Sei Network is a Layer 1 blockchain specifically tailored for the DeFi sector, built on top of Cosmos, optimised for trading. 

With a lightning-fast transaction settlement speed of just 600ms and the ability to handle 22,000 orders per second, Sei dubs itself as the “Decentralised NASDAQ,” focusing on providing CeFi (Centralised Finance) trading experience with DeFi tools.

What is The Sei Network?

Sei is a Layer 1 chain built with one goal which is to become the blockchain for a new decentralised exchange (DEX) sector in DeFi, NFTs, and gaming. 

Sei is built with Cosmos SDK, enabling it to be sector-specific and focused on trading. However, unlike application-specific blockchains such as dYdX or Osmosis, Sei is a blockchain for multiple applications all within one sector, which is around DEX applications. 

Sei aims to achieve its ambitious goals by improvements in three main areas which are  performance, security, and interoperability.

Sei promises lightning speed transaction settlement in 380 milliseconds. This will make Sei on par or competing with centralised exchanges (CEXs) in terms of order execution, and better than current DEXes in the market. The fast throughput of this blockchain is also crucial for the original order matching engine model that will replace the traditional AMM trading model.

The current speed of the blockchain itself currently stands at 12,500 transactions per second which was achieved through multiple updates that have been done since its official launch of the testnet in March 2023 and its mainnet beta in late 2023. 

Compared to other general-purpose chains like Bitcoin, Ethereum, and Solana, there are some things that Sei claims to differ from them, summarised in the table below. 

In terms of security, Sei relies on the Tendermint Core consensus mechanism that supports the Cosmos ecosystem. 

By using frequent batch auctioning, Sei promises to prevent MEV (maximal extractable value) and front-running. 

This allows applications in Sei to use its validators and guarantee a smooth trading experience for customers.

Sei also partners with several protocols to maximise interoperability. For example, Sei announced a partnership with Axelar, a cross-chain infrastructure provider that will enhance connectivity, communication with other protocols, and the movement of capital to and from other blockchains.

How was It Created?

The Sei Network started with the Sei Labs team developing the initial open-source version of the Sei blockchain, which has now been launched as beta mainnet. The idea started because they firmly believe trading exchanges are the most crucial applications in the crypto industry, both on and off-chain. 

Most products in crypto are built around trading exchanges, which are not only vital for DeFi but also for gaming and NFTs. 

Currently, NFT utility primarily involves going to NFT markets and trading these tokens. Similarly, in gaming, in-game economies and ownership of rare or useful in-game items are tied to trading exchanges, as seen in the cases of Axie or StepN. 

Everything in crypto revolves around trading exchanges, and therefore, DEXes have a clear connection to market fit with products.

However, the Sei Labs team believes that DEXes cannot scale with existing Layer 1 infrastructure as they lack the throughput and timely settlement features required for high-frequency trading and high-volume. 

Exchanges face a trading trilemma, which is between decentralisation, scalability, and capital efficiency where they cannot achieve all three simultaneously. 

Sei aims to solve this problem by optimising every layer in the stack to provide infrastructure for trading exchanges. 

According to Sei Labs, they have only one value proposition, which is that every type of trading application, whether it’s DeFi DEX, NFT markets, or gaming DEX, will perform better on Sei compared to other Layer 1 networks. 

With its advanced solutions, Sei aims to solve scalability issues for DEXes and become the preferred choice for trading exchanges seeking tailored trading infrastructure.

How Sei Works

Sei offers front-running prevention by running orders through frequent batch auctioning to solve one of the main issues with DEXes on blockchains. 

One of the main issues with DEXes is that orders are not processed on-chain because it burdens most blockchains if processed on-chain. 

Also some blockchains achieve fast transactions by sacrificing the decentralisation or security aspect of the blockchain, which is also a problem regarding the Blockchain Trilemma. 

To fix this, Sei collects orders at the end of the block and executes them simultaneously, thus preventing front-running.

Sei also utilises original price oracles that provide reliable data feeds and minimise external dependencies. 

Unlike other DEXes, Sei uses order execution within one block by the help of the mechanism that makes Sei perform order placements and executions in one transaction. 

Additionally, Sei groups orders into several levels, allowing market makers and professional traders to minimise gas costs.

All of this allows Sei to compete in the market with the offering of a “Decentralised NASDAQ” value proposition, which is one of the biggest stock exchanges in the world, representing the goal that Sei can handle huge volumes. 

Most decentralised trading exchanges solve the aforementioned problems by using automated market makers (AMM) so that users can trade. 

However, with centralised exchanges (CEXs) still dominating over 90% of trading volume, this solution clearly hasn’t impressed the market. 

Sei promises that its technology allows for the order book model they call Centralised Limit Order Book (CLOB).

In summary, its goal is to enable high-speed trading with off-chain speed while maintaining on-chain security.

Sei Team and Investors

Sei Network was founded by Jeffrey Feng and Jayendra Jog and has a highly experienced team with work experience in companies like Airbnb and Goldman Sachs.

On April 11, 2023, Sei Labs announced that they had successfully raised $30 million in two strategic fundraising rounds. Sei investors include Jump, Distributed Global, Multicoin, Asymmetric, Flow Traders, Hypersphere, and Bixin Ventures.

