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Sei Overview

Sei V2 is a Layer-1 blockchain uniquely tailored to support trading applications. Designed to optimize transaction speeds and order matching, V1 incorporates a decentralized Central Limit Order Book (CLOB), making it one of the first blockchains to integrate such a feature directly into its architecture. This specialization allows Sei to achieve high throughput and low-latency trading, which is critical for decentralized finance (DeFi) and other real-time trading applications.

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Building on its foundational strengths, Sei V2 (launching in ~Q2 2024) is also leveraging cutting-edge technologies in blockchain architecture to enhance its capabilities beyond traditional trading platforms. With its adoption of optimistic parallelization, V2 allows for more flexible and efficient transaction processing, setting a new standard for developer engagement and application performance. 

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Additionally, V2 will also position Sei at the forefront of blockchain interoperability and flexibility. Initially integrated with CosmWasm, Sei has further expanded its capabilities by introducing EVM compatibility in its upcoming Sei V2 upgrade. This significant enhancement allows Ethereum-based applications to seamlessly migrate and operate on Sei, combining Ethereum's flexibility with Sei's high-performance trading infrastructure. The integration of EVM broadens Sei's appeal, making it an ideal platform not only for native trading applications but also for a wide array of DeFi projects accustomed to the Ethereum environment.

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Furthermore, the synergy between EVM and CosmWasm on Sei creates a dynamic environment where developers can utilize the best features of both worlds. Features such as Pointer Contracts and precompiled contracts facilitate seamless interactions between different execution environments, ensuring that applications can leverage the full spectrum of blockchain functionalities offered by both EVM and CosmWasm. This interoperability is pivotal in enhancing user and developer experiences, making Sei a versatile and powerful platform that stands out in the competitive blockchain landscape.

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These advancements underscore Sei's commitment to innovation and its role in shaping the future of decentralized finance, making it a key player in the evolution of blockchain technology.

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Key Sei Blockchain Features:

• Speed and Throughput: Sei's architecture is built to handle high transaction volumes with minimal delay, supporting the demands of complex trading strategies and applications.

With the anticipated launch of Sei V2 in the coming months, the platform is poised to introduce significant enhancements that build upon its foundational strengths.

Upcoming Enhancements in Sei V2:

• EVM-Compatibility: Sei V2 will introduce compatibility with Ethereum Virtual Machine (EVM), enabling developers to easily migrate existing Ethereum-based applications to Sei and leverage its trading-optimized infrastructure. Once EVM-Compatibility is live, dozens of DeFi protocols are committed to launching in early May. 
• Increased Throughput: The update aims to further enhance the processing speed, making it even more appealing for applications requiring fast and reliable transaction execution.
• Reduced Transaction Fees: By optimizing network efficiency, Sei V2 aims to lower the cost of transactions, a critical factor for developers and users, especially those engaging in high-frequency trading.

These enhancements are designed to fortify Sei's position in the DeFi landscape and attract a broader range of developers and projects seeking a blockchain solution that combines Ethereum's flexibility with the speed and efficiency needed for sophisticated trading mechanisms.

Current State of the Sei Ecosystem

The Sei ecosystem has demonstrated significant growth and dynamism, primarily fueled by its specialized focus on trading functionalities. This specialization has not only attracted a diverse range of applications but has also fostered an environment ripe for innovation, particularly within the decentralized finance (DeFi) sector.

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The platform's robustness is evident in its daily active addresses and transaction volumes, both of which have shown steady increases. This growth indicates a rising engagement level from users and a high degree of utility of the blockchain's capabilities. The surge in transaction volume particularly underscores Sei's capacity for high throughput, which is critical in maintaining an active and efficient trading environment.

