Incoming Cosmos DeFi Summer: Supported by Sei
Sei is one of the most important things being built in the Cosmos ecosystem right now as it has the capacity to accelerate Cosmos’ DeFi capabilities and attract major liquidity to the Network.
The DeFi game remains a contest for liquidity, with lenders balancing risk exposure against promised gains, and all protocols offering a unique solution to suit any risk appetite. As the clear home of DeFi, Ethereum has more recently been losing ground to competitors with less than 60% of total TVL, down from 90% 18 months ago.
Through leveraging the exponentially-powerful Cosmos ecosystem, Sei is building a ‘use case-specific’ blockchain to provide advanced infrastructure for DeFi applications and is set to become the first order book-oriented blockchain ever built. This will provide lenders with better risk:returns, builders with more mature tooling and liquidity to bootstrap, and individual users a degree of security in participating in a semi-permissioned ecosystem.
Best of Both Worlds
Understanding the cycles of tech innovation to be a process of moving from large, general-purpose tooling to ultra-specialized solutions, Sei has identified the trend of transition from one-size-fits-all Layer 1’s to specialized use cases. This is absolutely core to the Cosmos vision of the ‘Internet of Blockchains;’ a vast and growing network of interconnected purpose-built blockchains that leverage each other’s strengths to support high-quality applications.
Currently, however, many blockchains within the Cosmos ecosystem are designed to only support specific applications. This is due to the customizability granted by Cosmos SDK tooling, as well as native multi-chain interoperability through IBC. Moving forward, it is likely that the Cosmos Network will continue to grow with many chains only supporting a single application.
Sei is fundamentally different from these chains as it seeks to build infrastructure to support DeFi applications, plural. This distinction defines Sei as a ‘use case-specific’ blockchain; granting DeFi developers the tools and liquidity they need to launch powerful new projects.
The Wild-ish West
Crypto assets are renowned for their volatility, artificially inflated values, and tendency to be part of elaborate scams. Something about the anonymous, open-source, and incredibly lucrative nature of Web3 tooling just seems to attract a certain breed of person. The result is a free-for-all mess of scams, hacks, and exploits often referred to as a digital ‘Wild West’ that proves a significant entry barrier for newcomers and has regulators sharpening their knives.
Sei proposes a slightly different system to the permissionless tooling available to developers on Ethereum. Any smart contract must first apply and be processed through on-chain governance before it can be deployed on the network. Not only does this reduce on-chain spam, but also ensures a degree of credibility to projects launching on Sei as being approved by the DAO.
By the (order) Book
The AMM model was an important innovation and significant upgrade to early generation DEXs, allowing DEXs to actually support a half-decent user experience. Incentivized liquidity pools and automatic pricing worked well for retail users gambling on shitcoins, initially, but there still lacked a solution for precise and cost-effective trading. Uniswap v3 attempted to address this pain point by allowing users to provide liquidity and swap in a defined price range, but it still lacked precision.
Centralized exchanges boast superior user experience simply because the order book model works better for trading. The problem is that CEXs are a legacy concept from tradfi and Web3 is all about the pursuit of building decentralized-access products that offer superior user experience to centralized products. The industry is and should be actively exploring ways to drain away any elements of centralization, and exchanges are a fundamental part of that movement.
Sei features an on-chain order matching engine to facilitate trades and support order book-style exchanges with deep liquidity supplied by a built-in central limit order book (CLOB). The effectiveness of this solution is compounded by the Network’s supporting of ‘order bundling’, aggregating multiple orders for different assets in a single contract execution and also simultaneous matching for transactions of the same trading pair. Together, this works with the ‘frequent batch auctioning’ mechanism to allow faster trades and protection against front-running from MEV bots.
