What Is Sei?

Built on Cosmos, Sei Network is a Layer 1 blockchain with a DeFi focus. Basic primitives like an order-matching engine and a single liquidity model will be included, making it possible to construct applications more quickly and easily than with general-purpose blockchains like Ethereum.

The built-in central limit order book (CLOB) module was created using the Cosmos SDK and Tendermint core. Other Cosmos-based blockchains can use Sei’s CLOB as a shared source of liquidity. This enables them to establish a market for virtually any asset. Decentralized apps built on Sei can also build on top of the CLOB.

In essence, CLOB is an execution strategy similar to that employed in traditional equities, where all bids and offers are matched based on price and priority of execution. Instead of requiring a middleman, it enables all users to trade directly with one another. This engine system is intended to serve as the cornerstone of SEI’s technology.

So far, industry leaders in the sector, such as Multicoin Capital, Coinbase Ventures, Delphi Digital, and GSR Ventures, have shown their support for the project. But what problem does Sei really solve, and what are the potential use cases for its solution?

What Problem Does Sei Solve?

Sei has the ultimate goal of becoming an optimal environment in which decentralized exchanges (DEXes) can thrive.

DEXes are applications prevalent throughout the blockchain world, and they allow users to trade and exchange tokens without the use of an intermediary. They have a massive network effect, and entire ecosystems get built around them. As such, they require an entirely new degree of reliability, scalability, and speed.

With general-purpose blockchains (Ethereum, Solana) and app-specific blockchains (Osmosis, dYdX) on the other, Sei targets that sweet spot in the middle and allows for an entirely new design space between the two.

Its sector-specific nature enables it to create an environment tailor-made for DEX applications. Sei is built using the Cosmos SDK because it enables Sei to design full, end-to-end blockchain flows.

Every aspect of the Sei blockchain is optimized to allow exchanges to perform at their best and provide their users with an easy, straightforward user experience.

Sei aims to achieve this through a variety of DEX optimizations that set it apart from other Layer 1 blockchains.

Sei DEX Optimizations

A globally accessible order book, price oracles, frontrunning prevention, and other functions will be included as native built-in features of the Sei platform.

Source: Sei Network - Twitter

• Decentralized: Empowering users and developers to interact in optimized and decentralized ways has always been the main objective of Web3. New and upcoming protocols cannot prioritize reach over performance because of the current state of the industry. Sei provides a middle ground where DeFi protocols can scale and develop in a decentralized manner with the fewest trade-offs possible.

• Tight spreads: The difference between the lowest ask offer and the highest bid offer on the order book is known as the market spread. Sei achieves tight spreads in its order book by offering low fees and working with market makers to attract massive amounts of liquidity.

• Deep liquidity: Sei was created with developers in mind and acts as the infrastructure and shared liquidity hub for upcoming DeFi applications. The Sei order matching engine is easily plug-and-play compatible, allowing apps to access pooled liquidity from other apps.

• Lightning-fast transactions: Sei’s speed is one of its main advantages over rival L1s. At around 600ms, Sei currently has the quickest Time to Finality (TTF) in Web3.

• Extremely low fees: Due to the fact that Sei was created to improve decentralized exchanges, its massive performance capabilities allow it to provide little-to-no transaction fees.

• Purpose-built: Instead of being an app-specific chain, Sei sees itself as a DeFi-specific L1. Instead of attempting to develop a solution that works for all protocols, this distinction enables Sei to optimize its chain for a class or subset of protocols.

• IBC Interoperability: In order to benefit from its cross-chain messaging technology, Sei has partnered with Axelar Network. Due to this, Sei is now able to use smart contract functionality and logic from all of Axelar’s partners in addition to bridging assets to and from the IBC and EVM chains.

• MEV Prevention: Maximum extractable value (MEV) refers to the highest amount that can be obtained from block production in addition to the regular block reward and gas fees. Due to the clear disruption of frontrunning and MEV within DeFi, this is particularly important. This is avoided by SEI’s frequent batch auctioning, which also makes layer 1 specifically MEV-proof. This improves all Sei applications.

Features That Enhance User and Developer Experience

• Order bundling: Minimizes gas costs and allows traders on Sei-native apps to submit one transaction that updates multiple markets. Sei provides multiple levels of order bundling. This minimizes gas costs for market makers and allows traders on Sei-native apps to submit one transaction that updates multiple markets.