DeFi on Sei Network

As of Q2 2024, Sei holds $34 million in total value locked (TVL), which has been in an uptrend since Sei launched and found its footing in late 2023. The majority of this value is in Astroport, a DEX that is available on Sei, Neutron, Terra2, and Injective. However, when accounting for liquid staking, there is roughly $48 million in value across these three protocols:

• Astroport (DEX) - $33.8 million
• SiloStake (Liquid Staking) - $10.8 million
• Kryptonite (Liquid Staking) - $3.4 million

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Sei V2 will see multiple ETH-based LRTs, LSTs, and yield-bearing stablecoins come to the network. With EVM compatibility, this opens up a $50 billion Ethereum-based DeFi market (including leading DEXs like Uniswap) along with billions in value straight from emerging protocols like Eigenlayer and EtherFi, bringing forth value and incentives to Sei-native protocols.

SEI Token

Financial activities and transactions on Sei are processed through its native currency, SEI. The SEI token has a circulating supply of 2.8 billion tokens and a maximum supply of 10 billion tokens. As of Q2 2024, SEI was valued at $1.67 billion. SEI supports a wide range of functions and features to enhance the platform's efficiency and user experience.

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The utility of the SEI token extends across various aspects of the network:

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• Network Fees: SEI tokens pay transaction fees on the Sei blockchain, ensuring smooth operations and interactions within the network.
• Staking for Network Security: SEI tokens can be staked as part of the network's decentralized Proof of Stake (PoS) consensus mechanism. Token holders have the option to delegate their holdings to validators or stake SEI to run their own validator, contributing to the network's security and governance.
• Governance Participation: SEI token holders play a significant role in the protocol's governance. They have the power to influence decisions and shape the network's future direction​ . This empowerment is a key feature of the SEI token, giving holders a voice in the Sei blockchain ecosystem​.
• Native Collateral and Liquidity: SEI tokens can serve as native asset liquidity or collateral for applications built on the Sei blockchain, providing foundational support for various DeFi and trading applications.
• Fee Markets and Trading Fees: SEI tokens can be used to pay tips to validators for transaction prioritization. Additionally, they can be utilized as fees for exchanges built on the Sei blockchain, facilitating trading activities and operations.

Vermillion Finance

Another exciting development within the Sei ecosystem is the upcoming launch of Vermillion, a sophisticated liquidity hub with next-gen trading capabilities on the Sei Network. Vermillion creates specialized liquidity pools for LSTs, LRTs, and other yield-bearing tokens. Vermillion solves for predictable losses that LPs suffer from as tokens expand in value or supply relative to their pegged asset."

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Vermillion’s innovative platform employs a dual-curve system, including an aggressive stableswap curve called “Liquid Swap,” along with a xyk curve for volatile pairs. This configuration ensures high efficiency and robust protection against value erosion for both yield-bearing and liquid staking tokens. Vermillion is meticulously tailored to anticipate and adapt to the evolving needs of liquidity providers and traders, preparing for a future where stability and performance are paramount.

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Vermillion has ongoing support from Sei Network and is already closing in on integrating with several new partners (both inside the Sei ecosystem and outside once Sei V2 goes live). With its upcoming launch in May, Vermillion is actively expanding its partnerships within and beyond the Sei ecosystem. One of these partnerships will feature Sei’s top LST, Silo. Creating deep secondary markets for iSEI-SEI and other LSTs is critical to support liquidations, as liquidators need to instantly sell iSEI for SEI instead of going through a multi-week redemption process. Liquidation support is critical for iSEI to be used as collateral for stablecoins and lending markets.

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Vermillion will begin with an incentive program while it builds out governance and a veTokenomics structure. It is also building an additional DeFi product that will further enhance its presence as a leading DeFi project.

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Nektar Network

Nektar Network, a multi-layered restaking network, extends its innovative restaking ecosystem by offering Ethereum's security to the Sei blockchain. This strategic decision enhances Nektar's AVS capabilities by adding Sei’s advanced features, including its EVM compatibility and high throughput, to offer users a more efficient and scalable platform.

