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By June 2, 2023No Comments

Sei Network: Customizable Layer-1 Infrastructure for DeFi and Trading Apps

April 23, 2023

SEI is an open-source Layer-1 blockchain specialized for trading with optimization to various types of trading apps including gaming, NFTs, and DeFi. It aims to solve the Blockchain Trilemma by offering decentralization, scalability, and capital efficiency. Key features of SEI include the fastest chain to finality, market-based parallelization, native order matching engine, Twin-Turbo consensus, and frontrunning protection. This makes SEI an ideal platform for top trading apps globally.

Grover, Head of Ecosystem at SEI Network, joined us for an AMA on March 15th.

vVv: Can you give us a brief introduction of yourself?

Grover: I’m Grover, Head of Ecosystem at SEI Network. I began my journey in crypto in 2017 and got involved in the Terra ecosystem in 2020. I built my first project on Terra, called Retrograde, which was a convex-type DeFi protocol with a $50 million TVL in its first weekend, but unfortunately, we all know how things went for Terra. Meanwhile, through a Terra connection, I met Jeff, the founder of SEI, and decided to build Vortex, a perpetual exchange, as the first app on SEI. After selling the project to SushiSwap, I joined the SEI core team, where I now oversee the ecosystem and manage projects, launch schedules, and ecosystem gaps.

vVv: Why did you launch your blockchain for specific applications?

Grover: SEI was built with the core thesis that exchanges are the essential app in crypto, whether on-chain or off-chain. However, existing Layer-1 infrastructure cannot scale exchanges effectively. SEI aims to solve the DEX scaling problem by building the best infrastructure for exchanges and optimizing every element of the stack for trading apps. This sector-specific Layer-1 chain offers full customization and allows us to optimize every aspect of the platform for DeFi, NFT, and gaming exchanges, providing them with a competitive advantage on SEI.

This sector-specific Layer-1 chain offers full customization and allows us to optimize every aspect of the platform for DeFi, NFT, and gaming exchanges, providing them with a competitive advantage on SEI.

vVv: What was the reason for choosing the Cosmos SDK and Tendermint? How did you implement twin-turbo consensus, including intelligent block propagation and optimistic block processing?

Grover: We chose Tendermint and Cosmos SDK because they are battle-tested and have performed well in stressful situations like the Terra scenario. Instead of building everything from scratch, we took Tendermint and made key changes to develop twin-turbo consensus, which consists of intelligent block propagation and optimistic block processing.

 Optimistic block processing is easier to explain. Tendermint typically involves multiple stages of voting before executing a block. We made validators optimistic by having them process blocks while simultaneously voting, thus reducing the time for block execution. If a block gets approved, validators commit the block, and if it gets rejected, the candidate state resolves the issue.

 Intelligent block propagation can be explained using an analogy. Imagine Alice and Bob love to read, and they both have a library at home. Alice wants to recommend Harry Potter to Bob. She can either give him the book the next day or text him, allowing Bob to find the book in his library and start reading immediately. Tendermint used the first approach, but we adopted the second approach, making it faster. In technical terms, the block proposal message contains a list of transaction hashes sent over the network, allowing validators to check their local mempool instead of waiting for the block proposal. This resulted in a 45% performance improvement. We also added parallelization, which is the first time it has been done on Cosmos.

vVv: That’s impressive, and parallelization is critical when implementing it from scratch. How difficult was it to implement parallelization?

Grover: Although our engineers may downplay the challenge, implementing parallelization took considerable time and effort. Adding parallelization improves performance and throughput but also increases hardware requirements. However, our focus is optimizing specific use cases of exchanges rather than maximizing the number of validators like Ethereum.

vVv: With your focus on maximizing throughput and providing a centralized exchange experience on a decentralized infrastructure, can you share key metrics on transaction processing capacity and block finality?

Grover: We’re still on the testnet, and these numbers are somewhat theoretical. Our median time to finality on Atlantic-1 is around 0.6 seconds; we expect this to improve on Atlantic-2. For context, Aptos has a time to finality of about 0.9 seconds, and Solana ranges from 1 to 2 seconds, depending on network usage. Our theoretical maximum TPS is around 22,000, significantly higher than the upper bound of Ethereum Layer-2, which is approximately 6,000 to 8,000 TPS.

vVv: As a Cosmos ecosystem project, how do you plan to share liquidity or connect with other IBC chains?

Grover: IBC is a time-tested communication protocol with many opportunities. Innovations like interchain accounts allow sending tokens and messages between chains, enabling interesting cross-chain strategies. Examples include interacting with application-specific chains like Stargaze or allocating liquidity between AMMs on different chains, like in Astroport’s SLAM model. We also plan to interoperate with other chains and are discussing with various teams what that might look like.