• Built-in price oracles: The chain itself features price oracles that enable consistent, reliable data feeds. To support asset exchange rate pricing for use by other modules and contracts, Sei has an Oracle module. Participation as an Oracle is expected and required when validating for the network in order to guarantee the most dependable and precise pricing for assets.

Technical Innovations

DeFi parallelization

The processing of transactions in a particular order is not necessary if they don’t affect the same state. This significantly increases throughput and latency by enabling the processing of separate transactions simultaneously.

Twin-turbo consensus. Bringing together optimistic block processing and intelligent block propagation.

With intelligent block propagation, block proposers will send a proposal that includes a hash of each transaction that makes up the block. Using transactions from their mempool, validators can quickly reconstruct the block after receiving the block proposal.

Coupled with optimistic block processing, and optimization on the current block proposal process, Sei uses this “twin-turbo consensus” to achieve impressive latency, throughput, and 600ms finality.

Built-in order matching engine. Improving scalability for any order book DEX built on Sei.

Sei can carefully choose a set of tradeoffs that open up a new design space for decentralized exchanges as the first sector-specific Layer 1.

The incorporation of an order-matching engine into the chain itself is one of the network’s most significant developments. This engine system will serve as the foundation for SEI’s technology.

Sei Ecosystem

Source: Sei Network

Within the IBC ecosystem, Sei already has a sizable family of applications and established connections, with over 80 apps launching on it, as of November 2022. Both the Pharaoh synthetic assets protocol and the Vortex perpetual exchange are launching natively on Sei.

Other applications on Sei include:

• KYVE: A web3 solution focused on data accessibility
• Axelar Network: Cross-chain communication infrastructure for Web3
• Nitro: The first Solana virtual machine chain on Cosmos
• Leap Wallet: Non-custodial wallet for Cosmos
• White Whale: App bringing arbitrage opportunities to retail users
• Synthr: A protocol for synthetic assets, collateral management, and risk management

The Goal of the Sei Ecosystem

The team behind Sei is quoted as saying they want to build a “decentralized Nasdaq”.

Creating a network-wide order-book exchange is something other blockchains have experimented with, as well.

As the Sei ecosystem grows, new applications will start using the platform’s order book-based DEX.

This will create a network-wide order-book exchange resembling the Nasdaq.

Solana, another popular blockchain, had a similar plan for Serum, its most popular DeFi protocol. Its order book exchange provided the ecosystem with the liquidity and token swaps necessary for other DeFi apps to flourish in the ecosystem.

Some of those apps include Solend, Zeta, and Raydium, all of which use Serum.

SEI vs. Other Blockchains

Compared to other popular blockchains such as Bitcoin, Ethereum, and Solana, Sei has been optimized for maximum transactional throughput, transactional finality, and frontrunning prevention.

Transactional throughput is important because it’s the rate at which transactions are committed by the blockchain. In other words, this defines the total load that the system can handle per a single unit of time. Throughput is measured in transactions per second. Sei can perform 22,000 transactions per second, a much higher rate than the popular blockchain Solana.

Transactional finality serves as the guarantee that transactions can’t be altered once they are completed. Blockchain users use finality to measure the amount of time they have to wait to receive a reasonable guarantee that the transaction they’re trying to process isn’t going to be reversed, changed, or lost. The lower the finality, the faster you gain assurance that a blockchain’s transactions are settled.

One other aspect in which Sei is superior to general-purpose blockchains is its focus on preventing frontrunning. This is an unethical practice in which investors act on insider information. Sei solves this through a variety of methods including frequent batch auctions, in which the blockchain aggregates orders together at the end of a block and executes them at the same time.

Source: Sei Network

Conclusion

Sei Network is a trade-focused layer 1 blockchain within the Cosmos ecosystem.

It aims to be the advanced infrastructure that will underpin DeFi applications, especially those that leverage its native central limit order book (CLOB).

With time, Sei is becoming a very welcomed addition to the Cosmos family. Sei will unquestionably solidify its position as a key DeFi component of the IBC ecosystem as Cosmos gets impacted by more novel protocols and technological advancements.