Maximum extractable value (MEV), a process by which miners or validators rearrange transactions in a block to extract profits, prevents financial institutions from adopting decentralized finance (DeFi), harming retail users, according to Aditya Palepu, CEO of DEX Labs, a major shareholder of decentralized cryptocurrency derivatives exchange DerivaDEX.
All electronically traded markets suffer from maximum extractable value or similar problems rooted in information asymmetry in requesting trading transaction data, Palepu told Cointelegraph.
The solution, Palepu said, is to prevent order flow data from being exposed before execution by processing transactions in trusted execution environments, which handle transactions privately through a fund vault or some other mechanism. He added:
“What makes it really powerful is its ability to process orders privately. So your trading intentions are not broadcast to the world before execution. They are encrypted on the client side, and are only decrypted within the secure area after they are serialized.”
This makes initial transactions “impossible,” he said, protecting users from things like “sandwich attacks,” a form of market manipulation where auditors or miners make transactions before and after a user’s order to manipulate prices and extract profits.
The presence of MEV as a core infrastructure in cryptocurrencies and decentralized finance (DeFi) has generated significant interest debate Among industry executives and protocol founders, they are trying to address MEV’s potential to increase centralization, increase costs, and stifle mass adoption.
Related to: How Bulk Threshold Crypto Can End Extractive MEV and Make DeFi Fair Again
Institutions staying out of the DeFi game hurts retail users
The lack of transaction privacy prevents financial institutions from adopting DeFi because it exposes them to market manipulation and front-end risks caused by streaming transactions before they are executed, Palebo told Cointelegraph.
“When institutions cannot participate effectively, everyone suffers, including retail,” Palepu told Cointelegraph, adding that institutions create the “highways and highways” or trading infrastructure needed for financial markets to function smoothly.
These include non-extractive arbitrage trading opportunities that reduce price volatility and keep asset prices at or near parity across exchanges, he added.
“Exchanges, like any market, need vitality and diversity of participation,” Palepu said, adding that a lack of institutional participation can cause liquidity to dry up, increased volatility, increased market manipulation, and higher transaction costs.
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The post MEV Killing Institutional DeFi Adoption, Hurting Retail Users: Crypto Exec first appeared on Investorempires.com.
