blockchain microstructure is inherently flawed. They believe that such regulation would hinder the development of tools that redistribute MEV proceeds back to users, which strike a balance between protocol efficiency, security, and user welfare maximization. Paradigm’s comment letter also emphasizes the need for fair and equitable use of MEV in the future, citing the ongoing occurrence of “sandwich” attacks. They recommend that the enforcement of the MiCA article should be applied with nuance, as existing regulations cannot be directly applied to a system with a different organizational and architectural framework. Furthermore, Paradigm advises ESMA to encourage the industry to build products that enhance consumer welfare without imposing strict design opinions. The comment letter does not propose a specific solution to address the misuse of MEV.