According to Aditya Palepu, the CEO of DEX Labs and a key contributor to the decentralized crypto derivatives exchange DerivaDEX, Maximum Extractable Value (MEV) refers to the process by which miners or validators profit by reordering transactions within a block. MEV is hindering financial institutions from adopting decentralized finance, which is detrimental to retail users.
Palepu stated in an interview with Cointelegraph that all electronic trading markets face issues related to Maximum Extractable Value or similar problems, stemming from information asymmetry in transaction data ordering.
He pointed out that the solution is to process transactions in a trusted execution environment, thereby preventing order flow data from being seen before execution. These environments achieve private handling of transactions through capital-backed vaults or other mechanisms. He added:
"Sandwich attacks" are a form of market manipulation where validators or miners insert their own transactions before and after user orders to manipulate prices and profit.
As MEV exists as a core infrastructure of crypto and decentralized finance, it has sparked intense debates among industry executives and protocol founders who are trying to address the centralization risks, rising costs, and barriers to widespread adoption that MEV may bring.
In response to this issue, Palepu told Cointelegraph that the lack of transaction privacy hinders financial institutions from adopting decentralized finance, as it exposes them to market manipulation and front-running risks—where information is broadcast before transaction execution.
Palepu stated to Cointelegraph that when institutions cannot participate effectively, everyone is affected, including retail users. He further added that institutions create the "highways and roads" necessary for the normal operation of financial markets.
He also noted that this includes pure arbitrage opportunities, which can dampen price fluctuations and keep asset prices consistent or close to consistent across various exchanges.
Palepu said, "Like any market, exchanges need active and diverse participation." He added that without institutional involvement, liquidity may dry up, volatility may surge, market manipulation may increase, and trading costs may skyrocket.
Related: Reports indicate that a Nordic bank that once rejected cryptocurrency is set to launch a Bitcoin (BTC) ETP.
Original: “Crypto Executives Say MEV Is Driving Institutions Away from DeFi and Costing Users Dearly”
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