Hidden transaction manipulation in decentralized finance is deterring institutional adoption and burdening retail traders, warns DEX Labs CEO Aditya Palepu.
The issue of maximal extractable value (MEV) — where blockchain validators reorder transactions to gain profit — is eroding trust in decentralized finance (DeFi) and discouraging institutional participation, according to Aditya Palepu, CEO of DEX Labs. Palepu argues that MEV has become a “hidden tax” on retail users while driving away the very institutions that could bring stability and liquidity to the DeFi ecosystem.
In an interview, Palepu explained that MEV stems from a core weakness in how transactions are processed on public blockchains. “All electronically traded markets suffer from MEV or similar problems,” he noted, adding that the lack of transaction privacy allows actors to manipulate order flow for personal gain.
MEV enables front-running — a practice where validators insert their own transactions before and after a user’s order, profiting from the resulting price changes. This manipulation often leads to “sandwich attacks,” directly increasing costs for retail traders.
To combat this, Palepu advocates for trusted execution environments (TEEs), which can process transactions privately without broadcasting order details. “They can process orders privately, so your trading intentions aren’t exposed before execution,” he said. “They’re encrypted client-side and only decrypted within a secure enclave.”
Such technology could make front-running impossible, Palepu emphasized, creating a fairer trading environment for both institutions and individuals.
However, until privacy-preserving mechanisms are adopted widely, financial institutions remain cautious. “When institutions can’t participate effectively, everyone suffers,” Palepu warned. He compared institutional players to “highways and roads” that enable efficient markets, adding that their absence causes liquidity shortages, increased volatility, and higher trading costs.
Industry analysts echo his concern, warning that persistent MEV practices could centralize power among a few validators and undermine DeFi’s core promise of transparency and equality.
As MEV continues to distort the DeFi landscape, the lack of privacy and fairness is becoming a critical obstacle to mainstream adoption. Without structural solutions like TEEs, institutions will stay out, leaving retail traders to shoulder the cost of an increasingly extractive ecosystem. The question now is whether DeFi can evolve quickly enough to restore trust and ensure equitable access before institutional confidence fades completely.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.