Table of Contents
1. Introduction
2. Sei’s Unique Selling Point
3. Challenges Facing Sei
4. Final Thoughts
1. Introduction
Sei has recently emerged as a topic of interest in the crypto market. Various communities and renowned researchers are jumping into the discussion of Sei, bringing it into the spotlight. Is this attention due to Sei's genuine merit as a project, or is it merely a result of initial crypto shilling for community formation?
The L1 market demands distinctive features that sets it apart from rollup-based L2 services or dApps. While L2 and dApps emphasize compatibility or service features, L1 must function as a cohesive ecosystem and inevitably compete with other L1s. In this article, we will explore the unique selling points that Sei presents compared to other L1s and explore them from an analytical perspective.
2. Sei's Unique Selling Point
Unparalled Speed
"The fastest blockchain." "Instant transaction processing." "The fastest finality among existing blockchains." These are the phrases you'll often encounter when first learning about Sei. In reality, Sei demonstrates significantly faster speeds compared to Aptos (900ms) or Solana (1500ms) that both boast finality.
Source: sei.io
Transaction finality refers to when a transaction is permanently recorded in a block, showing a direct correlation between finality and transaction settlement speed. Sei emphasizes this rapid finality as a solution to the exchange trilemma, which refers to the challenges encountered in building decentralized exchange systems, where satisfying decentralization, capital efficiency, and scalability simultaneously becomes difficult. These three attributes are as follows:
Source: Link
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Decentralization: The exchange is decentralized, meaning there is no central authority controlling it.
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Capital Efficiency: The exchange can effectively utilize users' resources and liquidity.
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Scalability: The exchange boasts high throughput, enabling users to trade conveniently.
Sei tackles Capital Efficiency and Decentralization as a decentralized exchange utilizing the Central Limit Order Book (CLOB) mechanism. Therefore, Scalability becomes crucial for Sei, highlighting the importance of rapid finality. As the pioneer of the sector-specific narrative within the crypto ecosystem, focused on app-specific sectors, Sei holds a unique market advantage as a trading platform.
Transaction Processing via Parallel EVM
With the introduction of Sei v2, the ecosystem's expansion includes official support for EVM through Parallel EVM. This enables the execution of Solidity code on Sei without additional effort, facilitated by Address Translator and EVM modules ensuring seamless compatibility with Cosmos SDK and EVM. While projects like BeraChain or Evmos offer similar experiences, what sets Sei apart is its support for the "first parallel EVM.”
The notion of Parallel EVM has been a longstanding proposal within the EVM ecosystem. However, developers face significant hurdles in monolithic chains where various components (such as consensus, blocks, and transactions) are intricately intertwined. However, Sei's blockchain is built on the Cosmos SDK, leveraging the modular characteristics of the blockchain to implement parallel processing. This is achieved by modifying the Tendermint consensus engine responsible for block generation. Handling transactions in parallel presents inherent complexities due to the nature of blockchains. While this may not pose significant issues for individual nodes, situations where multiple nodes share states can lead to disparities in parallel processing, resulting in state inconsistencies among validator nodes—a phenomenon known as non-determinism. Especially in cases where transaction order matters, such as balance transfers between accounts, sequential processing is crucial to ensure the accuracy of balance values (the node's state). To address these challenges, Sei implements Optimistic Parallelization, allowing for parallel transaction processing while maintaining sequential processing when transaction order is critical. Through this approach, Sei achieves high throughput while preserving transaction order integrity.
Additionally, Sei has introduced SeiDB, a modified database replacing the default one provided by Cosmos SDK. SeiDB is tailored to address challenges such as state inconsistency and synchronization delays, all while being optimized for parallel execution. These technical enhancements underscore Sei's unique capabilities in efficiently managing high TPS demands while ensuring minimal hardware requirements for nodes.
Source: blog.sei.io
Universal L1 Chain for Trading
Sei highlights its role as a universal L1 chain designed specifically for trading. To optimize the environment as DeFi applications, Sei offers the following distinctive features:
- Native Order Matching Engine: Unlike general-purpose L1 chains that depend on Automated Market Maker (AMM) mechanisms for trade execution, Sei provides its own order book. This enables direct trading between buyers and sellers, resulting in lower slippage and increased liquidity. As a result, users can expect reduced trading costs and improved trading efficiency.
- Native Price Oracles: To enable the order book mechanism, accurate price information required for trading is provided through oracles. These oracle data are designed to be supplied by validator nodes during block creation, with various methods proposed to ensure the utilization of precise and up-to-date data.
- Frequent Batch Auctioning (FBA): Sei implements the FBA method to aggregate information on all market orders and determine a consistent clearing price. This approach helps prevent front-running attacks by manipulating transaction sequences, thereby fostering a fairer trading environment.
3. Challenges Facing Sei
Significance of Fast Finality Limited to Specific Conditions (Environments)
Sei takes pride in its emphasis on being tailored for trading, particularly highlighting its rapid finality speed. However, in reality, chains built on the Cosmos SDK offer options to adjust block creation time as part of their default settings.
