Key Summary / TLDR:
- Sei is an alternative L1 blockchain designed with trading in mind, possessing unique features like parallel transaction processing, a native order matching engine and twin turbo consensus.
- With partnerships across everything from infrastructure to DeFi, Sei is working to build out an extremely sufficient ecosystem with an entire suite of applications and use cases that will be ready from day one of mainnet.
- Over $120 million is sitting in the Sei ecosystem fund, with the team and various strategic partners actively searching for a variety of promising apps to deploy on Sei in the coming months and beyond.
A Look at Sei and How it Stands Out
When taking a look back, 2020 and 2021 appear to be the years of alternative layer ones, commonly referred to as “Ethereum killers” or Alternative L1s for short. The drastic growth of daily active addresses transacting on Ethereum contributed to the equally as drastic growth of Alternative L1s like Solana, Avalanche and Fantom. As transaction costs on Ethereum climbed to over $100 or more for something as routine as a simple Uniswap transaction or NFT mint, the average user was quickly priced out. In addition to the burden of high transaction costs, the influx of new users led to an increasingly congested network that made failed transactions far too common, leading to a drastically minimized user experience.
While daily transaction count across crypto has fallen sharply from the highs of 2021, the issues around scalability are still just as relevant as ever. Common areas of research in the blockchain trilemma debate like throughput, data availability and of course, decentralization, still represent a significant amount of focus in the space, especially when considering the vast potential of crypto as an industry. While we might not have one billion users at this point in time, there’s surely no harm in building for the future.
Sei has taken steps to separate itself from the pack of Alt L1s and Layer 2 blockchains by attempting to tackle the trading side of blockchain activity first and foremost. With features like parallel transaction processing, a twin-turbo consensus mechanism and its native order matching engine, Sei is working to deliver a fast, simple and secure user experience for blockchain users of all backgrounds.
Placing a huge emphasis on trading and exchanges, Sei is marketing itself as a blockchain for traders, essentially positioning its architecture to best fit the increasingly complex world of crypto trading, whether it be off-chain or on-chain.
In this report, we will examine Sei Network and how it separates itself from other alternative layer one blockchains with its unique technical architecture, along with an in depth analysis of everything currently taking place within the Sei ecosystem as the team gears up for its highly anticipated mainnet release. We hope this report provides you with an analytical perspective on the potential of Sei and a key look at the blossoming ecosystem being built by its community.
Twin-Turbo Consensus
The Twin-Turbo consensus mechanism is a key feature of the Sei blockchain, designed to optimize block propagation and transaction processing. This consensus mechanism is characterized by two main components: Intelligent Block Propagation and Optimistic Block Processing.
Intelligent Block Propagation is a process where, once a full node receives a transaction from a user, it broadcasts that transaction to other nodes in the network. Validators verify the validity of the transaction and add it to their local mempool. Block proposers then look at the current state of their mempool and propose a block to be committed. The block proposal, which includes unique transaction identifiers, is first disseminated to other validators in the network, followed by the entire block. This process significantly decreases the overall amount of time that a validator waits to receive a block.
On the other hand, Optimistic Block Processing allows validators to begin transaction processing concurrently with the first block proposal they receive for any height. The optimistic block processing writes the candidate state to a cache. If the block gets accepted by the network, then the data from the cache gets committed.
If the network rejects the block, then the data from the cache gets discarded, and future rounds for that height will not use optimistic block processing. This approach theoretically improves latency, making the Sei blockchain more efficient for trading applications, with Sei’s main focus being trading but on a much larger scale than most blockchains currently accommodate for.
Parallelization
Parallelization is a key feature of the Sei blockchain that enhances its performance and scalability. It is implemented in two main areas: DeliverTx Transaction Parallelization and Market Based Parallelization.
DeliverTx Transaction Parallelization allows Sei to process transactions simultaneously rather than sequentially during the DeliverTx phase. This is achieved by maintaining a mapping of transaction message types to the keys they need to access, known as dependency mappings. Messages updating different keys can run in parallel, while those updating the same key run sequentially in a deterministic order. This approach prevents race conditions and nondeterminism, leading to improved performance. To further enhance parallelism, dependency mappings can be defined as templates, which get filled with more granular resources at runtime.