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Sei's coming V2 compatibility with the EVM is crucial in facilitating a smooth transition and operation of Ethereum-focused protocols like Nektar on its platform. This compatibility allows Nektar to maintain its Ethereum-based operations while benefiting from Sei’s enhanced performance characteristics. The integration means that existing Ethereum developers can easily deploy on Sei and tap into Ethereum security without significant changes to their code, making Sei an attractive option for projects looking to improve performance without losing Ethereum Security and resiliency.

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Nektar Network benefits significantly from Sei’s high throughput and low latency capabilities. These features are particularly beneficial for protocols that deal with complex operations and sophisticated processes. High throughput ensures that transactions and operations are processed quickly, which is critical for maintaining the network's efficiency.

Frax Finance

Frax Finance is a dual-token system that comprises Frax, a stablecoin partially collateralized and partially algorithmic, and the Frax Shares (FXS) token, which accrues fees, seigniorage revenue, and excess collateral value. Frax Finance's innovative approach allows it to maintain a stable value for the FRAX stablecoin while ensuring it is scalable and decentralized. The protocol automatically adjusts its collateralization ratio based on market conditions, striving to provide a stable yet decentralized financial instrument.

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Integrating Frax Finance into the Sei V2 ecosystem enhances the platform's capabilities and appeal. By bringing its decentralized stablecoin and Ethereum liquidity to Sei V2, Frax Finance contributes significantly to the diversification and resilience of the financial solutions available on Sei.

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• Decentralized Stablecoin: The integration allows users within the Sei ecosystem to access a stable and trusted medium of exchange, which is crucial for various financial activities like trading, lending, and yield farming. Frax's unique model provides a robust alternative to traditional fully collateralized stablecoins, offering users flexibility without compromising stability.
• Ethereum Liquidity: By integrating Ethereum liquidity, Frax Finance enhances the interconnectedness and fluidity of assets within the Sei ecosystem. This liquidity is vital for seamless trading and financial operations, facilitating broader participation and more efficient market dynamics on the Sei platform.

DragonSwap

DragonSwap is a native DEX on Sei built by leveraging a parallelized EVM to offer users top-level performance and trading capabilities. The DEX aims to offer users a smooth and intuitive trading environment. Its open-source framework simplifies liquidity and spot trading on the Sei Network.

Additionally, DragonSwap has heavily emphasized its community building and outreach through “The Flamekeepers,” representing DragonSwap’s own enthusiasts and blockchain experts. Through this avenue, DragonSwap integrates cultural themes, reflecting the ethos of its community. It draws inspiration from the Year of the Dragon, symbolizing strength, wisdom, and growth—qualities that DragonSwap embodies in its development and community engagement.

Jellyverse

Jellyverse is a standout project on the Sei Network, integrating the realms of DeFi and NFTs with unique gaming elements. By leveraging Sei's high-performance infrastructure, Jellyverse offers an engaging platform where digital collectibles meet decentralized finance, pushing the boundaries of how NFTs are utilized within gaming.

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At its core, Jellyverse introduces an innovative economic model where NFTs are not just collectibles but also integral components of DeFi mechanisms. This integration allows users to leverage their NFTs as collateral for financial services, merging asset ownership with financial utility. The platform's unique approach to "play-and-earn" mechanics enables players to engage in the ecosystem actively, earning rewards through gameplay, trading, and participation in Jellyverse's decentralized financial services.

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Jellyverse significantly enhances the user experience by providing a seamless interface for trading and interacting with digital assets. It utilizes Sei’s native order-matching technology, which facilitates real-time transactions with minimal latency, which is crucial for maintaining liquidity and ensuring fair asset pricing.

Sei Network NFT Market

The Sei Network has established itself as a go-to hub for NFT activities, offering an optimized platform for exchanging digital assets. Sei's infrastructure facilitates seamless and efficient transactions, which is crucial for trading digital assets like NFTs.

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One of the key attractions of the Sei Network for NFT projects is its "Twin-Turbo Consensus" and parallel processing capabilities, which ensure quick transaction finality and high throughput. This makes it an ideal platform for NFT marketplaces and gaming applications that require high-performance and scalable blockchain solutions.

