MEV Takes Advantage of DeFi Transparency, Triggering Concerns Over Fairness

Maximal Extractable Value (MEV) is increasingly recognized as a major obstacle to the widespread adoption of decentralized finance (DeFi) by institutions, while also imposing heavy financial burdens on individual crypto investors. MEV allows miners or validators to rearrange transaction sequences for their own gain, effectively creating a "hidden tax" that discourages financial institutions from participating in DeFi, and contributes to greater market instability and inefficiency, as reported by

. This issue has prompted urgent discussions around solutions such as trusted execution environments (TEEs), which aim to restore equity by keeping transaction data private and removing the risk of front-running, according to .

MEV takes advantage of the information gap in how blockchain transactions are ordered. Because transactions are visible to the public before they are finalized, savvy actors can exploit this by using tactics like sandwich attacks—placing trades before and after a user's transaction to drive up costs. The Coinotag report references data from the European Securities and Markets Authority (ESMA), which indicates that MEV-related activities impact about 24% of

blocks, with yearly losses reaching billions of dollars across platforms such as Ethereum. Retail traders are hit hardest, with the report showing they shoulder as much as 80% of the slippage and fees caused by MEV, largely because they lack the resources to defend against these strategies.

The lack of privacy in DeFi protocols has become a significant barrier for institutional players, who need confidentiality to avoid being front-run or manipulated. Aditya Palepu, CEO of DEX Labs and a key contributor to DerivaDEX, pointed out that institutions are the backbone of financial markets, and their absence due to MEV vulnerabilities leaves retail participants facing less liquid markets and increased costs, as he told Cointelegraph. Palepu added, "When institutions are unable to participate efficiently, it negatively impacts everyone," emphasizing that insufficient infrastructure limits the liquidity and stability necessary for DeFi to grow.

Trusted execution environments (TEEs) are being explored as a promising solution, as they encrypt transaction information on the user's side and only decrypt it in secure enclaves after transactions are ordered. The Coinotag report notes that this method keeps order flow private, making front-running unfeasible. Palepu stressed that TEEs could "create a more level playing field" by ensuring confidential order processing, encouraging more equitable DeFi engagement, and reducing exploitative behaviors. Although TEEs are still in the early stages of adoption, the report suggests that their implementation could attract trillions in institutional investments, bringing greater stability and less volatility to crypto markets.

Industry analysts caution that MEV's contribution to centralization and rising costs threatens the foundational ideals of DeFi. While blockchain networks are built for transparency, this openness has been misused to create unfair advantages similar to those in traditional finance. Tackling MEV is not just a technical problem—it also demands governance reforms and collaboration to align the interests of all parties involved. As the debate over MEV's future intensifies, experts told Cointelegraph that the evolution of DeFi will depend on finding a balance between innovation and fairness, ensuring protections for both individual and institutional users.