Market Based Parallelization is implemented at the end of the block, where all matching engine related orders are processed by the native matching engine. Orders affecting different markets are processed in parallel, assuming they are independent. This parallelization is beneficial for decentralized exchanges building on top of Sei, as it allows for efficient order processing and improved performance. By implementing parallelization in these ways, Sei ensures optimal performance and scalability for trading applications of all kinds.
Native Order Matching Engine
The Sei blockchain introduces a native order matching engine, a feature designed to enhance the trading experience and performance for decentralized exchanges building on top of Sei. This matching engine is not limited to token trading but offers a flexible interface that allows decentralized exchanges to decide how to represent assets.
The lifecycle of an order in the Sei matching engine begins with the submission of a transaction composed of one or more orders. These orders are added to the dex module’s internal MemState. During block processing, the dex module aggregates orders across transactions by market and combines them into one smart contract call for that particular market. The smart contract then implements its custom logic and calls the matching engine.
The matching engine processes all order cancellations, adds all limit orders to the order book, processes market orders at a uniform clearing price, processes matching limit orders, and finally expires any unfilled market orders. At the finish of the matching engine logic, it calls the relevant smart contract to handle asset settlement.
Sei's matching engine also supports frequent batch auctioning, which aggregates all market orders and executes them at the same uniform clearing price. This approach discourages maximal extractable value (MEV) and ensures a fairer price for incoming market orders. By offering a native order matching engine, Sei provides a robust and efficient infrastructure for trading applications, making it a suitable blockchain for newer application-specific trading exchanges or other variations of decentralized exchanges that wish to leverage this.
Other improvements at the protocol layer
Aside from the Twin-Turbo consensus, parallelization, and the native order matching engine, the Sei blockchain introduces several other advancements that enhance its functionality and performance.
One such advancement is the integration of native price oracles. Sei has a native price oracle to support asset exchange rate pricing. Validators are required to participate as oracles to ensure the most reliable and accurate pricing for assets. The voting windows for these oracles can be configured to be as small as one block long, resulting in rapid price updates and fresh asset pricing. This feature is crucial for maintaining the accuracy and reliability of asset pricing on the Sei blockchain.
Another significant advancement is the introduction of transaction order bundling. Sei offers multiple layers of order bundling to improve user experience and performance. This includes client order bundling, where transactions can be composed of orders going to multiple trading markets, and chain-level order bundling, where Sei bundles all orders across all transactions per market and performs only one virtual machine instantiation. This reduces latency and improves performance during periods of high throughput.
Lastly, Sei provides flexibility in terms of trading fees. The matching engine does not charge any trading fees at the chain level at launch. However, governance can choose to start applying trading fees in the future. Decentralized exchanges that are building on top of Sei can add in their own trading fees depending on the experience they want to offer their users. This flexibility allows for a customizable trading experience that can be tailored to the needs of different users and applications.
Diving into the Sei ecosystem
Now that we’ve covered most of the mechanisms that comprise Sei, it’s time we take a look at the applications driving this excitement behind Sei. While advancements at the protocol layer can be exciting for true crypto fanatics, the most engaging aspects of blockchains almost always occur at the application layer. The philosophy behind most alternative L1s has always been providing a positive and greater user experience than what’s currently available throughout the blockchain ecosystem; Sei is no different, working tirelessly to ensure the community has no shortage of apps to interact with upon the launch of mainnet.
Partnerships
Sei has been extremely busy building out an active suite of apps for their ecosystem, along with a host of exciting partnerships with a variety of crypto teams. Because it would take a very long time to run through all of them, we’ve decided to focus on a handful that are representative of the Sei mission to give you a brief overview of the landscape. If you’re looking for more info on current or upcoming partnerships, the official Sei Blog is a great place to look, along with Sei’s Twitter.
Sei x Sushi:
Known for their place as one of the leading crypto DEXs on Ethereum and a variety of other blockchains, Sei and Sushi have been able to come to an agreement over the acquisition of Vortex. Sushi plans to use Vortex to launch a new decentralized perpetual exchange with full on-chain order matching on Sei's mainnet, scheduled for Q2. This new platform will be unique in supporting fully on-chain peer-to-peer order matching and cross collateral, which were key attractions for traders to FTX.
