Paradigm Files Comment Letter on ESMA’s Market Abuse Consultation

On Tuesday, Paradigm filed a comment letter in response to a consultation by the European Securities and Markets Authority (ESMA) on detection and prevention of market abuse, investor protection and operational resilience. Among other things, this consultation contemplates the application of ESMA’s Market Abuse Regulation (MAR) to crypto markets. We believe this consultation could have significant implications for crypto’s base layer, given the way it characterizes MEV. A copy of our comment letter can be found here.

In our letter, we make the following points:

• While we support ESMA’s broad objective of ensuring that EU-based crypto markets are free of market abuse, we have concerns regarding ESMA’s proposed approach of leveraging the Market Abuse Regulations (MAR) in its application of Article 92(1) of MiCA.
• Our concerns center around ESMA’s potential application of the MAR to crypto’s base layer as implied in Paragraphs 18 and 19 of the consultation, which together suggest ESMA’s current understanding of blockchain technology could be outdated and lacking appropriate nuance.
• Regulation that forces blockchain market microstructure into a specific architecture could thwart innovation and harm consumers in the long run, since the market is constantly changing and improving for the benefit of users.
• There are some places where market abuse regulation could be particularly helpful, and where the applicability of the MAR is less fraught—just not at the base layer.

As always, we appreciate the chance to provide this level of technical feedback to any policymakers around the world, including those in the US.