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An Ultimate Guide to Sei Network

4.4 | by Joel Agbo

What Is Sei Network?

Sei has emerged with a claim to fame as the fastest L1 blockchain on the market. It has a lower bound of 300ms and an upper bound of 20,000 OPS that are being processed. Sei's infrastructure has been optimized to provide traders with unparalleled speed and efficiency with a focus on exchanges and trading apps.

Key Takeaways

  • Sei is an open-source Layer 1 blockchain specialized for trading, optimizing every layer of the stack to offer infrastructure for trading apps of all types. 

  • Sei claims that any kind of trading app – whether it’s a DeFi DEX, NFT marketplace, or gaming DEX – will operate better on Sei than any other Layer 1

  • Sei offers a native order-matching engine in the L1 which allows exchange apps built on top to scale much more than anywhere else. 

  • Sei claims to be the fastest chain in existence (lower bound time to the finality of 300ms) due to the Twin Turbo consensus.  There are 2 parts of Twin Turbo consensus: intelligent block propagation and optimistic block processing. Both are designed to safely and reliably decrease the time taken to achieve consensus.

  • Sei makes use of market-based parallelization, which is a specialized kind of parallelization that’s different from Solana and Aptos.

  • Sei supports order batching to prevent frontrunning.

  • Sei launched on 16 August and SEI token trading volume reached over $1 billion.

What is Sei network

The Sei Labs team are building out the initial, open source version of Sei blockchain. They strongly believe that exchanges are the most crucial app in the crypto industry, both on and off-chain. Most products in crypto are built around exchanges, and they are not only essential to DeFi, but also to gaming and NFTs. In fact, for NFTs, the primary utility currently is to go to an NFT marketplace and trade these  tokens. Similarly, in gaming, in-game economies and ownership of rare or useful in-game items revolves around an exchange, such as in the case of Axie or StepN. Everything in crypto comes back to exchanges, and therefore Sei believes that DEXes have the clearest product market fit.

However, today, the Sei Labs team believes that DEXes cannot scale with the existing Layer 1 infrastructure as they lack the throughput and time to finality features required for both high frequency and high volume trading. Exchanges face the Exchange trilemma: between decentralization, scalability, and capital efficiency, they cannot achieve all three. Sei aims to solve this problem by optimizing every layer of the stack to offer infrastructure for exchanges. According to Sei, they have only one value proposition: any type of trading app, whether it’s a DeFi DEX, NFT marketplace, or gaming DEX, it will perform better on Sei than on any other Layer 1 network. With its cutting-edge solution, Sei aims to solve the scalability problem for DEXs and be the premier choice for exchanges seeking infrastructure tailored for their trading needs.

The Sei blockchain launched on 16 August, and currently has a market cap of over $380 million and 24 hour trading volume of over $1 billion.

Overview of Sei Network

Sei is an open-source Layer 1 blockchain specialized for trading, optimizing every layer of the stack to offer infrastructure for trading apps of all types. Leveraging a novel consensus and technical breakthroughs, Sei claims to be the fastest blockchain in existence.

Sei has implemented several important improvements into its underlying network architecture, including the Twin Turbo Consensus mechanism that achieves an industry-leading level of performance. This mechanism provides a lower bound time to the finality of 300 ms in Sei's internal testnet, which is 10 times faster than Solana. In addition, Sei has a native order-matching engine built into the chain that enables exchange apps built on top of it to scale effectively.

Sei also makes use of market-based parallelization to increase throughput by 5-10 times greater than most other high-performance ecosystems. The chain has a frontrunning prevention mechanism that prevents malicious frontrunning, which is a widespread issue in other ecosystems. Sei also supports order batching, which simplifies the process of updating multiple orders across different exchanges. Market makers only need to submit one transaction, and the chain will accurately route the orders to the correct exchanges. These are just a few of the innovative features that Sei has incorporated into its infrastructure to optimize the performance of trading applications. In future, protocols building on top of Sei such as Skip will look to decentralize MEV through the MEV auction, where profits flow into the Sei network community pool. 

Sei’s on-chain order-matching module creates a composable architecture, allowing the dApps on Sei to have synchronous composability. Furthermore, with Sei’s numerous bridging partners, there will be async composability for IBC, EVM, and SVM ecosystems. A large portion of Sei’s technical success comes from its Twin Turbo consensus. 

