Venture capital firm Paradigm has urged the European Securities and Markets Authority (ESMA) to reconsider its approach to preventing market abuse in the crypto assets market, specifically regarding Maximum Extractable Value (MEV). In a comment letter, Paradigm expressed concerns that ESMA's measures could harm the industry without providing a clear understanding of MEV.

Paradigm argued that ESMA is misapplying traditional financial market regulations to decentralized blockchain systems, which could stifle innovation and hinder the development of tools that promote user welfare. Instead, ESMA should encourage industry innovation that enhances consumer welfare without imposing specific design requirements.

The firm highlighted the need for a more nuanced approach, recognizing the complexity of MEV and its subjective nature. Paradigm suggested that regulating base-layer blockchain microstructure is inappropriate and may prevent the development of solutions that balance protocol efficiency, security, and user welfare.

While Paradigm's letter did not offer a solution to MEV misuse, it emphasized the importance of understanding MEV's nuances to avoid unintended consequences. The firm's concerns align with earlier commenters, stressing the need for a more informed approach to regulating the crypto market.

The implementation of the Markets in Crypto Asset (MiCA) Act on June 30 raises concerns about the potential impact of ESMA's measures on the crypto industry. Paradigm's call for nuance in regulating MEV reflects the need for a balanced approach that promotes innovation and user welfare while preventing market abuse.