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Several NFT marketplaces have emerged on the Sei Network, such as Pallet Exchange, which has quickly become one of the fastest-growing NFT marketplaces in the space. This marketplace and others like it benefit from Sei's advanced features, supporting a vibrant trading environment for NFTs.

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Moreover, the Sei Network has been home to various innovative NFT projects that showcase the versatility and creativity of its ecosystem. Projects like Seilors, The Colony, Duck Club, Akira, Sei Shiba, and Rover Seals are part of the early and diverse range of NFT initiatives on Sei, which continue attracting creators and collectors.

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For those looking to delve deeper into the current trends and transactions within the Sei NFT ecosystem, platforms like the NFT dashboard on Flipside Crypto offer real-time insights and comprehensive overviews, making them invaluable tools for enthusiasts and developers alike.

Pallet Exchange

Pallet Exchange is rapidly establishing itself as a leading NFT marketplace on the Sei Network, characterized by its robust performance and integration within the Sei ecosystem. This marketplace is specifically tailored to leverage Sei's advanced blockchain features, significantly enhancing NFT enthusiasts' trading experience.

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Pallet Exchange benefits immensely from Sei's architecture, making it an ideal platform for NFT trades. Quick finality and low transaction costs are crucial for user satisfaction and platform success. The marketplace has been instrumental in driving the value and activity within the Sei ecosystem, highlighting the network's capability to support high-volume NFT trading. Since it raised $2.5 million in a funding round in March 2024, Pallet Exchange has reached over 2 million unique visitors and over $20 million in trading volume on its NFT collections.

Comparison of Sei Ecosystem to Other DeFi Ecosystems

The DeFi landscape is rich and highly variable (outside of multi-chain protocols like Uniswap and Aave), with several prominent blockchain networks vying for dominance by offering unique capabilities and optimizations. Sei, with its specialized focus on trading functionalities, sets itself apart in several key areas.

Transaction Speed and Scalability

Sei's primary advantage lies in its high transaction throughput and low latency, which are designed specifically for trading applications. This makes it an attractive platform for projects that require fast and reliable transaction processing, a critical feature for trading and financial applications. In comparison, although highly secure and decentralized, networks like Ethereum often face challenges related to network congestion and higher transaction fees, especially during peak usage times.

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Solana is another competitor known for its high speed and low cost. However, it has faced reliability issues in the past, which can be a critical drawback for applications requiring uninterrupted availability. Sei aims to strike a balance by providing both high performance and stability, which is essential for gaining the trust of developers and users in the financial sector.

Cost-Efficiency

One of Sei's strong points is its cost-effectiveness, with lower transaction fees that are especially appealing to high-frequency trading platforms. While transitioning to a more scalable and cost-effective model with its modular and rollup-centric architecture, Ethereum remains more expensive in terms of transaction costs compared to Sei.

Speed-Focused

Sei's commitment to high throughput and low latency is pivotal for its role as a trading platform. While platforms like Solana also emphasize speed, Sei's additional focus on stability and order-matching precision offers a unique value proposition. The platform is designed to handle large transactions efficiently, essential for maintaining liquidity and minimizing market impact during trading.

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By positioning itself as the 'decentralized Robinhood,' Sei taps into the popular narrative of democratizing financial markets. Still, it takes it further by eliminating central points of control and potential censorship. This not only aligns with the ethos of blockchain and decentralization but also addresses common concerns among crypto traders about transparency and fairness.

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Given Sei's specialized approach, it is poised to capture a significant niche in the DeFi market, particularly appealing to traders who require robust, efficient, and transparent trading mechanisms. This focus likely attracts a different segment of the blockchain developer and user community, differentiating it sharply from platforms that cater to a wider range of decentralized applications.