Sei's liquidity hub and its underlying technology can be beneficial for a range of dApps on the network. With Sei's liquidity management system, DeFi, GameFi, and NFT apps can offer their users a more profound liquidity system and cost-effective exchange process while leveraging the agility and efficiency of the Sei blockchain. Unlike general-purpose L1s, such as Ethereum, Solana, and BSC, Sei focuses on optimizing every layer of the stack to offer infrastructure for any kind of trading app.

So, how does Sei actually work?

How Does Sei Work?

At the core of the Sei trading experience improvement system are the on-chain Order Matching module, Twin-Turbo consensus, and features added to the base layer such as Parallel Order Execution, Native Price Oracles, FBA, and more. Sei synergizes these protocols, systems, and algorithms to create a specialized L1 blockchain.

A Built in Order Matching Engine

Sei offers the functionality of a general purpose blockchain; allowing users to transfer assets and deploy smart contracts such as AMM DEXes. In addition to that, Sei has created an order placement and matching engine at the chain level, that can be used by any exchanges building on top of Sei to easily create an orderbook based exchange.

This enables developers the option of easily building a central limit order book (CLOB) systems, which is a common system used by traditional centralized trading platforms. Sei developers can use the tech stack to build order book systems which can be more cost-effective compared to the automated market maker (AMM) systems used by decentralized exchanges, and is also more decentralized and transparent than the off-chain order books used by centralized exchanges. However, it is important to note that it is also possible to build an AMM system on Sei, which are commonly used in DeFi applications due to their ease of use.

To create a more capital-efficient network, Sei has offers builders high performance infrastructure to build decentralized exchanges.The Sei order matching engine offers a limit order design space similar to that seen on regular centralized exchanges like Binance and Coinbase. This system creates a set of orders at different prices and allows the asset’s value to be updated according to which order is executed. However, it should be noted that starting and providing liquidity to orderbook based exchanges is more technically challenging than on an AMM DEX.

Sei aims to offer a cost-effective system to developers and users of decentralized applications built on the network, while also providing a transparent and efficient facility for anyone hoping to utilize the liquidity hub it offers.

Twin-Turbo Consensus

For exchanges that use orderbooks, the speed of block times, finality, and latency is crucial for market makers. Market makers are required to update their prices after each block, therefore shorter block times result in smaller price updates, tighter spreads, and reduced risk for market makers. Any delay greater than a few hundred milliseconds can be impractical. The standard L1 chain has approximately 6-second block times, which is not optimal for orderbooks. Sei has developed the Twin Turbo consensus to create what the team claims to be the "best infrastructure for exchanges." The Twin Turbo consensus mechanism combines optimistic block processing with intelligent block propagation, resulting in an 83% improvement in throughput. This improvement enables Sei to provide faster block times, lower latency, and increased finality, which is highly advantageous for orderbook-based exchanges.

There are 2 parts to the Twin-Turbo consensus:

1. Intelligent Block Propagation

This innovation allows Sei to speed up throughput where it can, and slow down where it must. This results in a ~40% increase in overall throughput.

Intelligent block propagation is designed to improve the speed and efficiency of block processing. With this feature, block proposers can send compressed block proposals, containing only transaction hashes instead of detailed block content (which is the case in conventional blockchains). Sei's testing showed that in over 99.9% of cases, each validator already had the transactions in their local mempool, thanks to the network's gossip mechanism. Validators receiving the compressed proposals can reconstruct the original block using transactions from their mempool. In the event that a transaction does not exist within the mempool of a validator, that validator can simply revert to waiting for the uncompressed detailed proposal to arrive. This approach allows Sei to speed up throughput while still ensuring transaction validity. The result is an overall increase in throughput of about 40%.

2. Optimistic Block Processing

Tendermint optimistic block processing

Sei's development team has introduced a new block processing algorithm known as optimistic block processing, designed to significantly enhance block time and overall processing speed. Optimistic block processing is a method used by validators to process block proposals, allowing for a faster and more efficient validation process.