 Additionally, interchain security is an emerging development in the Cosmos ecosystem. With Atom being the largest in market cap and token value, it becomes more difficult for someone to execute a 51% or 33% attack on Cosmos. By sharing security with hub chains, smaller chains can be secured using the same set of validators as the hub chain while compensating Atom validators with a small tax. Although we don’t plan to use this approach personally, we recognize its potential and the exciting developments coming out of Cosmos.

vVv: What applications would you like to see built on your network in the future?

Grover: We anticipate various applications to be built on our network, including liquid staking, lending, perpetual exchanges, NFT marketplaces, real-world asset tokenization, and synthetic assets. One exciting application in development is an eSports league facilitator and in-game item exchange. We encourage all exchange-based applications to find a home on our platform, allowing them to be fully synchronous and composable with other applications and primitives.

We anticipate various applications to be built on our network, including liquid staking, lending, perpetual exchanges, NFT marketplaces, real-world asset tokenization, and synthetic assets.

vVv: I see that a project is building a Layer-2 on top of your platform. Please tell us more about this.

Grover: Yes, that would be Nitro. Nitro is an interesting project building an optimistic rollup on top of SEI with Solana’s VM C-level execution environment. This allows Solana developers to redeploy their contracts on Nitro and interact with the IBC ecosystem and SEI. Nitro will offer a Web 2-like experience in terms of throughput and time to finality while relying on SEI for fraud proofs. In the long term, we’d like to see new modules built on Cosmos, allowing apps written in MOVE, SVM, or EVM to exist on SEI and be fully synchronous and composable with CosmWasm contracts.

vVv: What do you think prevented Solana’s original vision of a decentralized platform with NASDAQ-level transaction speed for trading infrastructure from being fully realized, especially considering the emergence of Layer-2 solutions?

Grover: Solana still has a strong developer community and could do well post-FTX due to the number of people building there. However, it is mainly because NFTs have taken over as the primary use case. Serum’s base Orderbook infrastructure might have been better built into the chain rather than as a separate application. Solana hasn’t necessarily failed, but the rise of NFTs and some downtime issues may have impacted its growth. SEI aims to improve the Solana experience by addressing the MEV hotspot problem and redistributing bad MEV fees to delegators and validators.

vVv: Can you give an overview of SEI’s validator requirements and how many validators you’ll have at the final stage?

Grover: SEI’s validator requirements will be higher than Ethereum’s due to design decisions prioritizing trading. The initial set of validators will likely be between 30 and 50, with potential benefits for co-location. However, the final decision is still to be made. Hardware requirements can be found in our documentation for those interested in getting involved.

vVv: How important is the community for SEI?

Grover: The community is hugely important for SEI, and we have a strong ambassador program and an active Discord server. People create content, songs, and Metaverse games to support the project. We’re also encouraging local events. The growth in community involvement from the bear market to now has been mind-blowing and is a crucial to SEI’s decentralization.

The growth in community involvement from the bear market to now has been mind-blowing and is a crucial to SEI's decentralization.

vVv: How big is the team currently? 

Grover: The SEI team comprises 19 people, including nine engineers and ten growth team members. The engineering team mainly comprises Databricks and Robinhood individuals who are proficient in distributed systems. While the growth team has a mix of crypto natives and traditional finance professionals like Jeff, who has a Goldman Sachs and Coatue Management background. SEI has also secured funding from notable VCs, such as Multicoin, which has established a $70 million ecosystem and liquidity fund.

vVv: Regarding support and funds, do you also offer grants for early adopters or developers building on top of SEI?

Grover: SEI has yet to issue grants to teams building on its platform. The team believes it’s better to self-select projects aligning with the architecture and built environment. The SEI Foundation will have a list of RFPs (Request for Proposals) that teams can apply for, and successful applicants can receive SEI tokens from the foundation to launch their projects on the SEI mainnet.

vVv: Do you see any risk with mass adoption? Will congestion be an issue if there are too many order book exchanges operate simultaneously on top of SEI?

Grover: While many teams may deploy their exchanges on SEI, previous Layer-1 chains have shown that only a few exchanges typically rise to the top and become the default choice for users. These dominant exchanges usually offer deeper liquidity, better user experience, or effective incentives. Based on this pattern, it’s likely that only two or three exchanges will emerge as the most popular on SEI.

 In terms of congestion, SEI’s infrastructure is designed to handle a high number of transactions per second (up to 22k TPS). This capacity should comfortably accommodate existing DeFi volumes, as seen on platforms like DYDX, multiple times over. Therefore, SEI should be well-positioned to manage the transaction load even in a scenario of mass adoption.

vVv: In terms of price feeds, what oracles does SEI rely on?

Grover: Initially, SEI will use a solution similar to the Tarot native oracle, where validators provide price feeds for key assets like Atom, Eth, and Bitcoin. SEI is also in talks with various oracle providers, such as Pyth and Switchboard, to establish partnerships for high-frequency oracle solutions. At least one of these providers will deploy their entire solution on our Atlantic-2 testnet for testing purposes, ensuring a range of oracle feeds to facilitate various DeFi products.

vVv: Since SEI is IBC enabled, will this allow natively trading the tokens from IBC-enabled chains on SEI and will the non-IBC tokens be wrapped?