Sushi, one of the most successful Automated Market Makers (AMMs) in the Ethereum ecosystem, is expected to be the first significant Ethereum protocol to debut on Cosmos. This precedes the largest current DeFi perpetual exchange, dYdX, which also plans to shift to Cosmos later in 2023 with its v4 upgrade.
Historically, Sushi has been focused on its spot exchange, managing to achieve almost 12% of the market share in competition with centralized exchanges. Nevertheless, DeFi has less than 1% of the derivatives market, which is predominantly controlled by centralized exchanges. In the future, crypto will continue to push forward against centralized forces in an effort to compete with the variety of looming regulations being thrown at the industry almost every week. Grey, along with Sei, believes that improvements in user experience will lead to a significant expansion in market share in the coming years.
The acquisition is also expected to strengthen the Sushi brand, allowing the DAO to benefit from the successful launch of a non-core product without requiring financial input from the DAO's treasury. This aligns with Sushi's core strategy of growth and technology exploration across all chains and ecosystems. Building the new trading platform on Sei, with a focus of on-chain trading, helps to usher in a new era of DeFi as perpetual swaps continue to dominate the crypto trading industry.
Sei x Alpha Venture DAO:
Sei has partnered with Alpha Venture DAO, a renowned Web 3.0 venture builder, to launch 'Alpha Incubate Batch 2', an incubation program aimed at accelerating the growth of DeFi projects. The 12-week program provides resources, support, and tailored mentorship to innovative startups, pairing them with top-tier investors, operators, and founders from the Alpha Network, which includes well known names like The Spartan Group, Nansen, 1Kx, Parafi Capital, and - of course - Sei itself.
Sei provides an optimal environment for the development of ultra-high-performance DeFi products thanks to its technical architecture. By participating in the Alpha Incubate Batch 2 program, startups can benefit from personalized mentorship from Sei, access to a community of industry experts, potential grants from Sei, marketing support, and much more. The ultimate goal is to foster the next generation of disruptive DeFi innovations and promote mass adoption of DeFi projects. Alpha Venture DAO and Sei both express their excitement and confidence in the partnership's potential to significantly accelerate the growth of high-quality DeFi projects. For more information and relevant updates, here’s a link to their Twitter account.
Sei x Kargo:
Sei is excited to announce its partnership with Kargo, a company building the first Layer 1.5 infrastructure on Sei, with a focus on unlocking global prediction markets. While L1s and L2s are still in their infancy in terms of development and research, there has been a great deal of ideation and blockchain architecture in the modular middlespace between these types of blockchains.
Prediction markets are platforms where participants can speculate on the outcomes of future events, offering a unique way to gauge public sentiment as well as an opportunity for traders to bet based on their beliefs. Current prediction markets mainly cover large-scale events and fail to cater to smaller ones and their associated communities.
The partnership seeks to fill this gap by using Kargo's infrastructure to empower local teams to establish prediction markets for local events. This will allow for more nuanced and diverse markets, such as Indian cricket betting or Brazilian politics, that are tailored by teams with a deep understanding of their local context. Leveraging the "plug-and-play" style Layer 1.5 infrastructure of Sei, Kargo aims to lower barriers to entry and enhance developer experience, enabling the development of new and innovative DeFi products.
The resulting prediction markets will synergize with Sei's built-in order-matching engine, providing frequent order book updates and narrow spreads on assets. This marks a significant step in extending the reach of prediction markets to niche and underserved communities, driving engagement and creating meaningful data insights.
Sei x Tatami:
Tatami is an exciting name in the web3 gaming space, operating as the leading game publisher on Sei. As GameFi continues to grow and expand beyond the infamous P2E (pay-to-earn) model, Tatami is excited to be building out this infrastructure on Sei. Through Tatami, users can play games, collect assets and explore the ecosystem all through one interface.
Tatami has already released Tetrisk, a fun web3 spin on Tetris that is the first game to go live on Sei. If you want to learn more or try it out for yourself, you can check out Tatami’s Twitter for more information.