Source: Link
Within the config.toml file, which governs the chain's settings in Cosmos SDK, there exists a parameter known as timeout_commit in the consensus settings. This parameter regulates the time interval between block creation and the subsequent block's creation. By adjusting this parameter, block creation time can be controlled, thereby enhancing finality speed. Achieving finality of less than one second through such configurations is feasible. Essentially, increasing block creation speed solely based on BFT consensus methods, independently of transaction throughput, can reduce speed of finality.
For fast finality to hold significant value, it's crucial that a large number of transactions can be included in a block within a short block creation time. Its significance diminishes if transactions submitted at a particular moment are stored not in the next block but several blocks later due to excessively fast finality.
Key factors to consider for achieving fast finality include the number of nodes needing communication and the network's transmission speed. The more nodes involved and the greater the physical distance between them, the faster the finality speed becomes. While Sei has achieved a finality of 250ms in a restricted environment, the actual mainnet takes longer due to these reasons. Hence, it's evident that Sei can achieve the emphasized extremely fast finality level in a conservative environment with minimized node count and physical distances between them. Adapting fast finality to various service environments and managing node fluctuations will be a future challenge for Sei.
Sei's Technological Advancements for Parallel EVM
Sei highlights Optimistic Parallelization as a key technology to achieve Parallel EVM. However, this approach is implemented using a method similar to Aptos' Block-STM algorithm. While Sei's application of Block-STM to EVM is noteworthy, validation appears necessary to be recognized as a trailblazer in core technology.
Another technological distinction Sei emphasizes is SeiDB. In practice, it’s common to customize databases with IAVL tree structures to align with their business logic in the ecosystem utilizing Cosmos SDK.
Source: blog.sei.io
In short, the core feature of SeiDB is the separation of one large database into two distinct layers:
- State Commitment: This database is responsible for storing the state information of the chain in a Merkle tree format on memory, providing fast state access and Merkle hashing.
- State Store: Acting as an archive node, this database handles the retrieval of all past states.
While Sei undoubtedly benefits significantly from database separation in terms of data storage efficiency and optimization, it also faces several challenges that require attention:
- Complexity of State Storage: Employing two databases for state storage increases complexity, potentially leading to bugs or vulnerabilities, particularly concerning synchronization between the two layers.
- Dependency on Optimistic Parallel Processing: SeiDB's performance enhancements rely on optimistic parallel processing, assuming transactions can proceed in parallel without conflicts. However, if this assumption fails, it may require transaction processing delays or the implementation of complex conflict resolution mechanisms, impacting overall throughput and efficiency.
- Hardware Requirements: Despite Sei's claims of low node hardware requirements, achieving significant performance improvements and storage optimization may still require substantial computing power. Validator nodes, especially those processing a large volume of transactions rapidly, may face increased demands.
- Write-Ahead Logging (WAL) for State Changes: While utilizing WAL for asynchronous state changes can enhance performance, there is a risk of data loss or corruption if the WAL fails before flushing to the state store. This potential issue could compromise the integrity of the blockchain state, necessitating robust recovery mechanisms to ensure consistency.
Ultimately, SeiDB represents significant progress in blockchain storage and performance optimization. However, ongoing monitoring, testing, and updates are essential for Sei to maintain reliability and efficiency in addressing anticipated challenges.
Positioning as an L1 Chain
Sei faces the task of strengthening its position as an L1 chain in the future.
When compared to existing Cosmos SDK-based DEX-focused chains, Sei exhibits clear advantages in high-frequency trading (HFT) and large-scale transactions. Its ability to execute rapid trades at fixed prices provides a distinct edge over platforms like Osmosis and dYdX. Nevertheless, emphasizing its standing as an L1 chain requires effective utilization of the Sei token's utility. Currently, proposed utilities such as network fees, staking, and governance are also offered by other L1 chains. Thus, differentiating Sei based on token utility remains a challenge.
For example, Osmosis offers incentives for staking through Superfluid and Supercharged using $OSMO, while dYdX provides governance participation opportunities by staking $dYdX, which can adjust various parameters in trading. Currently, $Sei demonstrates relatively lower gas fees compared to other platforms. However, a clear differentiation strategy is needed to set it apart from existing utilities.
The active emergence of "trading-focused" dApps is also anticipated. As Sei aims to resolve the exchange trilemma as an L1 solution, the presence of trading-focused dApps can bolster Sei's narrative.
In the long term, Sei may eventually require a strategy for rollups and L2 solutions. If Sei continues to operate solely as an L1 blockchain, it may face limitations as it scales beyond a certain point, given the structural constraints of the blockchain that necessitate multiple nodes to store and share all historical and current data. With numerous dApps based on Sei expected to surface, adopting L2 solutions such as rollups becomes crucial to address scalability and interoperability challenges. Therefore, Sei must develop a comprehensive strategy not only for the L1 ecosystem but also for rollups and L2 to ensure secure and sustainable ecosystem expansion.
4. Final Thoughts
It's undeniable that Sei is currently experiencing faster growth compared to similar projects. In fact, prominent projects collaborating with Sei are testament to this trend. For readers with a positive outlook on the new L1 narrative, it's worth keeping an eye on how Sei will continue to navigate and expand within the L1 market.
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