Detailed Explanation of the First Order Book-Based DeFi Underlying Protocol Sei Network

Original Title: "A Detailed Explanation of the First Order Book-Based DeFi Layer Protocol Sei Network"

Author: 0xMoonda, WAGMi Ventures

What is Sei Network

Sei Network is the first order book-based L1 blockchain, utilizing Cosmos SDK and Tendermint Core technology, with a built-in Central Limit Orderbook (CLOB) module. Decentralized applications built on Sei are based on CLOB, and other Cosmos-based blockchains can use Sei's CLOB as a shared liquidity center to create trading markets for different assets. Sei aims to become the infrastructure and liquidity center for the next generation of DeFi products in the Cosmos ecosystem, and in the future, it will serve as the underlying infrastructure connecting the entire ecosystem for DeFi trading.

Features of Sei Network

First, compared to other L1s, Sei believes its biggest competitive advantage is speed. Currently, its Time To Finality (TTF) is about 600 milliseconds, making it the fastest in Web3 products. TTF measures the time taken from transaction submission to transaction confirmation while ensuring transaction irreversibility.

Second, Sei has a centralized validator set that has been rigorously tested in the Seinami Incentivized Testnet. Applications on Sei can use this as their own validator node without redeployment, reducing the barriers to migrating to the Cosmos ecosystem. Additionally, Sei employs a Frequent Batch Auctions (FBA) mechanism to prevent Maximal Extractable Value (MEV) occurrences. Batch auctions are less susceptible to MEV because the transaction order within the same batch does not cause price fluctuations.

Sei Network's Team and Investors

At the end of August, Sei announced the completion of a $5 million funding round, with participating institutions including Multicoin Capital, Coinbase Ventures, Delphi Digital, Hudson River Trading, GSR, and others. Sei was founded by Jeffrey Feng and Jayendra Jog, with team members having backgrounds in technology and traditional finance, many coming from companies like Robinhood, Databricks, Airbnb, and Goldman Sachs.

Latest Developments of Sei Network

Testnet Launch

Sei Network launched the Seinami Incentivized Testnet in early July, lasting approximately 8 weeks. 1% of the total token supply is allocated as incentives for testnet participation. Participants can earn points by completing testnet tasks. At the end of the testing period, scores for all participants will be calculated and distributed based on their scores.

Nitro --- The Bridge Connecting Solana and Cosmos

Half a month after the funding announcement, Sei officially announced its first upcoming product, Nitro. Nitro is the first L2 scaling solution for Solana, serving as a bridge between Solana and Cosmos. The product introduces the concept of Sealevel VM (SVM), similar to EVM, meaning that in the future, Solana developers can deploy applications on Nitro and scale them to the Cosmos ecosystem. The mainnet for Nitro is expected to launch in early 2023.

Sei Network's Collaborative Ecosystem

Axelar Network --- Heterogeneous Cross-Chain Communication Protocol

Axelar is a universal cross-chain infrastructure protocol that supports information transmission between any two public chains. Through a decentralized network protocol and SDK, developers can create applications and integrate them with any blockchain ecosystem. Users can interact directly with all applications in the ecosystem from their wallets.

Axelar completed three rounds of financing in 2020, 2021, and 2022. In the latest round, it was valued at $1 billion, with a total of approximately $63 million raised across the three rounds. Two of the rounds were led by Polychain Capital, with other participating institutions including Dragonfly Capital, Coinbase Ventures, Binance, Collab+Currency, Galaxy Digital, and individual investor 0xMaki.

Advantages of Integration with Axelar for Sei

· Information Interoperability Between IBC Chains and EVM Chains

This solves the cross-chain information transmission issue between DeFi on Cosmos and EVM chains. It opens up new possibilities for bridging, messaging, and execution between cross-chain, programming languages, and virtual machines, such as multi-chain liquidity pools, cross-chain lending, cross-chain trading, and cross-chain arbitrage:

1. Users will no longer be limited to interacting with protocols within the ecosystem, avoiding the inconveniences of using other ecosystem protocols;

2. It facilitates developers in querying data from other blockchains and using their operational logic and smart contracts;

3. The ecosystem can attract liquidity from other chains and maintain interoperability through backend integration.

· Application of DeFi Strategies in Cross-Chain Liquidity Pools

Users can deposit assets into protocols with cross-chain liquidity pools and utilize DeFi strategies on chains collaborating with Axelar. Users on the Ethereum chain can use emerging derivative trading strategies on Sei, eliminating the inconveniences of cross-chain asset transfers and creating new wallets.

· Cross-Chain and Popularization of Synthetic Assets

Applications on Sei can query prices and market conditions of different cross-chain assets without risk. This means that synthetic assets on Sei are not only IBC assets but can also encompass all asset classes in the Web2 and Web3 worlds. The minting and anchoring of new synthetic assets will greatly popularize crypto trading.

