Sei Network Explained: Transforming Digital Asset Trading
Discover how SEI Network, a specialized blockchain designed for digital asset trading, addresses the limitations of traditional blockchains with a focus on speed, security, and interoperability.
Introduction
Similar to the evolution of every novel technology, the blockchain experiences cycles that stimulate advancements in innovation.
Initially, general-purpose blockchains such as Ethereum provided the foundational infrastructure that fueled the rapid growth of decentralized applications.
However, as these applications progress beyond their initial adoption phase, they encounter challenges related to scalability, speed, and reliability.
Just as the Web 2.0 infrastructure specialized in serving specific major use cases as the industry matured, blockchain infrastructure also needs to specialize in catering to key application types.
This specialization is crucial for enabling the widespread adoption of the largest Web 3.0 applications: by tailoring the blockchain infrastructure to meet the unique requirements of these applications, the industry can overcome the limitations they face and propel them towards mass adoption.
In this article, we’ll dive into Sei Network, a specialized Layer 1 blockchain designed to address the limitations of general-purpose blockchains in the trading sector.
What is Sei Network?
The Sei Network is a blockchain specifically developed for fast and efficient digital asset exchange. They claim to be the fastest blockchain in the market, ensuring swift transaction processing for traders and exchanges.
Sei’s primary focus is on serving as the preferred blockchain for decentralized applications in areas like DeFi, NFTs, and gaming.
With a strong emphasis on performance, security, and interoperability, Sei aims to process transactions within a mere 500 milliseconds, competing with centralized exchanges (CEXs) and surpassing existing decentralized exchanges (DEXs). Concerns such as unfair trading practices (MEV) are addressed by leveraging advanced technologies like frequent batch auctions, ensuring a secure environment for users.
It is worth noting that Sei was built using the Cosmos SDK, enabling it to become sector-specific and enhance interoperability with other blockchains. This integration with the Cosmos ecosystem further strengthens Sei’s capabilities and potential for seamless connectivity across different platforms.
How does Sei Work?
The Sei Network operates through a combination of key components and innovative features that improves the trading experience and efficiency on the blockchain. Here are the important points on how the blockchain works:
On-Chain Order Matching
Sei integrates an order placement and matching engine at the chain level, allowing developers to create order book-based exchanges on top of the Sei blockchain.
This feature enables the development of central limit order book (CLOB) systems, commonly used in traditional centralized trading platforms. Sei also supports automated market maker (AMM) systems that are commonly used in decentralized exchanges (DEXs) within the DeFi space.
Twin-Turbo Consensus
Sei utilizes the Twin-Turbo consensus mechanism, which combines Intelligent block propagation and optimistic block processing.
This approach significantly improves throughput, block times, finality, and latency on the network, making it ideal for order book-based exchanges.
The Twin-Turbo consensus provides an 83% increase in throughput, resulting in faster transaction processing and reduced risk for market makers.
Intelligent block propagation
Intelligent block propagation is a feature designed to enhance the speed and efficiency of block processing. With this mechanism, block proposers can send compressed block proposals that contain only transaction hashes instead of detailed block content. Through extensive testing, Sei discovered that in most cases, if not all, each validator already had the necessary transactions in their local mempool, thanks to the network’s “gossip mechanism”. Validators receiving these compressed proposals can reconstruct the original block using transaction data from their mempool. If a transaction is missing in a validator’s mempool, they can simply wait for the uncompressed detailed proposal.
Optimistic block processing
Sei’s development team introduced optimistic block processing, an innovative algorithm that improves block time and processing speed. Unlike non-optimistic blockchains that process block proposals sequentially, Sei’s approach skips pre-voting and pre-commit steps. Validators can directly call the block finalization function, leading to faster block validation and voting. This optimization significantly enhances the overall efficiency of block processing in Sei.
With the Twin-Turbo consensus, Sei can process up to 22,000 orders per second while maintaining a finality of 500ms. However, if a block proposal fails, optimistic processing is halted for subsequent blocks at that specific block height.
Parallel Order Execution
Sei implements parallel order execution to strengthen the block production process. This modification allows orders from independent markets to be processed simultaneously, while orders within the same market are processed sequentially.
This approach boosts throughput, reduces block times, lowers latency, and improves overall performance, especially under higher loads.
Native Price Oracle
Sei has its own built-in price oracle that determines the exchange rates for assets. Validators in the network act as oracles to provide reliable pricing information. This ensures that asset prices are regularly updated to reflect the latest market conditions.
Validators face penalties if they don’t participate or provide inaccurate data. They have a “miss count” that tracks their non-participation or submission of significantly deviating data. If a validator’s miss count exceeds a certain threshold within a specified number of voting periods, they are penalized for their behavior.
By using the native price oracle, Sei ensures that traders have access to reliable and up-to-date pricing information. This transparency and accuracy enhance trust in the trading process, enabling traders to make informed decisions based on accurate exchange rates.