The algorithm skips the pre-voting and pre-commit steps, allowing validators to directly call the block finalization function, resulting in faster block validation and voting. This approach differs from non-optimistic blockchains where block proposals must be processed sequentially, leading to slower processing speed and lower throughput. With optimistic block processing, Sei can start processing block proposals concurrently with the pre-vote and pre-commit steps, resulting in a 33% increase in throughput. The Twin-turbo consensus allows Sei to process up to 22,000 orders per second while maintaining 500ms finality. However, if a block proposal fails, the optimistic processing is halted for subsequent blocks for that block height. 

Overall, optimistic block processing can save up to 33% of block time, with reported block times of around 300ms.

Parallel Order Execution

Sei has modified its block production process, focusing on order execution. In traditional blockchains that use ABCI, order processing occurs sequentially, meaning that each order must be processed in the exact sequence that it is received, regardless of the assets or markets with which it interacts. Sei's approach is different: orders from independent markets can be processed simultaneously, while those within the same market are still processed sequentially. This significantly increases Sei's throughput, while still ensuring deterministic behavior among validators. Load tests conducted by Sei have demonstrated that this modification results in faster block times, lower latency, and higher throughput across all load levels. The marginal improvements are particularly significant at higher loads.

Parallel Order Execution Sei

Native Order-Matching Engine

Sei's native order-matching engine, which incorporates several features such as single-block order execution, order bundling, frequent batch auctioning, and a native price oracle built into Layer 1, allows exchange apps built on top to scale. 

Single Block Order Execution

Sei's single-block order execution allows users to place and execute orders within a single block, eliminating the need for multi-block executions as required on traditional orderbook platforms like Serum. By executing orders in a single block, Sei provides users with a more efficient and faster experience. This feature is particularly useful for high-frequency traders who need to execute orders quickly.

Order Bundling

With order bundling, Sei allows market makers to update prices on multiple markets in a single transaction. This helps to simplify and streamline the trading process, enabling market makers to provide liquidity more efficiently. By bundling orders together, Sei provides market makers with a more cost-effective solution to manage their trades, reducing transaction fees and overhead costs.

Frequent Batch Auctioning

Frequent batch auctioning is another feature that Sei offers to minimize frontrunning. By aggregating market orders at the end of each block and clearing them at a single price, Sei eliminates the opportunity for traders to place orders ahead of others, improving the overall fairness of the market. This feature also helps to prevent slippage by reducing the impact of large orders on the market. Frequent batch auctioning ensures that Sei provides users with a secure, reliable, and fair trading experience.

Native Price Oracle

Native price oracle is integrated into its base layer, which ensures reliable price feeds from on-chain markets. This oracle functions by requiring validators to agree on prices before committing to a block. In other words, a block will not be built until all validators agree on the price, ensuring consensus and accuracy. This feature not only benefits the price oracle module but also enables other modules to access reliable price feeds.

Besides the software improvements, Sei has also been testing smaller validator structures and increased hardware requirements. While there are tradeoffs in decentralization, these come with significant performance gains, and again highlight what makes Sei unique: customizability.

Sei Network Funding

Sei has received financial support through funding rounds to facilitate the development of the Layer 1 trading-focused network. On August 13, 2022, Sei 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 Lab’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 Labs 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.

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

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

In the world of cryptocurrency, trading digital assets has become increasingly popular in recent years, and decentralized exchanges (DEXs) have emerged as key players in this space. Unlike centralized exchanges, DEXs allow users to trade cryptocurrencies in a peer-to-peer manner without the need for intermediaries. This provides greater security, transparency, and autonomy for users.

However, despite their benefits, most DEXs face a major challenge when it comes to scalability on Layer 1s, the underlying blockchain layer. The Exchange Trilemma, which refers to the trade-off between decentralization, scalability, and capital efficiency, makes it difficult for exchanges to achieve all three objectives simultaneously.

Sei is a new Layer 1 in the blockchain space, and it's specialized for trading, with fast transaction speeds, low fees, and high throughput. By providing a scalable solution to the Exchange Trilemma, Sei offers a promising environment for any type of trading app, including DeFi DEXes, NFT marketplaces, and gaming DEXes, which can all benefit from Sei's infrastructure.

Having said this, it is important to understand that Sei 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.

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Joel Agbo
Joel Agbo

Joel is deeply interested in the technologies behind cryptocurrencies and blockchain networks. In his over 7 years of involvement in the space, he helps startups build a stronger internet presence through written content. He is the founder of CryptocurrencyScripts. Follow the author on Twitter @agboifesinachi

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