Grover: Yes, you’ll be able to trade native CW20 tokens from any Cosmos chain on SEI. Native Cosmos assets will be tradable, and SEI is working with partners to bring other interesting assets to the platform. For assets like wrapped Bitcoin, SEI aims to avoid double-wrapping. It is actively working on solutions to ensure that a wide variety of assets are available for users, similar to EVM chains.

You'll be able to trade native CW20 tokens from any Cosmos chain on SEI

vVv: What are your plans to bridge to other ecosystems like Solana, Near, or other EVM chains?

Grover: SEI is working with partners like Axelar, which just released Squid, and multichain to integrate with their testnets, providing good coverage for bridging to other ecosystems. SEI aims to make the process as seamless as possible for users and has more ideas in the pipeline that cannot be disclosed at this moment.

vVv: How does SEI plan to take advantage of interchange accounts and security once they live on the Cosmos Hub?

Grover: SEI is excited about interchain accounts, as they enable exciting strategies such as cross-chain arbitrage. Teams can run strategies using protocols on SEI and route tokens back to their home chains. Interchain security is also intriguing, but SEI won’t be using it immediately. The community may propose SEI providing security itself and having consumer chains use SEI security in the future.

vVv: Could you tell us more about the transaction order handling process and the advantages of this process?

Grover: ​​In the context of MEV (maximal extractable value), block producers can profit by changing the order of transactions in a block. For instance, if there’s a simple problem on-chain with a $1,000 reward for the first solver, the block producer can decide the winner and the order of transactions. Malicious MEV, like front-running, can also occur. For example, someone wants to buy 1 ETH for $1,500 but is willing to pay $1,515 due to slippage. A malicious actor places two transactions in front, buying the asset for $1,500 and selling it for $1,515, making a riskless $15 while the original buyer gets a worse price.

 Frequent batch auctions help solve this issue by settling all market orders at the average price of a block, eliminating price differences between settled orders. This only solves some MEV problems, but the solution involves redistributing profits to an off-chain node for situations like liquidations. Users can submit bids off-chain; if they lose the bidding war, their transaction is discarded, and they lose no gas. This helps prevent spam and gas loss while distributing profits to stakers and validators.

vVv: Do you see any AMM-based exchanges building on top of SEI in the future?

Grover: AMMs are expected to play a significant role in SEI’s ecosystem. They are easier to bootstrap liquidity on than order book-based DEXs, which often require sophisticated bots or market makers. AMMs may initially have the majority of trading volume until the cold start problem is overcome by order book-based DEXs. There are also teams working on concentrated liquidity solutions for SEI, which is an exciting development that doesn’t yet exist in the Cosmos ecosystem.

vVv: Do you see a future trend where AMMs will be replaced or dominated by order book-style concepts?

Grover: From a product perspective, AMMs (Automated Market Makers) are easier to bootstrap liquidity on than order book DEXs, which require sophisticated bots or market makers to constantly place limit orders. This leads to a “cold start” problem with order book-based DEXs, where AMMs are predicted to have the majority of the initial volume. The evolution of AMMs, like Uniswap v3, is moving closer to an order book model with concentrated liquidity. Teams are building concentrated liquidity solutions on top of SEI, which is a significant development as it currently doesn’t exist on Cosmos. This innovation is highly relevant and crucial to various strategies people might want to execute.

  In the long run, AMMs may be replaced or pushed back by order book-style concepts. However, recent innovations have made AMMs more attractive, and if they become more efficient and less prone to issues like impermanent loss, they could remain relevant. The future could see advanced AMMs that function like true automated market makers, with intelligent agents placing limit orders. This would democratize access to liquidity provision and reduce advantages held by centralized entities. As a result, the landscape of decentralized exchanges could evolve with a blend of advanced AMMs and order book-based systems, both playing significant roles in the market.

vVv: Do you foresee any regulatory risks, and are there any plans for user KYC requirements?

Grover: When it comes to regulations, SEI Labs is developing the first instance of the SEI network blockchain, which will eventually be an open-source, decentralized, permissionless project that anyone can contribute towards. In terms of requiring KYC, it’s unclear whether this would be necessary unless regulations were placed on validator nodes running a blockchain. If that were the case, validators must consider the legislation or regulation in question.

  The regulatory environment varies around the world. In Europe, a unified bill from the European Parliament provides some clarity. In the US, more clarity would be beneficial. Technology on the frontier SEI Labs and others in the space must remain keenly aware of potential regulatory issues.

  In addition to regulatory concerns, SEI Labs must consider how tokens are distributed and managed. This includes determining who will dictate token grants and the overall distribution process. Awareness of and addressing these concerns is essential for the success and long-term viability of the project.


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