1. Fundamental Analysis

1. Basics

Sei is built on Cosmos SDK and Tendermint Core, and is a Layer 1 blockchain focused on the DeFi field. It aims to bring the order book model to the chain, thereby narrowing the speed gap between DEX and CEX, and becoming the “cryptocurrency Nasdaq”.

Sei is a general-purpose chain focused on trading, rather than an application chain specifically designed for a particular application. In other words, Sei is a blockchain optimized for trading, with features such as an order matching system, Native Order-Matching Engine, Twin-Turbo Consensus, and transaction parallelism to achieve this positioning:

(1) Core-Order matching system and Native Order-Matching Engine:

As a Layer 1 blockchain “built for trading”, Sei does not solely adopt any single AMM or traditional order book mechanism when processing transactions. Instead, it chooses a set of compromise solutions - the Central Limit Order Book (CLOB). CLOB builds an order matching engine in the lower-level structure of the chain, attempting to solve this problem by “embedding” an order book in the chain (Sei does not manage the order book, but only provides an order matching framework). Various DeFi protocols built on Sei can leverage this order matching engine. One major problem in the existing DeFi ecosystem is the fragmentation of liquidity for each DeFi protocol. However, with Sei, all DeFi protocols share an order matching engine that can provide deep liquidity.

As a simple example, suppose there are “Red Dex” and “Blue Dex” on the SEI. If User A submits an order on Red Dex to sell 1 ETH for $2,000, and User B submits an order on Blue Dex to buy 1 ETH at the market price, Sei’s order matching engine will match the two orders. Generally speaking, DeFi networks have problems with liquidity fragmentation, as each DeFi tends to maintain its own liquidity, but Sei provides a very deep liquidity pool that brings together all the liquidity related to the matching engine , minimizing users’ financial losses due to collateral effects such as slippage.

(2) Twin-Turbo Consensus：

Twin-Turbo consensus includes two functions: 1) Smart block propagation for efficient block propagation, and 2) Optimistic block processing to enhance scalability by reducing block time.

1) Smart Block Propagation: :

In a typical blockchain network, block proposers collect transactions in their local mempool, form them into a block, and propagate it across the network. During this process, a single block containing all transaction data is disseminated to the network. This means that even though full nodes already have almost all transactions, conventional blockchain networks still propagate blocks with the same transaction data. This represents a waste of bandwidth.

In Sei, block proposers do not include transaction data in the block proposal but only the hash values of transactions and the block ID, which serves as a reference to the block. The hash value of transactions is a condensed hash function of existing transaction data, offering the advantage of smaller volume. Block proposers first propagate the block proposal to the network, as illustrated below, and then disseminate the complete block in smaller chunks. If a validator receiving the block proposal from a block proposer already has all transactions corresponding to that hash value in its local mempool, it will reconstruct the block from its local mempool instead of waiting for the complete block to arrive. If a specific validator is missing a transaction in its local mempool (a very low probability), it can wait for the entire block to arrive.

Source: Four Pillars, Jay-Sei Labs

The benefits of this smart block propagation process are significant as it substantially reduces the time required for validators to receive blocks. According to co-founder Jay, this process has proven to increase Sei’s overall scalability by 40%.

2) Optimistic Block Processing:

While Sei utilizes the Tendermint Core, some modifications have been made to significantly reduce block time and enhance scalability. Tendermint Core is a consensus engine that combines Delegated Proof-of-Stake (DPoS) and the PBFT consensus algorithm. The typical Tendermint BFT consensus process involves Propose — Prevote (2/3 consensus) — Precommit (2/3 consensus) — Commit.

Sei’s Optimistic Block Processing modifies the Tendermint BFT process by introducing a block processing phase between Precommit and Commit. Assuming malicious nodes are rare and validators have received the data needed for computation during the Prevote stage, Sei’s Optimistic Block Processing parallelizes the computation with Prevote, aiming to further reduce block time. Reducing block time through optimistic block processing should not be an issue as, most of the time, the block’s validity is not in question. However, if the block is rejected by the network during the Prevote and Precommit phases of the computation, it can be straightforwardly discarded.