Sei x Coin98:
Coin98, a prominent multi-chain crypto wallet and DeFi gateway, is set to deploy on Sei in the coming weeks. Coin98, which supports over 60 networks including EVM and non-EVM-based chains, additionally services more than 6 million users across 170 countries. It's a key player in fulfilling untapped demand and enhancing utilities in the DeFi space by making DeFi services more accessible to those who might not be familiar with crypto.
The integration with Sei will allow users to manage their assets, send and receive tokens, and interact with dApps directly from their wallets. Coin98 is set to deploy on the Seinami Testnet, allowing users to become acquainted with the wallet's user interface and offering greater UI flexibility for the Sei ecosystem. Upon the mainnet's launch, both Coin98’s mobile app and Chrome extension will be accessible, enabling users to manage their assets and positions anytime and anywhere.
As an early adopter on Sei, Coin98 is keen to collaborate with evolving Dapps to jointly develop and scale the Sei ecosystem. The aim is to seamlessly connect billions of users to the crypto world in a safe and secure manner, offering a range of services, including a non-custodial, multi-chain NFT & cryptocurrency wallet, built-in DEXs, Cross-chain Bridge & DApp Browser, a robust Terminal, and more.
Sei x Gravity Bridge:
Sei is joining forces with Gravity Bridge, a decentralized, open bridge designed to unlock interoperability and liquidity between different blockchain ecosystems. This partnership will pave the way for seamless and secure interoperability between the Ethereum and Sei ecosystems. As a result, users will gain access to a diverse array of decentralized financial services within the Sei ecosystem.
Gravity Bridge, also built using the Cosmos SDK, distinguishes itself from other bridges by using the validator set to sign transactions instead of a multi-sig or a permissioned set of actors. It has a vast, active validator set and an open, permissionless front-end and relayer ecosystem, which encourages open collaborations and ecosystem contributions for all types of users.
This infrastructure also undertakes a unique approach to code testing in the Cosmos ecosystem, incorporating integration testing along with unit testing. Notably, Gravity Bridge will be among the first chains in the Cosmos ecosystem to launch an Interchain Accounts Controller (ICA) Module, signaling the advent of a new era of application layer DeFi. Its fundamental role is to secure the operation of bridges between blockchains and facilitate asset movement between Ethereum and Cosmos ecosystems.
Sei x Coded Estate:
Sei has partnered with Coded Estate, a team working towards bringing real estate and rental transactions onto the blockchain. By building on Sei's advanced, trading-optimized platform, Coded Estate plans to harness its speed, throughput, and scalability to unlock the potential of the real estate market, a sector valued in the trillions. The goal is to digitize off-chain assets, making them programmable, composable, and settled on Sei, thus enabling fluid ownership, trade, and rental of premium real estate for as low as $100.
This partnership represents an innovative bridge between traditional real estate and DeFi, with far-reaching implications for the tourism industry. As a decentralized exchange for homeowners, buyers, and travelers, Coded Estate is poised to disrupt the real estate and tourism sectors while expanding the Sei ecosystem. The upcoming availability of the platform on the Sei Network testnet will offer the community a chance to mint some of the first NFTs on the Sei blockchain. This is a sign of the dynamic economic innovation and growth unfolding in DeFi through Sei, indicating exciting developments ahead in the coming weeks.
New applications and other developments
There are a ton of new apps building out on Sei in the DeFi and infrastructure ecosystems, as this is a key component of any blockchain. If users don’t have anywhere to transact, what keeps them on-chain? Sei is tackling this problem headfirst and building out one of the most promising ecosystems in recent memory from the jump.
Levana:
Levana, a perpetual swaps platform, is set to launch on Sei upon mainnet launch. This development not only expands Sei's rapidly growing ecosystem but also allows Levana to leverage Sei's optimized trading infrastructure. Levana will offer traders high leverage of up to 30x and a wide variety of assets to trade.
Levana's integration onto Sei's blockchain is of particular significance as it brings together Levana's high leverage trading technology and Sei's fast, secure, and decentralized architecture. Ahead of the launch, Sei's mainnet has been gaining momentum, with the testnet seeing significant growth.
