Patrick Hansen, a Circle executive, expresses concern about the potential consequences of the Markets in Cryptoassets (MiCA) regulation on entities involved in Maximal Extractable Value (MEV) activities in the European Union (EU). MiCA is a groundbreaking piece of legislation that governs the issuance and provision of services related to crypto-assets and stablecoins, and it is set to be enforced between mid-2024 and early 2025.
One noteworthy aspect of MiCA is Article 92, which aims to prevent and prohibit market abuse involving crypto-assets. This provision has captured the attention of lawyers and industry stakeholders, as it could have significant implications for MEV participants operating within the EU.
Title VI of MiCA focuses on the “prevention and prohibition of market abuse involving crypto-assets” and applies to all transactions, orders, or behaviors related to any crypto-asset traded on exchanges. It’s worth noting that this regulation covers activities regardless of whether they occur on a centralized trading platform like Kraken or within the decentralized on-chain ecosystem of platforms like Uniswap or PancakeSwap.
Interpreting the regulation broadly, MEV practices, which involve manipulating transaction order to maximize block production value, now come under scrutiny due to MiCA. The regulation empowers agencies to investigate MEV practices that might be considered market manipulation, especially if they involve artificial price inflation or deceptive transactions.
Besides addressing market manipulation, MiCA also tackles wash trading, a form of illegal market abuse that artificially inflates trading volumes. This aspect of the regulation may pose challenges for Crypto-Asset Service Providers (CASPs) and platforms, including approved exchanges, as they strive to maintain market liquidity for major tokens while adhering to MiCA’s strict requirements.
Although the enforcement of MiCA is still months away, experts predict increased scrutiny for MEV teams within the EU. If MEV practices are banned in Europe by MiCA, it could have ripple effects throughout the decentralized finance (defi) and crypto ecosystem, potentially impacting liquidity.
Nevertheless, MiCA’s proactive approach to regulating market abuse in the crypto sphere underscores the EU’s commitment to managing the rapidly evolving digital asset landscape. As the global community observes the implementation of MiCA, other jurisdictions are likely to take cues and adapt their regulatory frameworks accordingly.
Recently, Flashbots, a research and development startup focused on Ethereum, secured $60 million in a Series B funding round led by Paradigm. The funding will be utilized to further develop their Single Unifying Auction for Value Expression (SUAVE) network, aiming to mitigate the negative impact of MEV.