What is Sei Network?

Sei network is a specialized orderbook blockchain network developed for trading and claims to be the fastest Layer 1 blockchain, with a recorded speed of up to 20,000 transactions per second and a block time of 500 milliseconds.

Key Takeaways

• Sei network is a specialized Layer 1 network for building DeFi trading applications. It is compatible with the EVM and Cosmos network, where applications built on these networks can be deployed on the Sei network without major changes in the codebase and vice-versa.

• Sei features the CLOB (Central Limit Order Book), a prototype seen in traditional asset markets, and claims to be developing a super-fast and cost-efficient network to improve the experience of DeFi enthusiasts.

• As opposed to AMMs, the Limit Order Book is an orderbook system where an algorithm collates and maintains various financial transaction requests on the blockchain. It creates an orderbook and matches requests according to predetermined conditions. Sei developers claim that the CLOB provides deep liquidity and price-time priority matching for traders and apps.

• Sei network uses the optimistic block processing algorithm to validate blocks. It claims that this algorithm improves the network’s speed greatly and allows it to achieve a block time of about 450ms.

Data from CoinGecko suggests that DeFi projects control a cumulative market capitalization in the excess of $55 billion and feature over 440 tokenized projects that offer decentralized solutions to routine financial activities. These projects are spread across Layer 1 and Layer 2 networks both of which provide a hub for various forms of decentralized utility applications.

As the DeFi space matures, the need for specialized solutions arises and a handful of novel projects are working on these solutions. Sei network is one of them. Sei network promises a number of new introductions and improvements to the DeFi sector via its Layer 1 network. But first, what is Sei Network?

Overview of Sei Network

Sei network is a Layer 1 optimized for DeFi, decentralized trading, and DEXes. Sei is looking to implement orderbooks on-chain, balancing speed, efficiency, and reliability, while ensuring decentralization and maintaining a trustless environment. To accomplish this, Sei is building a purpose-specific Layer 1 that is tailored to match exactly what an orderbook needs.

Why is Sei Network a new #DeFi design space?

Let’s break down each component 👇 pic.twitter.com/11BxLLY9mU

— Sei 🚢 (@SeiNetwork) June 14, 2022

Sei refines the Limit Order Book prototype used by Serum by deploying it on a standalone network with enhanced performance, with 3 second block times and up to 13,000 orders in each block. In addition, it boasts a frontrunning protection system and a native order-matching engine that decentralized applications can use. Sei prevents frontrunning by executing orders with frequent batch auctioning, where the protocol aggregates orders at the end of the block and executes them simulataneously to prevent front running. Also, one of the protocols building on Sei, Skip, is designed to decentralize MEV through the MEV auction, where profits flow into the Sei network community pool. 

The liquidity hub that Sei hopes to build and the technology that powers it can be leveraged in many ways by DeFi applications building on the network and other blockchains in the Cosmos Hub. DeFi, GameFi, and even NFT applications can utilize this liquidity management system to offer their user a deeper liquidity system and cost-efficient exchange system while enjoying the agility and efficiency of the Sei blockchain.

This is possible because Sei is built on the Cosmos SDK and utilizes the Tendermint core as their consensus mechanism, removing the complexity around building a Layer 1 chain from scratch and allowing the developers to focus on optimizing Sei for its target subset of protocols. This is unlike general-purpose L1s like Ethereum, Solana and BSC, which are built to allow a variety of decentralized applications to be built on them. 

So, how does Sei actually work?

How Does Sei Work?

At the core of Sei network’s trading experience improvement system are the Central Limit Order Book system, a flexible blockchain network, and the Optimistic block processing algorithm. Sei network synergizes these protocols, systems, and algorithms to create a specialized L1 blockchain.

Sei also has an oracle module to support asset exchange rate pricing, and validators also participate as an oracle to ensure the most accurate pricing for assets. In each voting window, validators must provide asset pricing for the whitelisted assets, and at the end of each window, the chain computes a weighted median based on validator voting power to calculate the exchange rate per asset. 

An Inherent Limited Order Book (CLOB or DLOB)

Sei features a central limit order book (CLOB) system, which is of a similar design used by traditional centralized trading platforms. According to Sei, its orderbook system is cost-effective compared to the AMM (Automated Market Makers) used by decentralized exchanges, and more decentralized than off-chain order books used by centralized exchanges.

Most DeFi applications use automated market makers (AMMs) to create a contributive asset bank from which trade or exchange requests are served. Sei argues that this system isn’t really capital efficient as the capital efficiency of such a system is marred by the high cost of completing regular exchange activities on platforms that adopt the AMM technology. The possibility of value loss due to impermanent loss also adds to this.

To deliver a capital-efficient network, Sei adopts the limit order system. This can be decentralized (DCLOB) or centralized (CLOB). The CLOB used by Sei is similar to that used by Serum. However, Sei developers claim that Sei scores a huge point over Serum by building its CLOB on a separate, specialized network.

The limit order, in contrast to AMM, creates an orderbook system similar to that seen on regular centralized exchanges like Binance and Kucoin. This creates a set of orders at different prices and lets the asset’s value be updated according to which order is executed. However, the segmented liquidity system on the Sei network’s limit order technology means that increased liquidity is needed to run the system. 

To improve the liquidity of the Cosmos and Sei network, Sei will make the liquidity on its network accessible to other projects built on Cosmos and Sei network, where DeFi networks built on these platforms can serve trade requests from the liquidity pool on the Sei network.

Sei network will hope to offer not only a cost-effective system to developers and users of decentralized applications built on the network, but also to present a transparent and spontaneous facility for anyone hoping to utilize the liquidity hub it offers.

