SEI Network. Lesson №2 - What is SEI? [ENG Version]

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At this moment, if we go to any large centralized exchange (CEX) like Binance, Coinbase, Okex, etc., we will see in all the glory the work of the order book, which has been proving its reliability and speed for years. It is thanks to it we can choose the desired buy/sell price of any available asset and make a deal in seconds.
But here's the catch, we see this picture only on CEXs, which are not very reliable because of the high pressure from the regulators.

On the other hand, moving a huge order book to blockchain is much more difficult because of high transaction fees, low order fulfillment rates, and many other obstacles. Now imagine the problems a platform like dYdX and its users are experiencing with the heavy load on the network, it's unbelievable!

The Sei Network is created to solve the problems described above.

The Sei Network is a Layer 1 (L1) blockchain with an embedded order book that allows smart contracts to easily access shared liquidity. This network is built in the most promising and actively developing Cosmos ecosystem, which, as we remember from the previous lesson, makes it very easy and fast to deploy any application/blockchain in the ecosystem, with the ability to transfer assets between blockchains, without scalability limitations.

In the Cosmos ecosystem itself, the Sei network will act as a Hub, that is, a purpose-built blockchain to which De-Fi applications that use Sei liquidity will be connected. This solution will provide the highest reliability and, most importantly, high transaction speeds.

The official resources of the Sei Network:

• Website: https://www.seinetwork.io/
• Twitter: https://twitter.com/seinetwork?s=21&t=9rvYNloOelen7N3u215q8w
• Telegram: https://t.me/seinetwork
• GitHub: https://github.com/sei-protocol
• Gitbook: https://docs.seinetwork.io/introduction/overview
• Medium: https://medium.com/@seinetwork

Unfortunately, I will not be able to introduce you to the entire team, because there is no detailed information in the official sources, and almost the entire team remains hidden from public view. But I can introduce you to the co-founder and one of the engineers of the project.

Co-founder: Dan Edlebeck. Dan has led the development of companies and non-profits for ten years. After founding deedle connects, Dan worked to bring three blockchain projects to market and helped create four cryptocurrency company communities. Dan has an MBA from Babson College and a BA from UW-Madison.

Let's read what the co-founder says about his brainchild:

«Operating on a sovereign, purpose-built blockchain, decentralized finance applications built on Sei receive the security and resiliency of the Cosmos and Tendermint Core infrastructure, interoperability and composability of Inter‑Blockchain Communication Protocol, and the reliability and throughput of the Sei blockchain», Edlebeck said

Engineer: Jayendra Jog Jayendra Jog is from the University of California, Los Angeles. After getting his undergraduate degree, he started working in 2015, then the employee changed 3 companies and 3 jobs, which included SAP, Facebook, and Pinterest. Jayendra Jog's most recent place of employment is Robinhood.

Information about the rest of the team members could not be found, but it is known that they come from some of the most successful companies in the world, such as Uber, Airbnb, Goldman Sachs, and Coinbase. It is also known that the team helped build the Terra ecosystem, which over time helped them get a good understanding of the Cosmos SDK and CosmWasm.

Having accumulated a wealth of knowledge and experience, they decided to use it to create the ultimate DeFi infrastructure, enabling a whole new echelon of ultra-high performance DeFi products.

There are many new L1 blockchains being created, and at first glance you might say they are all the same and no different from each other. But here I hasten to stop you and tell you that Sei is not like the others, because it has features that seem to be unattainable for other projects.

And here are a number of distinctive features of the Sei Network:

• Speed. Aptos has a block completion rate of 1 second, Solana and Sui of 3 seconds. Many will say that this is very fast and they would be right. But when you interact with the De-Fi world, every second is more important than a whole state, because it is the time of final block processing that determines your decision. Sei Network understands this and that is why this blockchain has a block completion rate of 0.6 seconds, or 600 milliseconds!
• Adaptability. Since Sei Netwrok specializes primarily in De-Fi, liquidity and pricing metrics are very important to it. That is why the developers created a special DEX module, which, together with the Oracle module, provides the blockchain with a high level of liquidity and, most importantly, reliable and accurate asset valuation.
• CLOB. And the most important difference from other blockchains. Sei Network - this project is based on a central limit order book (CLOB), which significantly reduces transaction fees and increases liquidity compared to using an automated market maker (AMM).

Stop! You still don't know what CLOB is and how it differs from AMM. We need to fix that.

Decentralized exchanges (DEXs) have evolved aggressively over the past few years to provide solutions to problems that have long plagued centralized exchanges (CEXs). These problems include hacks, lack of privacy, deposit limits, problems with intermediaries, and high commissions.

DEX eliminates intermediaries and allows users to trade directly from their wallets with no restrictions. However, DEX also provides a unique opportunity in terms of trade execution model. Currently we have two of the best known DEX models: the central limit order book (CLOB) and the automated market maker (AMM).

The Central Limit Order Book (CLOB) is a trade execution model that matches buyer and seller orders based on a specific set of rules. The key difference between trading on AMM and CLOB exchanges is the mechanism for forming a fair price at which a trade will be executed.

For example, exchanges that use CLOB rely on a list of buy and sell orders sent by traders for a given pair, collected in one database. CLOBs allow traders to either bid (buy) or ask (sell) an asset at a specific price.

A key feature of the CLOB model is that it allows users to place two types of orders: a market order or a limit order.

• A market order occurs when a trader instantly buys or sells at the best market price, thus combining a buyer with a seller who currently has orders at the top of the book. The highest bid price and the lowest ask price make up the best available market price for that asset.
• In a limit order, traders buy or sell tokens at a certain price, but the order is not executed immediately and remains in the order book until it is executed.

Central limit order books rely on market makers (MM) to provide liquidity by listing limit orders on both sides of the trade. Market makers will receive a commission to stimulate liquidity, and the distribution of said commission will occur periodically through snapshots. By sending limit orders, at more detailed price levels, MMs will reduce the size of the spread.

Automatic Market Maker (AMM) is a model of execution of transactions in which there is a pooling of liquidity, for both sides of the trading pair, into a common pool. Then AMM determines a single market price according to a deterministic algorithm. The price formula is usually based on the current liquidity of the pool or, in other words, the availability of the asset in the pool.

AMMs do not require market makers, but rely on liquidity providers to join the pool and increase its size so that the tokens reflect a fair price.

When comparing with CLOB, you can see that the AMM model has a number of significant disadvantages:

• There is a risk of large order slippage due to the small amount of liquidity.
• Capital inefficiencies, as most trades are made within a narrow range of price levels unless the market is extremely volatile.
• Risk to liquidity providers, such as volatile losses.
• Increased risk of falling victim to a front-run attack.

The central limit order book has become a staple among major traditional exchanges, such as NASDAQ, because it is perhaps the most capital efficient and transparent execution model.

While serious obstacles prevent second-generation blockchains from adopting the CLOB model, Sei Network is a pioneer, fixing all the shortcomings of modern De-Fi with its CLOB blockchain, allowing you to count on high throughput, reliability, high liquidity and low spreads.

Now we can proudly tell our friends about such a great project as Sei Network. After all, we know absolutely all the intricacies of the Cosmos ecosystem on which it is built and the intricacies of the architecture of the Sei blockchain itself, which will definitely simplify our future in De-Fi.

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