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2024 U. Ill. J.L. Tech. & Pol'y 85 (2024)
The (Questionable) Legality of "Maximal Extractable Value": A Securities Law Perspective

handle is hein.journals/jltp2024 and id is 85 raw text is: THE (QUESTIONABLE) LEGALITY OF MAXIMAL EXTRACTABLE VALUE: A SECURITIES LAW PERSPECTIVE Aniruddh Vadlamanit Abstract DeFi users complain that Maximal Extractable Value (MEV) extractors engage in manipulative and deceptive practices when they re-order user trades for their own benefit. By receiving nonpublic price sensitive information before it is broadcasted to the entire network, extractors become the Vader controlling and executing trade orders on a Decentralized Exchange (DEX). Extractors can detect a potential trade by a user on a DEX because of their ability to view a mempool. Once a large trade order has been detected, extractors, by re-ordering the transactions in the mempool, rapidly jump in front of the user with their own transaction, and subsequently execute a sell-off transaction once the user's transaction has been validated, thereby, making a generous amount of profit. The extractors have argued that MEV extraction is a necessary evil because it is a significant factor in assessing the overall economic stability of a token. While many have criticized this practice as being an invisible tax on the users, they have had no choice but to accept its legality at face value because of the limited regulation in this field. This Article posits that MEV extraction practices violate at least two provisions of the Securities Exchange Act and one of the rules promulgated thereunder. The approach taken by this paper is to analyze a practice called the sandwich attack as the basis and view it in light of the securities law provisions to ascertain whether it is analogous to disruptive, manipulative, or deceptive trading practices, such as the traditionally harmful trading practices like market spoofing, exploratory trading and banging the close etc., all of which are illegal. Further, this Article affords two policy recommendations for regulatory bodies to regulate the extraction practices and concomitantly indict the extractors. 85 f B.A. LLB final-year Law Student at Jindal Global Law School and an incoming JD Candidate. I would like to thank Professor Agnidipto Tarafder for reviewing my paper. I would also like to thank Anushka Narayan for her valuable edits and Vineet Jadhav for his research on MEV. I wish to thank the Members and Editors of JLTP for their efforts in publishing this Article.

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