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Impact of Sei V2 on Developer Attraction and Project Launches

With the upcoming launch of Sei V2, the platform is set to undergo transformative enhancements that could significantly broaden its appeal and utility within the blockchain developer community. One of the most critical updates in Sei V2 is its EVM compatibility. This feature is strategically important because it allows developers who are already familiar with Ethereum’s programming model to easily port their applications to Sei without having to rewrite or reconfigure their existing smart contracts. This lowers the barrier to entry significantly and makes Sei accessible to a vast pool of Ethereum developers looking for faster and cheaper alternatives.

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Sei V2’s high throughput is another compelling feature. It ensures that applications running on the network can handle large volumes of transactions without bottlenecks. This is particularly attractive for high-frequency trading platforms, decentralized exchanges, and financial applications that need to process large numbers of transactions quickly and reliably.

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Lastly, lower transaction fees are a critical factor for many projects, especially those that require a high transaction volume to function optimally, such as microtransaction platforms, gaming applications, and decentralized finance (DeFi) protocols. By keeping fees low, Sei V2 makes these use cases more economically viable and appealing to cost-sensitive developers.

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Like most L1 projects, Sei has several initiatives that aim to attract builders, users, and projects to the ecosystem via incentives. The Sei Foundation, which administers the Sei Launchpad Program, supports entrepreneurs developing on the Sei platform through both mentorship and financial backing. Applications for this program are open to interested founders. Furthermore, a portion of Sei’s Ecosystem Reserve is earmarked for supporting various ecosystem activities, including airdrops and incentives. However, no new initiatives in these areas have been launched since the inception of SEI’s tokens. Nevertheless, the Sei Foundation retains these tokens with the potential to drive future expansion and enhancement of the network and its ecosystem. Finally, in April 2024, Sei introduced a creator fund designed to nurture both emerging and established NFT and social projects. This initiative, undertaken in collaboration with Gitcoin, a recognized entity in community-driven funding across various ecosystems, reflects a commitment to fostering innovation within the Sei network. 

Future Directions for the Sei Ecosystem Post-V2 Launch

The launch of Sei V2 is expected to catalyze significant growth and diversification in the Sei ecosystem. Here are some potential developments:

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• Expansion into New Markets: With EVM compatibility, Sei can attract a wide range of applications beyond trading. This includes sectors like decentralized autonomous organizations (DAOs), insurance, and more complex financial instruments, broadening the utility and reach of the Sei network.
• Increased Innovation in Trading Applications: The core strengths of Sei in trading can lead to more innovative trading and financial applications, potentially introducing features not yet seen in other blockchains.
• Strengthening Network Effects: As more developers and users join the Sei ecosystem, network effects will strengthen, making the platform even more robust and valuable. This can lead to an increased token value and more investments in the ecosystem, further accelerating growth and development.
• Greater Integration with Other Blockchains: With improved capabilities and compatibility, Sei may increase its integrations with other major blockchains, facilitating cross-chain functionalities and enhancing liquidity across the broader crypto market.

By leveraging these advancements, Sei V2 could establish itself as a leading platform in the fast-evolving blockchain landscape, offering both performance improvements and cost efficiencies that are unmatched by many current platforms.

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Conclusion

Sei V2 represents a pivotal advancement in blockchain technology, specifically engineered to enhance trading applications and broaden the utility of decentralized finance (DeFi). By integrating EVM compatibility, Sei V2 retains its core strengths in transaction speed and efficiency and introduces significant flexibility and interoperability. This upgrade positions Sei to attract a wider array of developers and projects by facilitating seamless migration of Ethereum-based applications and enabling innovative trading mechanisms. With its upcoming enhancements, Sei is poised to offer unparalleled performance, lower transaction fees, and a robust trading environment, making it an attractive platform for a diverse range of DeFi applications. The anticipated launch of Sei V2 in Q2 2024 is expected to catalyze further growth, solidifying its role as a key player in the ongoing evolution of blockchain technology.

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Disclaimer: This report was commissioned by Sei Labs. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.