Source: Four Pillars, Jay-Sei Labs

Taking a set of Sei data using the normal Tendermint BFT method, the total block time would be 200+150+150+400+100, which is 1000ms. If optimistic block processing is applied, saving 300 milliseconds in prevote and precommit time, the block time is reduced to 700 milliseconds. If the block size remains the same, reducing the block time from 1000ms to 700ms means there are approximately 1000/700 more blocks in the same time, an increase of about 1.43 times, leading to a 43% improvement in scalability.

(3) Transaction Parallelization:

Another method employed by Sei to enhance scalability is the parallelization of transactions. Ethereum Virtual Machine (EVM), the most popular virtual machine in the blockchain industry, processes transactions sequentially, inherently limiting scalability. By default, the Cosmos SDK upon which Sei is based also processes transactions in a serial manner. In Cosmos application chains, when a block is received, validators sequentially execute BeginBlock logic, DeliverTx, and EndBlock logic. Sei modifies DeliverTx and EndBlock to process transactions in parallel.

Firstly, the DeliverTx process handles transactions such as token transfers, governance proposals, and smart contract invocations, ensuring that parallel transactions do not reference the same keys. For example, two transactions where A sends X tokens to B and C sends Y tokens to D can be processed in parallel. However, two transactions where A sends X tokens to B and B sends X tokens to C cannot be processed in parallel, and they will be processed consecutively.

To parallelize multiple transactions, it is necessary to ensure they do not reference the same keys. For this purpose, Sei builds a Directed Acyclic Graph (DAG) to check dependencies between transactions before executing them. In the diagram below, assuming the DAG shows the middle R3 depends on R2 in the first column, and R3 in the third column depends on the middle W1. As a result, transactions will be processed as shown in the right diagram.

Source: Four Pillars, Jay-Sei Labs

In the last part of the block, EndBlock, transactions related to the matching engine are executed by the native order matching engine. Similarly, transactions related to the matching engine are not processed in sequential order but in parallel once it is confirmed that they are unrelated to each other.

By default, the network is designed to assume that all transactions are unrelated and process them immediately. If there are related transactions, only those transactions will fail. Therefore, application developers based on the Sei order matching engine must first filter out which transactions are related and which are unrelated. Experimental data on parallelization on Sei showed a performance improvement of 60–90% in block time, TPS, and other aspects compared to non-parallelization.

2. The Latest Parallel EVM Narrative

Since the official launch of Sei’s public mainnet, Pacific-1, on August 16, 2023, and the release of the Sei-V2 version plan on November 29, 2023, which supports the first parallel EVM, Sei has allowed smart contracts written in Rust using Cosmwasm. As Sei continues to attract more developer interest and expands its ecosystem, developers’ primary request is for the execution environment supported by Sei to have greater flexibility. With the support of parallel EVM, Sei becomes available for global EVM developers to use.

Origin: Sei Labs

(1) What is Parallel EVM?

Parallel EVM (Ethereum Virtual Machine) is a concept aimed at improving the performance and efficiency of the existing EVM, which is the core of Ethereum responsible for running smart contracts and processing transactions. The current EVM has a crucial feature: transactions are executed sequentially.

Sequential execution ensures that transactions and smart contracts can be executed in a deterministic order, making it easier to manage and predict the blockchain’s state. This design choice prioritizes security and reduces the potential complexity and vulnerabilities associated with parallel execution. However, in situations of high load, it may lead to network congestion and delays.

Imagine the original design of the EVM as vehicles moving one after another on a single lane, where each vehicle must travel at the speed of the preceding one. In case of congestion (transactions), subsequent vehicles will be stuck. In contrast, Parallel EVM is like expanding this single lane into a multi-lane highway, allowing multiple vehicles to move simultaneously. Technically, Parallel EVM allows different independent transactions or smart contracts to proceed concurrently, significantly improving EVM processing speed and system throughput.

General approaches to parallel EVM processing:

• Partitioning or sharding: Partition or group transactions so that they can be executed in parallel. This means different transactions can execute simultaneously on different processing units, rather than one after another. Additionally, Solana’s SVM adopts a similar processing logic.

• Optimized algorithms: Develop new scheduling algorithms and optimization techniques to effectively manage and execute parallel tasks while maintaining the correctness and order of transactions.

• Security and consistency assurance: Implement complex synchronization mechanisms and consistency models to ensure the security and data consistency of the entire system even in parallel processing scenarios.