Additionally, on April 12, 2023, Sei announced a significant commitment of $50 million from Foresight Ventures. This increased Sei’s Ecosystem Fund total to $120 million, including previous contributions from Multicoin, GSR, Hudson River Trading, Flow Traders, Delphi Digital, MEXC, Hypersphere, and Kronos Research.

With a valuation of $800 million at the time of writing this report and Sei claiming to have recorded over 3.6 million unique users on their test network, with the latest version (Atlantic 2.0) launched on March 13, 2023. Now the Sei network has already launched their beta mainnet and is preparing for their v2 Mainnet.

The last biggest partnership and funding was done with Circle, the famous issuer of USDC stablecoin. 

Circle invested in Sei with an disclosed amount, meaning that the amount is not being published to the public. Usually this is common in strategic investments, but it also usually means that the amount is large, and the investment is not only money, but also infrastructures and connections, helping Sei to grow even bigger. 

Sei Ecosystem

Sei is rapidly developing its project ecosystem and partnerships, with new protocol announcements almost every week. The complete list of projects on Sei can be found on the ecosystem page.

The complete ecosystem of projects building on Sei continues to expand, across various sectors ranging from infrastructure, gaming, DeFi, NFTs, wallets, and more. Some notable protocols on Sei include Vortex, SparrowSwap, and Simba Exchange.

Token Economics of SEI

It is important to note that SEI runs on a Proof of Stake Blockchain, which means that it has its own token for validators to stake it. 

Sei Network has its own token which not only acts as a governance token but also the utility token of the ecosystem. 

All of the transaction fees on the blockchain is paid in SEI along with other transactions like staking, trading, and other activities on the blockchain. 

Note that Sei also implements a delegation mechanism for investors to delegate their SEI to validators in order to earn rewards and secure the blockchain. 

SEI is also a governance token which holders can use to determine how the network goes through agreeing or disagreeing with proposals submitted by the Sei Labs or the other community members. 

The total supply of SEI is capped at 10 Billion SEI where 51% of those tokens are allocated towards the community. 

The team, foundation, and investors received a total of 49% which is a bit risky considering this might lead to an insider price manipulation which allows the 49% to manipulate the market. 

But since there is a vesting mechanism, which is currently unclear whether it is at 5 years or 10 years, the price manipulation will not happen as most of their holdings are locked. 

But what could happen is a potential selling pressure by early investors to capitalise their profit which could be bad if it is not coupled with proper marketing and value hedging by the team to help stabilise or even increase the price of SEI with the help of the community members and new investors. 

Overall the token economics is looking a little bit risky because of this allocation, but rest assured, as long as the project keeps on going, the volatility will not be as bad as memecoins. 

Plans for 2024

Sei is going into 2024 with a strong plan to develop its overall infrastructure also with a plan to launch its blockchain v2 mainnet soon. 

The only focus right now seems to be officially launching the v2 mainnet which introduces an improvement of its current EVM called the Parallelised EVM. 

Parallelised EVM is an innovation of EVM that lets a blockchain process more than one smart contract at the same time, essentially increasing its scalability while not sacrificing its decentralisation. 

One aspect in question is its security, because by processing more than one smart contract at the same time, there is a probability of faulty transactions that could damage the network. 

But, this is solved by the core mechanism of Sei, which is the batch auctioning mechanism that batches transactions essentially making it lighter and easier to process without sacrificing security. 

The Sei v2 is planned to launch in the first half of 2024. Seeing that half means the late half for Sei, we can probably see the launch of this v2 in May or June 2024. 

With this version of blockchain, it also plans to be carbon neutral, thanks to the innovation that makes the blockchain more scalable and efficient, hence needing less energy to operate. 

Sei is also developing its own EIP with Omni to improve connections with other EVM blockchains, especially Ethereum. 

The latest update around Sei v2 is the launch of its public dev net which is a blockchain testnet version of Sei v2 for developers only to adapt themselves in the transition to the new blockchain. 

Overall, the current stage of the development is still looking solid, with a lot of plans that will probably increase users on the Sei Network. 

Conclusion

In the crypto world, trading digital assets has become increasingly popular in recent years, and decentralised trading exchanges (DEXes) have emerged as key players in this space. 

Unlike centralised exchanges, DEXes allow users to trade crypto assets peer-to-peer without the need for intermediaries. This provides greater security, transparency, and autonomy for users.

However, despite its benefits, most DEXes face significant challenges in terms of Layer 1 scalability, the fundamental blockchain layer. The Trading Trilemma, referring to the trade-off between decentralisation, scalability, and capital efficiency, makes it difficult for trading exchanges to achieve all three goals simultaneously.

Sei is a new Layer 1 in the blockchain space, specifically for trading, with fast transaction speeds, low fees, and high throughput. By providing a scalable solution to the Trading Trilemma, Sei offers a promising environment for various types of trading applications, including DeFi DEXes, NFT markets, and DEXes for games, all of which can benefit from Sei’s infrastructure.

However, it is important to understand that Sei and similar projects are still in the early stages of development and are likely to undergo significant changes. 

Therefore, users are advised to exercise caution when using this network and implement risk management skills as best as possible. 

Additionally, it should be noted that this article is for educational purposes and is not intended as financial advice.