Regulators Need To Establish Whether MEV Is Illegal: BIS Report

Key Takeaways

  • A new Bank for International Settlements research paper has likened MEV to illegal market manipulation in traditional markets.
  • The paper suggests that regulators must establish whether MEV is illegal and whether current insider trading provisions apply to the activity.
  • The bank for central banks also suggested that permissioned blockchains based on trusted intermediaries with publicly known identities may tackle MEV.

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The Bank for International Settlements has suggested that new regulatory approaches may be needed to address market manipulation by blockchain miners and validators.

BIS Likens MEV to Illegal Market Manipulation

MEV seems to have become a new subject of interest for global financial institutions.

A new research paper published by staff members of the Bank for International Settlements Thursday has likened maximal extractable value (MEV) in permissionless blockchains to illegal market manipulation, including prohibited activities such as front-running by brokers in traditional markets. To begin combating this alleged manipulation, the paper has suggested that global regulatory bodies must “establish whether value extraction by miners constitutes illegal activity.”

The paper, titled “Miners as intermediaries: extractable value and market manipulation in crypto and DeFi,” explains MEV and its implications for “blockchain-based finance,” and draws regulatory implications for miners and the broader crypto industry. MEV refers to the profits miners or other parties earn by extracting value from blockchain users by leveraging their discretionary power to sequence or reorder transactions within blocks. Typically, MEV affects blockchain users interacting with decentralized, fully on-chain applications such as automated market makers and money markets. By leveraging this power, miners can front-run, back-run, and “sandwich” unsuspecting users’ transactions to extract extra profits by manipulating, for…


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