A Blockchain Network Built Using Tendermint Core and Cosmos SDK

The Sei blockchain is the developers’ approach to solving the scalability challenges faced by contemporary DeFi applications and it leverages the Cosmos SDK and Tendermint Core to build a network that concentrates on DeFi.

Cosmos enables the creation of a hub of blockchains that can communicate with each other with more ease and security than seen in contemporary blockchains, where independent bridges are the principal communication channel between blockchains. To accomplish this, Cosmos presents projects with a set of pre-packaged applications that simplifies the process of developing and defining the core functionalities of a blockchain network. 

Blockchain networks developed using the Cosmos SDK are connected to each other, creating a wide network of interoperable blockchains. These blockchains are referred to as Application-Specific blockchains and popularly adopt the Proof-of-Stake (POS) or Proof-of-Authority (POA) consensus mechanisms.

Tendermint Core (now known as ‘Ignite’, thanks to a rebrand in 2022) on the other hand was developed by Tendermint. Tendermint Core is a Byzantine Fault Tolerant (BFT) consensus mechanism that allows developers to launch decentralized applications across different blockchain networks and virtual machines. 

The Byzantine Fault Tolerant algorithm ensures that the blockchain keeps running consistently even when a portion of the validators are dysfunctional, and Tendermint Core’s Byzantine Fault Tolerance is up to 33%. Thanks to Tendermint Core, developers can write their application’s code in any network’s programming language and deploy it to another supported chain that uses a different programming language without having to change the code.

Optimistic Block Processing

Sei developers shared their plans for a block processing algorithm that it claims to greatly improve the block time and deliver a generally faster experience – optimistic block processing. Optimistic block processing is an asynchronous block processing algorithm that cuts through the steps of finalizing a block validation by skipping the pre-voting and the pre-commit steps and calling the block finalization function directly. The block is then sent for final voting at a rate faster than usual. Validators on the network will proceed to vote and validate the block. If approved by the validators, the block gets added to the network.

However, in the rare situation that the block gets rejected, the optimistic processing is halted for subsequent blocks for that block height. Sei developers claim that optimistic block processing can save up to 33% of the block time, as the reported block time when using optimistic block processing is about 300ms.

Is Sei Network EVM-compatible?

Sei network is a Cosmos Hub blockchain built for interoperability with other blockchains in the Hub. It is built with support for the Ethereum Virtual Machine (EVM) and interoperability with networks in the Cosmus hub and EVM blockchains. Sei network’s EVM compatibility only means that applications can be deployed across them without making many changes to the core code base. 

Unlike many other blockchain networks, the Sei network isn’t designed to be integrated into EVM applications like MetaMask, and so cannot be added to MetaMask and similar platforms.

Sei Network Funding

Sei network has received financial support through funding rounds to facilitate the development of the Layer 1 trading-focused network. On August 13, 2022, Sei network announced via its official Medium page that it had raised $5 million in the first funding round for the project. Leading the funding round is Multicoin Capital with participation from Coinbase Ventures, Delphi Digital, Hudson River Trading, GSR, Hypersphere, Flow Traders, Kronos Research, and other VCs. Sei network’s co-founder claimed that this funding will enable the project to build “the best layer 1 for financial applications.”

More recently, on April 11, 2023, the project announced that it has raised $30 million from two funding rounds from investors including Jump, Distributed Global, Multicoin, Asymmetric, Flow Traders, Hypersphere, and Bixin Ventures. According to the Sei team, the funds received from this exercise “will play an integral role in accelerating Sei Labs’ continued growth and will help deepen its presence in the Asia-Pacific region.”.Jayendra Jog added that the project already had ample runway, and the primary goal of the capital raise was to get the right strategic partners around the table. This funding round brings the project’s valuation to $800 million.

Sei network also operates a treasury system with funds dedicated to developing the project and supporting the ecosystem. On April 12, 2023, it shared on Twitter that an additional $50 million had been added to the project funding wallet, bringing the wallet value to $120 million.

Excited to announce an additional $50 Million commitment to the Sei eco fund. This elevates the total Fund to $120 Million!

This investment will help attract even more projects to Sei and further solidify It’s position as a leading Layer 1 blockchain🚢https://t.co/Mu04O2xIlc

— Sei 🚢 (@SeiNetwork) April 12, 2023

Valued at $800 million at the time of writing and claiming to have recorded over 3.6 million unique users on its testnets, with the latest version (Atlantic 2.0) going live on March 13th, 2023, the Sei network is gearing up for a proper network launch. 

Final Thoughts

If there is anything we have learned about the current stage of Web3, it is the fact that decentralized finance is the dominant application. Layer 1 and Layer 2 blockchain networks, both old and new, are densely populated by applications that offer cryptocurrency enthusiasts a way to perform routine financial transactions without needing a middleman and retain full ownership of their assets while doing so.

Even though DeFi is one of the mainstays of blockchain technology, it is still growing. Sei network brings its own unique spin to the existing DeFi landscape through its built-for-DeFi Layer 1 blockchain. Applications built on the network will explore ways to leverage the inherent pro-DeFi facilities and deliver gilt-edge solutions for routine finance. The EVM and Cosmos compatibility will enable interoperability in the DeFi space, and Sei’s niche-specificity could also be a turning point for blockchain technology as newer blockchain projects could also attempt to develop networks that are optimized for a specific concept.

As one of the earliest DeFi-specific networks, multi-purpose blockchain projects can also adopt some technologies introduced by Sei network and improve on them to deliver better results on their networks.

Sei has also announced that 1% of their tokens will be allocated to the community, and we take a look at how you can improve your airdrop eligibility.

Having said this, it is important to understand that Sei Network and other similar projects are in their earliest stages of development and are bound to change notably. It is therefore recommended that users apply caution while using the network and apply risk management skills where possible. Also, note that this article is educational and not meant as financial advice.