To fine-tune Levana's launch, an incentivized testnet has been announced. In this process, users are encouraged to engage with the platform, conduct trading simulations and provide feedback to improve the user experience. This incentivized testing, in partnership with Blocked.cc, includes missions that guide users through the beta testing process, from acquiring testnet tokens to opening leveraged positions and providing liquidity. By enabling users to participate in this hands-on testing, both Sei and Levana can better prepare for the mainnet launch and increase the number of additional services they provide for a more positive user experience initially.
Compass Wallet:
One of the most integral aspects of the web3 experience is the wallet: a hub where users can store their assets, transact and ultimately live on-chain. Sei is excited to announce its collaboration with the team behind Leap Cosmos - one of the main wallets of the Cosmos ecosystem - bringing you the Compass Wallet. With features like in-wallet staking, a portfolio overview tab and a user activity log, Compass is looking to provide a beneficial and easy-to-grasp experience from launch, giving users both new and old something to be excited about. For more information on what they’re building and any other exciting developments, here’s a link to their Twitter.
Mizu Market:
The first NFT marketplace on Sei, Mizu is building out the NFT ecosystem as the chain prepares for mainnet. With its own collection of Mizu Bots, users can join in early and gear up as launch approaches. There are currently over 30 different NFT collections building on Sei, and Mizu will be a hub for both collectors and traders to capitalize on this. Here’s a link to one of their Twitter threads for more information on current projects and what’s to come in the future.
Kryptonite:
The Sei network, a rapidly expanding blockchain ecosystem, has announced a partnership with Kryptonite, a decentralized automated market maker (AMM) and staking protocol. Designed to integrate with any bAssets on the Cosmos blockchain and beyond, Kryptonite aims to enhance capital efficiency within the Sei network. It serves as the de facto bond market, offering users multiple options for capital deployment. Kryptonite leverages Sei's unique features to introduce a robust native money market to the Cosmos ecosystem, providing opportunities to lend, stake, and amplify staking strategies.
The decision for Kryptonite to build on Sei was influenced by Sei's capabilities in addressing liquidity challenges. Sei's infrastructure, characterized by its order matching engine, front-running protection, and the fastest blockchain finality (600 ms), fosters the creation of innovative financial products. This partnership with Kryptonite, therefore, not only enhances the versatility of Sei's platform but also strengthens its standing across various sectors, including NFTs, gaming, and DeFi.
With Kryptonite offering enhanced flexibility and capital deployment options, this partnership underscores the potential for Sei to provide scalable solutions and foster innovation in the blockchain space. For more information and additional announcements, here’s a link to their Twitter.
Sei Hackathon:
Sei Labs is set to sponsor and participate in the Tokyo Web3 Summer Hackathon (TWSH) running from May to September 2023, in collaboration with influential Japanese entities such as Sony, Softbank and NTT DOCOMO. The hackathon's focus is to support Japanese builders and projects interested in building with the Sei tech stack. This aligns with Sei's goal to strengthen its presence in the Asian market, evidenced by recent investment rounds and efforts to appoint a country lead for Japan. Unlike conventional hackathons, TWSH places emphasis not only on the development capabilities but also on the sustainability of the projects, leading to an extended contest period of six months. The hackathon will cover a broad range of Web3 tracks including blockchain infrastructure, DeFi, GameFi, Metaverse, NFT, SocialFi, and innovative trends like encrypted AI fusion, innovative stablecoins, and decentralized physical infrastructure networks, among many more. It’s always exciting to see what types of new applications arise from these events, so keep an eye out for what’s sure to come in future Sei blog posts or tweets.
Through sponsoring and supporting this event, Sei demonstrates its commitment to fostering innovation within the global Web3 community. Looking ahead, Sei intends to host additional online and offline workshops, networking events, industry conventions and other community-oriented events to further accelerate the growth of blockchain technology around the world.
Sei Ecosystem Fund:
Last but not least, Sei has quite the warchest with over $120 million thanks to a recent additional investment of $50 million from Foresight Ventures. This announcement solidifies Sei's position as a significant player in the Layer 1 blockchain platform landscape, especially following their recent $30M institutional funding from a host of investors.