Order Bundling
Sei introduces order bundling, a feature that allows market makers to update prices across multiple markets in a single transaction.
By bundling these updates together, market makers can streamline their trading activities, reducing the number of individual transactions and simplifying the overall trading process.
This feature increases operational efficiency and convenience for market participants.
Frequent Batch Auctioning (FBA)
Sei implemented a method called frequent batch auctioning to address a practice known as “MEV” (maximal extractable value) to ensure fair market conditions. MEV occurs when validators prioritize their own transactions to maximize their profits at the expense of other participants.
To prevent this, Sei aggregates all market orders and executes them at a uniform clearing price. Let’s consider an example where there are two sell orders (asks) at prices P1 and P2, and two buy orders (bids) incoming. Instead of executing each bid at its respective price, Sei calculates a uniform clearing price, which is the average of P1 and P2. Both buy orders are then executed at this uniform clearing price.
This approach ensures that existing limit orders are filled at their intended prices (P1 and P2), while incoming market orders receive a fairer price. By avoiding individual transaction sequencing, Sei eliminates the incentive for validators to manipulate the order of transactions for personal gain, promoting a more equitable trading environment.
Sei Network Funding Rounds
Sei has successfully secured financial support through multiple funding rounds to facilitate the development and deployment of its Layer 1 trading-focused mainnet. The project’s ability to attract investments highlights its potential and the confidence placed in its vision.
- Sei raised $5 million in its first funding round on August 13, 2022, containing big names such as Multicoin Capital, Coinbase Ventures, and Delphi Digital.
- In recent funding rounds, Sei raised $30 million from investors such as Jump, Distributed Global, Multicoin, Asymmetric, Flow Traders, Hypersphere, and Bixin Ventures. This brought the project’s valuation to $800 million!
Besides these investments, many contributors also helped with the funding of the Sei ecosystem fund, which was highlighted by Foresight Ventures committing $50 million to Sei on April 12, 2023, increasing the total Sei Ecosystem Fund to $120 million.
The Sei Ecosystem fund was launched to fully support the development of decentralized applications on the network.
Sei Network ecosystem
Many projects have already shown interest in developing their protocols on the Sei blockchain. Also, with the ecosystem fund containing astronomical 120 Million dollars, we should only expect more developments to be made in the ecosystem!
Here are the main projects being built on Sei!
- SparrowSwap
SparrowSwap is an automated market model (AMM) decentralized exchange (DEX) that operates natively on the Sei blockchain. As the first of its kind on the network, SparrowSwap provides users with the ability to swap and stake digital assets on the Sei blockchain. Alongside the DEX, SparrowSwap has also introduced its native token called RUM.
- Astroport
Astroport is another decentralized exchange that operates based on the AMM model. Their goal is to establish themselves as the primary liquidity hub within the Cosmos Ecosystem, which explains their recent integration with Sei Network.
To learn more about Astroport, its history, and its potential, feel free to check our project analysis report. It provides in-depth information about the project, including its achievements and future outlook.
- Levana
Levana is a promising decentralized exchange focused on perpetual trading, allowing traders to open long/short positions containing up to 30x leverage!
Their goal is to provide the best trading experience on the Cosmos Ecosystem, and to achieve that they’ve made interesting partnerships with notable companies such as Delphi Digital, Dragonfly Capital, and Parafi Capital.
Sei Token, Airdrop incoming?
As the Sei blockchain continues to undergo testing on its testnet, there is speculation among the community about a potential airdrop when the mainnet is launched. This speculation has led to increased activity on the blockchain’s testnet, reporting over 100M transactions according to the network’s website.
We still don’t have access to the exact details of the Sei Tokenomics, but we should expect it to be similar to other blockchains such as Injective, which is a close competitor of the Sei Network.
Conclusion
In summary, Sei Network is a specialized blockchain that aims to transform the digital asset trading sector. It overcomes the limitations of previous blockchains and offers fast, secure, and efficient trading features for DeFi, NFTs, and gaming.
With innovative mechanisms like on-chain order matching, Twin-Turbo consensus, parallel order execution, native price oracle, and FBA, Sei improves trading and ensures fairness in the market.
The network has attracted significant investments and partnerships, indicating its potential and industry confidence. Projects like SparrowSwap, Astroport, and Levana have already shown interest in building on the Sei Network, contributing to the growth of its ecosystem.
Although the details of Sei tokenomics and the potential airdrop are uncertain, the upcoming mainnet launch has generated enthusiasm and increased activity on the testnet chain.
Overall, Sei Network is well-positioned to transform the trading landscape by offering a specialized blockchain infrastructure tailored to the unique needs of decentralized applications. As the project continues to evolve, it has the potential to drive the widespread adoption of Web 3.0 applications and take the blockchain industry to the next level.
Originally published at https://www.heimdall.land.
