Sei Network helps standardize decentralized finance with on-chain order book
By Christos Makridis
Only 15.2 million people worldwide owned cryptocurrency in July 2017. Today, that number has risen to 82 million crypto owners, according to Statisticaland other estimates place it as high as 300 million. Despite the rapid growth, crypto holders remain a minority of the population. Only 20% of individuals report owning crypto between June and December 2021, and 61% of that figure are millennials earning more than $100,000 a year. according at the morning consultation.
There are many barriers to entering the world of crypto ownership, including psychological factors when switching to new financial platforms, but one of the main drawbacks has been the lack of interoperability and liquidity in decentralized finance.
“In terms of liquidity, decentralized finance is still tiny compared to traditional asset classes. Decentralized finance is still in its infancy, the infrastructure and tools for composability across ecosystems are being developed,” said Dan Edlebeck, co-founder of Sei Network.
Sei Network works to build exactly this architecture. Launched as Layer 1, which means its blockchains can validate transactions without any other network, and built on the Cosmos SDK, the most used framework for blockchains, Sei Network has an order book as the basic layer of the blockchain. Order books list the number of shares being bid or offered at different price levels, as well as identify the entities behind buy and sell orders, creating transparency and credibility needed for large institutional investors to buy and sell. Order books have become the gold standard for organizing and structuring bids and asks since the Nasdaq adopted electronic order books thirty years ago.
Since the order book is kept on-chain, which is fully stored on the blockchain, Sei Network can optimize performance and speed. Many protocols have traditionally struggled with pricing errors or delays: when a protocol uses an off-chain pricing oracle, there are delays between acquiring business information and the protocol, resulting in failed nodes .
Consider the recent price error on the mirror protocol for Luna Classic: validators on Terra Classic were showing a price of $0.000122 for the Luna Classic coin and the new LUNA coin, but the LUNA coin should have been priced at $9.32. The error was eventually corrected, but the exploiter got away with more than $30 million.
Additionally, the Sei Network is a permissioned blockchain, which means that projects must go through some degree of verification to be listed. While this limits the number of projects on the blockchain, it also helps ensure that a minimum quality threshold is met for large investors.
Because the Sei Network is built on the Cosmos Network, each blockchain operates independently – a market advantage. Traditionally, congestion and issues on a Layer 1 blockchain can have ripple effects on all other projects, like the blockchain protocol Serum encounter delays when the Solana blockchain was down. “Running on a purpose-built sovereign blockchain, decentralized finance applications built on Sei benefit from the security and resilience of the Cosmos and Tendermint Core infrastructure, the interoperability and composability of the inter- blockchain, as well as the reliability and throughput of the Sei blockchain,” said Edlebeck.
Such an approach contrasts with automated market makers, which form the basis of today’s decentralized financial community. Automated market makers facilitate peer-to-peer trading by establishing a rule that the product of two assets must always equal a constant. When a holder takes out a coin, the other side must put in an equivalent amount to ensure that the equation balances out.
Certainly, market makers, especially Uniswap as a forerunner, have brought incredible value to the decentralized finance community, but they have challenges. Market makers Wrestle in dealing with front-running, which occurs when another user places a similar transaction as a potential buyer, but sells it immediately afterwards, which ends up hurting the buyer and costing them more.
Sei Network offers an alternative to automated market makers. “For larger assets, you need to have an on-chain order book so that there is a market and information for options trading,” Edlebeck said.
The organization believes that, on both a technological and human level, the ultimate key to its scalability will be to maintain a firm foothold in the world of global decentralized finance – its protocols, its lexicon, its channels, its values, its rules, its delicate sensitivities and its community functioning. and Principles of Engagement–and the world of Western finance: Wall Street, Tier 1 mainstream fintech startups, and the mass consumer audiences they serve.
This is a leadership team with a pedigree in a mass adoption hybrid approach. Sei Network lead engineer Jay Jog is a Robinhood alum, other executives have Goldman Sachs backgrounds, and Edlebeck is a household name in the Cosmos ecosystem, having launched Sentinel and Exidio, two decentralized finance projects high profile with significant recent attention. The Sei Network team is made up of leaders that institutional players haven’t seen yet – and players that Sei hopes to attract, plus all those developer-friendly projects. Sei lovingly refers to his emerging community as “Seilors,” as seen in clever aquatic branded content that plays with themes of depth and liquidity, and even parodies Team Zissou. Its marketing is streamlined for a discerning downtown New York City subway audience, while harkening back to the good old days of blockchain startups.
It will still be some time before large publicly traded companies become more involved in decentralized finance, particularly due to know-your-customer rules and guidelines. But solutions are emerging that offer a balance between complete anonymity and the disclosure of all personally identifiable information.