The augmented Ecosystem Fund, amounting to $120 million, is set to play a crucial role in accelerating the growth of projects built on the Sei blockchain. The fund aims to provide essential resources and support to a wide variety of applications, spanning from NFTs to gaming and DeFi. By doing so, it seeks to leverage Sei's global footprint to assist teams in expanding their user base and reaching new regions.
The concept of an ecosystem fund is now ubiquitous across alternative L1s and L2s, as this provides a direct incentive for blockchains to attract new teams of motivated builders that might not have explored the option prior to the announcement of an eco fund.
The fund is specifically targeting early-stage founders and teams across all categories of Web3, given the crucial role of digital asset exchange in any Web3 application. Foresight Ventures, known for backing disruptive blockchain innovations and managing funds exceeding $400 million, will also provide extensive support for portfolio companies within this expanding ecosystem.
Next steps for Sei
Now that we’ve covered the Sei ecosystem and the variety of protocol layer developments that make it stand apart from other blockchains, we can take a look at the more qualitative side of the blockchain supremacy debate.
The increasingly competitive blockchain world
As discussed earlier, the number of L1s, L2s and everything in between is constantly expanding. While crypto has not reached escape velocity when looking at daily active users, those building in the space have no doubt that this will one day occur - it’s extremely important to keep this in mind, whether you’re building a dApp or an entire blockchain.
With its emphasis on providing a scalable, efficient, and optimized platform for trading applications, Sei sets its sights on the future with an ambition to become the premier Layer 1 solution for exchanging digital assets across a variety of applications. It achieves this by specifically addressing the 'Trading Trilemma' that currently impedes the scalability of trading applications on existing infrastructure. By eliminating the tradeoff between decentralization, scalability, and capital efficiency, Sei empowers trading applications to offer an experience comparable to Web2 applications without sacrificing the fundamental advantages of decentralization.
Sei's future could see it dominating the space for trading-based applications by leveraging its rapid finality time and built-in parallelization. Its Twin-Turbo consensus, front-running prevention, and automatic order bundling could significantly enhance the user experience for all trading applications built on the platform. This unique selling proposition could potentially draw developers and projects from other major platforms, such as Ethereum, Solana, zkSync, and Polygon, to build on Sei's ecosystem instead. While a lot of decisions around building on one blockchain as opposed to another comes down to qualitative aspects like community, Sei has proven itself in this regard with its Discord server possessing well over 550,000 community members as of writing.
Furthermore, the shift towards Sei could also be driven by the anticipated exponential growth of trading in the Web3 environment, driven by the burgeoning proliferation of digital assets and the continuous pressure on centralized exchanges. Sei's focus on providing a trading-optimized environment would make it an attractive proposition for trading apps, gaming economies, NFT marketplaces, and DeFi DEXs that seek a robust and reliable environment for their operations. By positioning itself as the Layer 1 solution for trading applications, Sei has the potential to carve a distinct niche for itself, setting it apart from its competitors.
Sei differentiates itself from other Layer 1 blockchains like Ethereum and Solana by its primary focus on optimizing for trading. Ethereum, as the pioneer in the blockchain space, is a general-purpose blockchain that supports a wide variety of applications beyond trading. It hosts a large number of dApps across various sectors, such as finance, gaming, and decentralized organizations. However, Ethereum's design has led to challenges around scalability, speed, and high transaction fees, particularly as the network has grown. Solana, on the other hand, addresses some of these issues by providing high throughput and low-cost transactions, making it an appealing platform for dApp development. Yet, Solana doesn't specifically optimize for trading-related applications.
Sei takes a different approach. By focusing solely on trading as its core use case, it has optimized every layer of its stack to offer the best infrastructure for trading apps and exchanges. It has designed features such as Twin-Turbo consensus for rapid finality times and built-in front-running prevention to protect traders. Sei has also implemented an automatic order bundling capability to improve app throughput, something that both Ethereum and Solana do not offer. Therefore, while Ethereum and Solana serve as broader platforms for dApps, Sei sets itself apart as a specialized Layer 1 solution for trading applications, offering distinctive benefits in this particular domain.
It’s our hope that this report gave you a comprehensive overview of Sei and all of their future plans.
Disclaimer: This report was commissioned by Sei. 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.