White Whale --- Cross-Chain Liquidity Protocol

White Whale is a cross-chain liquidity protocol that enhances market efficiency through arbitrage, flash loans, and cross-chain liquidity pools. White Whale v2 will provide cross-chain infrastructure for the Cosmos ecosystem, serving on-chain individual liquidity providers, reducing liquidity fragmentation and price discrepancies, increasing capital utilization, and achieving decentralized market making. Additionally, White Whale v2 plans to offer flash loan liquidity pools and open-source arbitrage bot services in the future.

White Whale completed its first seed round financing of $2.9 million in December 2021, with a project valuation of $35 million. This round was mainly participated in by institutions such as Terra, SkyVision Capital, and Node Capital. Before the Luna incident, White Whale's product focus was primarily on the Terra ecosystem. After properly handling the aftermath, the project team decided to shift the product focus to the Cosmos ecosystem and launch White Whale v2.

KYVE --- Decentralized Data Verification Protocol Based on Arweave

Web3 data lake solution KYVE is a protocol that enables data providers to achieve standardization, verifiability, and permanent storage of blockchain data streams. By using the Arweave data storage solution, permanent backups can be created on KYVE's Cosmos SDK chain, ensuring that resources remain scalable, immutable, and available over time. In 2021, KYVE completed two rounds of financing in June and October, raising a total of $3.875 million, with participating institutions including Permanent Ventures, Volt Capital, Solana Foundation, Coinbase Ventures, and CMS Holding.

Advantages of Integration with KYVE for Sei

The operation of Sei will inevitably generate a large amount of on-chain data. As a Cosmos-SDK chain using Ignite CLI, KYVE helps Sei store and scale data in a decentralized manner, ensuring the security and efficiency of subsequent data queries, sorting, counting, and access. KYVE nodes will acquire publicly available data generated on the Sei blockchain and upload it to Arweave for permanent storage. KYVE's validator nodes verify the uploaded data, ensuring that untrusted storage information is immutable and verified for Sei's users and developers, facilitating retrieval, specifically reflected in:

1. Scalability

KYVE will validate and store public data from the Sei blockchain. This partnership provides Sei with a scalable data lake that can securely and efficiently query and access raw data as needed.

2. Immutability

KYVE validator nodes can provide the validity of critical data. As data flows from Sei to KYVE and then to Arweave, Sei needs to ensure data validity and availability. Therefore, Sei views KYVE and Arweave as complementary: KYVE provides reliable data validity, while Arweave focuses on data availability (i.e., replicability). This ensures that data cannot be tampered with.

3. Availability

KYVE stores the collected data in Arweave, and the characteristics of Arweave allow users and developers to store data continuously and permanently. The core protocol of Arweave includes Permaweb, which contains a global and permanently existing network of web pages and applications. Therefore, data from the KYVE data lake can be easily accessed, and developers can directly access data through Arweave or KYVE's own indexing solution, WARP.

Leap Wallet --- Non-Custodial Wallet Based on Cosmos

As a non-custodial wallet within the Cosmos ecosystem, users can access DApps, DeFi, NFTs, and other functionalities through a browser extension and a mobile version to be launched in the future. Users can also connect Ledger with Leap Wallet to enhance security. In April 2022, Leap completed a $3.2 million private funding round, with a valuation of $40 million, and participating institutions included Pantera Capital, CoinFund, Arrington Capital, Accel, and others.

Advantages of Integration with Leap Wallet for Sei

The Sei chain will natively integrate with Leap, simplifying the wallet setup process for new users on Sei. Users can select Sei directly from Leap's available chain list to use it. Leap will deploy on the Seinami Incentivized Testnet, providing participants with testnet tasks, simplifying the asset management process between Sei and Cosmos.

Conclusion

Since the DeFi Summer of Ethereum, the burst of the DeFi 2.0 bubble, and the chain reaction triggered by the Luna incident have severely impacted the development of the DeFi sector. Insufficient liquidity within the ecosystem and global liquidity fragmentation have greatly limited the lifecycle of projects. Sei appears somewhat different from previous DeFi projects, reflected in:

1. Unlocking Multi-Chain Ecosystem Liquidity Through Integration and Development

In addition to being built within the Cosmos ecosystem, the first product launched after its establishment bridges the Solana ecosystem and, through integration with Axelar, connects with EVM chains, laying the foundation for acquiring global liquidity.

2. Acquiring Multi-Chain Ecosystem Users Through Integration

Among the multiple products integrated, there are projects that previously served the Terra ecosystem, which have a significant number of quality DeFi users. After integration, users can seamlessly transition to the Sei chain ecosystem, making it easier than starting from scratch to accumulate users.

3. Enriching the Variety of DeFi Products in This Ecosystem Through Functional Protocol Integration

Unlike previous DeFi projects that focused on linear development of single-function products, Sei chooses to directly integrate compatible functional protocols, allowing it to provide users with various financial management tools and strategy options in a short time, thus shortening the project's cold start time.