Paradigm Advises US SEC Crypto Task Force: Adopt ’First, Do No Harm’ Principle in MEV Regulation

In a recent communication to the US Securities and Exchange Commission’s Crypto Task Force, Paradigm, a leading cryptocurrency research firm, emphasized the importance of a cautious regulatory approach to Miner Extractable Value (MEV). The firm urged regulators to prioritize minimizing unintended consequences when addressing MEV-related issues in blockchain ecosystems. This stance reflects growing industry concerns that heavy-handed regulation could stifle innovation in decentralized finance (DeFi) and other crypto-native applications. Paradigm’s recommendation draws parallels to medical ethics, suggesting that regulatory interventions should first ensure they do not cause more harm than the problems they aim to solve. The proposal comes as MEV continues to be a complex and evolving challenge in blockchain networks, requiring nuanced solutions that balance innovation, market fairness, and network security.

Two Paradigm Considerations for SEC

SEC Commissioner Hester Peirce recently posed 48 questions that theseeks clarity on. Paradigm says it aims to help provide this clarity on MEV. This is the maximum value miners or validators (aka block producers) can get by including, reordering, or excluding transactions when producing a block.

In response, Paradigm says that because the market provides solutions for the related challenges, regulators should be “judicious in how they choose to address” MEV and the blockbuilding supply chain.

Per the authors, the SEC must protect investors and consumers. However, “its duty to promote capital formation and foster innovation must take precedence here, and any guidance the Commission might choose to issue should take a ‘first, do no harm’ approach, and trend towards flexible principles, rather than ossifying requirements.”

10/ Conclusion: "First, Do No Harm"

The market provides solutions for each successive issue around efficiency or execution, and regulators should thus be judicious in addressing MEV and the blockbuilding supply chain.

We suggest two potential considerations for the @SECGov: pic.twitter.com/HjCMYjSBIQ

The company’s first suggestion is for the SEC to consider opt-in disclosure guidelines for DeFi frontends. Specifically, for those who want to attract the trading activity of companies registered with the SEC.

These teams would utilize the disclosure to describe the technical approaches or third-party software they use to mitigate MEV.

“In so doing, registrants can make informed decisions that will best suit their best execution duties to their clients,” Paradigm argues.

Furthermore, the SEC should consider issuing guidance that explores whether entities that are registered as exchanges are also allowed to operate blockbuilders on Layer-1 networks.

The goal here is to “avoid centralizing forces and any potential conflicts of interest.” This will encourage the networks to continue moving towards decentralization at the same time.

Finally, Paradigm noted that the baselayer markets are still novel. However, the invested risk capital and continual research make them “increasingly more efficient.” It adds that “continued neutrality of the baselayer is imperative for the further development of these decentralized protocols, and egalitarian access by their users.”