The European Union (EU) has taken a significant step in regulating the cryptocurrency market by designating Maximum Extractable Value (MEV) as an illegal market abuse practice under the Markets in Crypto Assets (MiCA) regulation.

The European Securities and Markets Authority (ESMA) has released its third consultation package, aiming to provide clear guidelines on how certain provisions in the law can be interpreted. This approach is designed to eliminate any ambiguity in the law, which is set to be fully implemented in the coming months.

ESMA's Stance on MEV Market Abuse

The ESMA has defined MEV as a well-known practice where a miner or validator can take advantage of their ability to arbitrarily reorder transactions to front-run a specific transaction(s) and profit from it. This practice is now clearly identified as a form of market abuse under the MiCA regulation.

To prevent such attacks, the ESMA will require trading platforms to report instances of MEV market abuse. While there are intricacies to be sorted out, the regulators are determined to make the provisions of MiCA as comprehensive and clear as possible.

As part of this effort, the ESMA has published a draft template for reporting suspicious transactions, which may undergo further modifications in the coming months. The European markets regulator is seeking stakeholder feedback on these propositions, with a deadline of June 25.

EU's Broader Objectives

The EU's crackdown on MEV market abuse and other related market issues is seen as part of a broader effort to reposition the bloc in the capital market. According to Circle's EU Strategy and Policy Head, Patrick Hansen, the European Union has been recording negative trends in several key areas, including a dwindling investor capital share.

The implementation of MiCA, including the regulation of Bitcoin, is viewed as an opportunity for the EU to reposition itself and potentially catch up with other regions, such as the United States, which have been more proactive in the cryptocurrency space.

Overall, the EU's designation of MEV as an illegal market abuse practice under MiCA represents a significant step in the regulation of the cryptocurrency market, aimed at promoting transparency, fairness, and investor protection.