Maximal extractable value (MEV) — the process by which miners or validators reorder transactions in a block to extract profits — is hindering financial institutions from adopting decentralized finance (DeFi). This situation, in turn, negatively impacts retail users, according to Aditya Palepu, CEO of DEX Labs and lead contributor to the decentralized crypto derivatives exchange DerivaDEX.
Palepu explained to Cointelegraph that all electronically-traded markets suffer from MEV or similar issues arising from information asymmetry related to the ordering of trading transaction data. He pointed to a solution that involves preventing order flow data from being visible before execution. This can be achieved by processing transactions within trusted execution environments (TEEs), which handle transactions privately through mechanisms such as a funded vault.
“What makes them really powerful is that they can process orders privately,” Palepu said. “So your trading intentions aren’t broadcast to the world before execution. They’re encrypted client-side, and only decrypted inside the secure enclave after they’re sequenced.”
This approach makes front-running transactions impossible, he added. Front-running is a common form of market manipulation where validators or miners insert transactions immediately before and after a user’s order to manipulate prices and extract profits. A specific example of this is “sandwich attacks,” which this privacy model protects users against.
MEV’s presence as a core infrastructure component in crypto and DeFi has sparked intense debate among industry executives and protocol founders. There is concern that MEV can increase centralization, drive up costs, and ultimately stifle mass adoption of decentralized finance.
### Institutions Staying Out of DeFi Hurts Retail Users
Palepu emphasized that the lack of transaction privacy deters financial institutions from participating in DeFi due to the risks of market manipulation and front-running associated with broadcasting transactions prior to execution. “When institutions can’t participate effectively, everyone suffers, including retail,” he told Cointelegraph.
He noted that institutions provide the “highways and roads” — the necessary trading infrastructure — that enables financial markets to operate smoothly. These institutions engage in non-extractive arbitrage trading opportunities that reduce price volatility and maintain asset prices at or near parity across exchanges.
“Exchanges, like any marketplace, need vibrancy and diversity of participation,” Palepu said. Without institutional involvement, liquidity can dry up, volatility may increase, market manipulation can become more prevalent, and transaction costs tend to surge.
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**Related:** [How Batched Threshold Encryption Could End Extractive MEV and Make DeFi Fair Again]
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