Bank For International Settlements Explains MEV & Ethereum Market Manipulation

The “miner extractable value” or MEV and its effects are one of the industry’s open secrets. And the Bank for International Settlements recently put out a document titled “Miners as intermediaries: extractable value and market manipulation in crypto and DeFi” to explain the phenomenon and the risks it implies. In it, they define MEV “as the profit that miners can take from other investors by manipulating the choice and sequencing of transactions added to the blockchain.”
Related Reading | Ubisoft Replies To Gamers, What “They Don’t Get” About NFTs And Project Quartz
The paper focuses on the Ethereum blockchain. How popular is the practice over there? “MEV is so pervasive that, at times, one out of 30 transactions is added by miners for this purpose.” Wow, that’s a lot. How much do miners that partake make? “Since 2020, total MEV has amounted to an estimated USD 550–650million on just the Ethereum network, according to two recent estimates.” And remember, “these estimates are based on just the largest protocols and are hence likely to be understated.”
The Operation Is Not Yet Ilegal
This is why MEV concerns you, “not only does this profit come at the expense of other market participants, but the miner’s transactions also delay other legitimate transactions.” How does the operation make a profit, though?  
“By manipulating market prices via a specific ordering – or even censoring – of pending transactions. Because the ledger is publicly observable, these forms of market manipulation can be seen, even if the underlying identity of the miners or other parties in question is unknown.”
In a saner blockchain, “in theory, miners should select and order transactions based on fees only.” Not in this case, though. It’s as simple as this, “several different users put in buy and sell transactions in the mempool, and the miner can select which orders to include in this block.” Under this paradigm, “transactions are not ordered based on fees, but based on the profit opportunities they generate for the miner.”
If this sounds terrible and destroys your faith in the system, it’s because it is and it should. However, it is not yet illegal. This is how it works:
“MEV can hence resemble illegal front-running by brokers in traditional markets: if a miner observes a large pending transaction in the mempool that will substantially move market prices, it can add a corresponding buy or sell transaction just before this large transaction, thereby profiting from the price change”
Is this whole thing legal? Not quite, but, it’s not specifically illegal either. 

ETH price chart for 06/17/2022 on FTX | Source: BTC/USD on
The Problem With MEV
First of all, “there are several open questions on whether current regulation on insider trading is directly transferable to MEV.” Why is that? Because, “in contrast to traditional markets, anyone who participates in such an ecosystem essentially accepts the rules encoded in its protocol.” If code is law, then MEV shouldn’t be a problem.
However, code might be law to the users. When it comes to the authorities, the BIS thinks that “regulatory bodies around the world need to establish whether value extraction by miners constitutes illegal activity. In most jurisdictions, activities such as front-running are considered illegal.” At the time of writing, “bots” that exploit MEV are now active on different decentralized exchanges.”
Related Reading | Cambridge Collaborates With IMF And BIS To Launch Crypto Research Project
Besides that, the BIS considers that “MEV also poses a quintessential problem for the industry itself, as it stands at odds with the idea of decentralization.” How does it do that, BIS? “While the decentralised governance of blockchains may be useful in certain settings of low trust, it imposes a substantial cost on users and in terms of allocative efficiency.” Well, maybe smart contract-enabled blockchains are like that. None of this concerns bitcoin. 
What’s the BIS solution? They pose that “MEV and related issues may be tackled in permissioned distributed ledger technology, based on a network of trusted intermediaries whose identities are public.” Wait, WHAT? The traditional system is permissioned and the identities are public, why would you recreate it with an inefficient blockchain attached to it? 
Featured Image by Rudy and Peter Skitterians from Pixabay| Charts by TradingView

Teresa Bach
Teresa Bach
Teresa is a crypto writer. He is interested in cryptocurrencies, technology, and in particular the subject of online security. An open supporter of freedom of speech, privacy, and equality for all. On a personal level, he likes to stay socially active, loves playing snooker, cricket, enjoys seafood, and loves listening to folk music.

Similar Articles

Most Popular

Here Are 4 As To Why Japanese Porn Is Cencored Ways Everyone Believes In. Which One Do You Prefer?

