Why Big Money is Shying Away from DeFi and What It Means for You

In the world of decentralized finance (DeFi), a significant issue looms: maximal extractable value (MEV). This occurs when miners or validators reorder transactions to extract extra profits, a practice that poses risks for everyone, particularly large financial institutions wary of trade manipulation.

The Core Issue: Lack of Privacy

An expert highlights that all electronic markets face similar challenges. The primary concern is that transaction details are visible to everyone before execution, creating a privacy gap that deters major financial players. These institutions avoid exposing their trading intentions before execution, fearing market manipulation.

A Potential Solution: Trusted Execution Environments

To mitigate this, some propose trusted execution environments (TEEs). These act as private vaults, encrypting orders until execution, ensuring confidentiality and preventing preemptive market manipulation.

The Impact on Users

This approach safeguards users from sandwich attacks, where malicious actors place transactions before and after yours to manipulate prices and profit at your expense.

The Debate Intensifies

The MEV debate is heating up in the crypto world, with concerns that it could lead to:

• Increased centralization
• Higher costs
• Slower DeFi adoption

Why Should You Care?

When big institutions stay away from DeFi, the repercussions affect everyone, especially regular users. These institutions are the infrastructure of financial markets, ensuring liquidity, stability, and efficiency.

Without their participation, markets become:

• Less liquid
• More volatile
• More prone to manipulation

This results in higher transaction costs and fewer trading opportunities, creating a lose-lose scenario for all involved.