Sei is a specialized layer-1 blockchain tailored for trading purposes. Known as the “Decentralized NASDAQ,” it boasts an impressive transaction finality of 600ms and supports 22,000 orders per second. Sei aims to combine the convenience of centralized finance trading with the power of decentralized finance tools.
Introducing Sei: Sei is a layer-1 blockchain designed explicitly for the creation of new decentralized exchanges (DEXs) across DeFi, NFTs, and gaming. Built using the Cosmos SDK, Sei is a sector-specific chain focused on trading. Unlike the application-specific blockchains (such as dYdX or Osmosis) within the Cosmos ecosystem that cater to a single application, Sei serves multiple applications within the DEX sector. To achieve its ambitious objectives, Sei targets improvements in three key areas: performance, security, and interoperability. Read: In-Depth Analysis of the Cosmos Ecosystem.
Sei offers lightning-fast transaction finality at 600ms, rivaling centralized exchanges (CEXs) in order execution and surpassing current DEXs. The blockchain’s high throughput is crucial to its native order matching engine model, which aims to replace the traditional automated market maker (AMM) trading model. Compared to other general-purpose chains like Bitcoin, Ethereum, and Solana, Sei claims to provide the following:
In terms of security, Sei leverages the Tendermint Core consensus mechanism that underpins the Cosmos ecosystem. Employing frequent batch auctions, Sei aims to eliminate MEV and front-running, enabling apps on Sei to utilize its validators and ensure a seamless trading experience for users. To maximize interoperability, Sei collaborates with various protocols. For instance, it has announced a partnership with Axelar, a cross-chain infrastructure provider, to enhance bridging, communication with other protocols, and capital movement between different blockchains.
How Does Sei Work?
To better understand the technology behind Sei, let’s first identify the issues the blockchain addresses:
- General-purpose chains like Ethereum are not optimized for specific use cases, such as decentralized exchanges, which hinders their growth.
- Building an order book model exchange on a general-purpose chain is infeasible due to network congestion.
- General-purpose L1s are slow and cannot deliver the trading experience provided by centralized exchanges.
Sei contends that DeFi is divided between protocols built on general-purpose chains like Ethereum and those with their own app-chains, such as Osmosis (OSMO). Sei aims to find a balance by creating a sector-specific chain optimized for decentralized exchanges. This goal is achieved through several technical innovations.
Firstly, Sei prevents front-running by using frequent batch auctioning to execute orders. Most DEXes struggle with orders that are either not processed on-chain, overload blockchains if processed on-chain, or compromise decentralization or security on fast blockchains (the Blockchain Trilemma). Sei addresses this by aggregating orders at the end of a block and executing them simultaneously, thus avoiding front-running.
Sei also employs native price oracles for reliable data feeds and reduced external dependencies. In contrast to other DEXes, it supports single-block order execution. Sei processes both order placement and execution in a single transaction instead of two. Furthermore, it bundles orders on multiple levels, allowing market makers and professional traders to minimize gas costs.
With these features, Sei presents itself as a “decentralized NASDAQ.” Most decentralized exchanges attempt to resolve the aforementioned issues by implementing automated market makers (AMMs) for users to trade against. However, since centralized exchanges still account for over 90% of trading volume, this solution hasn’t fully satisfied the market. Sei claims its technology enables an order book model, referred to as the Centralized Limit Order Book (CLOB).
In summary, Sei’s goal is to facilitate high-frequency trading at off-chain speeds while maintaining on-chain security.
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