Unfortunately for us, though, we don’t make as much money from the hits mainly because, say, jennymovies porn - - a songwriter...

Ethereum Eyes Fresh Rally If It Clears This Key Breakout Zone

Ethereum remained supported above the $1,550 zone against the US Dollar. ETH is rising and might gain pace if there is a clear move...

A decentralized future for fans and Hollywood – Cointelegraph Magazine

The traditional film industry is one of the most centralized and traditional of them all. Just a handful of movie studios and streaming conglomerates...

Bitcoin Price Lacks Momentum, Why BTC Could Drop 5%

Bitcoin is struggling to climb above the $24,000 resistance zone against the US Dollar. BTC is declining and might continue to move down towards...

How much enforcement is too much? – Cointelegraph Magazine

Many blockchain companies now believe that regulation is inevitable, but there’s a growing debate over where to draw the line between protecting users and...

The US technology bill would establish a blockchain adviser job for the Biden administration

A new piece of legislation that would establish the post of a blockchain adviser to the US government has blockchain aficionados excited. The CHIPS...

Ethereum Rockets Towards $1,800 as Bulls Take Over Crypto Market

Ethereum started a strong increase above the $1,700 level against the US Dollar. ETH is showing positive signs and might rise again towards $1,800. Ethereum...

Bitcoin Price Gains Momentum, Why The Bulls Could Aim $25K

Bitcoin started a fresh increase above the $23,000 resistance zone against the US Dollar. BTC might continue to rise towards the $25,000 resistance zone. Bitcoin...

Influencing behavior, making money – Cointelegraph Magazine

Economics is the study of human behavior involving scarce resources — and the effects those behaviors have on those resources, explains Roderick McKinley. Tokenomics...

Ethereum Recovery Faces Major Hurdle, Risk of Fresh Decline Exits

Ethereum declined towards $1,350 before recovering higher against the US Dollar. ETH is now facing a major resistance near the $1,460 and $1,500 levels. Ethereum...
Bitcoin (BTC) $ 23,325.25
Ethereum (ETH) $ 1,713.45
Tether (USDT) $ 1.00
USD Coin (USDC) $ 1.00
BNB (BNB) $ 326.75
XRP (XRP) $ 0.373975
Cardano (ADA) $ 0.533209
Binance USD (BUSD) $ 1.00
Solana (SOL) $ 41.99
Polkadot (DOT) $ 8.81
Dogecoin (DOGE) $ 0.070096
Avalanche (AVAX) $ 28.08
Shiba Inu (SHIB) $ 0.000012
Dai (DAI) $ 1.00
Lido Staked Ether (STETH) $ 1,650.60
Polygon (MATIC) $ 0.920327
TRON (TRX) $ 0.069841
Wrapped Bitcoin (WBTC) $ 23,318.25
Ethereum Classic (ETC) $ 37.53
OKB (OKB) $ 18.31
LEO Token (LEO) $ 4.89
Litecoin (LTC) $ 61.32
FTX (FTT) $ 30.55
Uniswap (UNI) $ 8.87
Chainlink (LINK) $ 8.43
NEAR Protocol (NEAR) $ 5.18
Cronos (CRO) $ 0.147830
Cosmos Hub (ATOM) $ 11.45
Stellar (XLM) $ 0.125716
Flow (FLOW) $ 2.92
Monero (XMR) $ 164.63
Bitcoin Cash (BCH) $ 141.41
Algorand (ALGO) $ 0.366696
Filecoin (FIL) $ 9.12
VeChain (VET) $ 0.031715
ApeCoin (APE) $ 7.28
Internet Computer (ICP) $ 8.28
Decentraland (MANA) $ 1.08
Chain (XCN) $ 0.085212
Hedera (HBAR) $ 0.078382
Tezos (XTZ) $ 1.92
The Sandbox (SAND) $ 1.34
Quant (QNT) $ 127.17
Theta Network (THETA) $ 1.67
Axie Infinity (AXS) $ 18.80
Elrond (EGLD) $ 66.68
Aave (AAVE) $ 103.13
Frax (FRAX) $ 0.998888
Lido DAO (LDO) $ 2.47
EOS (EOS) $ 1.24