In short, parallel processing of transactions allows the EVM to handle more transactions at the same time, significantly increasing TPS, alleviating network congestion, and enhancing scalability.

(2) Key Implementations of Sei V2

1) Backward compatibility of EVM smart contracts — Allows developers to deploy audited smart contracts from EVM-compatible blockchains without changing the code, supporting the reusability of familiar and widely used applications and tools (such as Metamask).

Backward compatibility means that new products consider previous products during design and can be used as-is, even if they were made for previous products. The backward compatibility in the design of Sei V2 means that most existing smart contracts on Ethereum can be deployed on the Sei blockchain without changing any code.

Origin: Sei Labs

2) Optimistic parallelization - allows the chain to support parallelization without requiring the developer to define any dependencies:

Sei V2 processes transactions in parallel, executing them first assuming all operations are valid, and then re-running them if something goes wrong during validation. The result of processing should be the same as the result of sequential processing. In short, Sei V2 takes an optimistic approach, processing transactions first and using information about any issues that arise to process the transaction, rather than verifying the relationship of the transaction ahead of time. Optimistic parallelization will apply to all transactions running on Sei, including Sei native transactions, Cosmwasm transactions, and EVM transactions

Origin: Sei Labs

3) Interoperability with existing chains, allowing seamless integration between EVM and any other execution environment supported by Sei:

As Sei is an integrated chain, all transactions entering different components of Sei (Cosmwasm, EVM, Bank, Staking) are able to communicate with each other. Despite serving different purposes, these transactions ultimately share many similar characteristics, such as gas, sender, and transaction subject. When these transactions are received by the chain, they are processed as native Sei transactions and forwarded to the appropriate storage components (e.g., CosmWasm transactions are sent to wasm modules and executed). This brings a more seamless developer experience — EVM developers can easily access native tokens and other chain functionalities (e.g., staking).

Origin: Sei Labs

4) SeiDB — SeiDB — Improvements to the storage layer to prevent state bloat, enhance state read/write performance, and make it easier for new nodes to synchronize states and catch up.

(3) Significance of Parallel EVM:

Former Polygon co-founder JD previously expressed a premonition that every Layer 2 solution in 2024 would rebrand itself with the “Parallel EVM” label. Georgios, CTO at Paradigm, also shared the view that 2024 would be the “Year of Parallel EVM” and noted internal explorations and designs related to this technology at Paradigm.

For developers, blockchain development has historically been challenging, requiring adaptation to different virtual machines or languages with each new platform. If blockchain clients are builders, these actions haven’t considered the convenience of clients. Ultimately, blockchain must evolve to meet the needs and environments of builders. Currently, the EVM ecosystem is the most active, and Parallel EVM can address this challenge.

The support for EVM in Sei V2 doesn’t imply the abandonment of WASM. Sei V2 plans to support both virtual machines simultaneously, even facilitating interoperability between them. If successful, Sei V2 could become the most successful integrated blockchain supporting multiple virtual machines.

Jay, co-founder of Sei Labs, mentioned at the end of 23 on social media that Sei V2 would enable EVM and Cosmwasm contracts to call each other using stateful precompiles and chain-level message dispatch. After the audit, this upgrade is scheduled for release on the public testnet in Q1 2024 and deployment on the mainnet in H1 2024.

3. On-Chain Ecosystem Development

In the past 30 days, Sei Mainnet has recorded a total transaction volume of 728,000, with 62,500 unique users. The average daily transactions amount to 23,500, showing an upward trend in both transaction volume and user numbers.

Source: Flipside

In the recent 30-day data, the most active applications on Sei Mainnet, ranked by current users and transaction volume, are Astroport, Tatami, Dagora, and Webump.

Source: Flipside

Astroport (Dex): Astroport envisions becoming the mainstream next-generation AMM, providing deep liquidity pools and significant trading volume for the Cosmos ecosystem. Better pricing aims to attract more liquidity, forming a self-reinforcing cycle. Ultimately, Astroport aims to operate as the foundational liquidity layer for Cosmos. Currently, Astroport operates on four chains: Sei, Neutron, Terra2, and Injective.

Tatami (Gaming): Tatami addresses a prominent need in the Web3 space — a dedicated gaming publisher. As numerous games are scattered across various chains, Tatami offers users a unique space to play games, collect assets, and complete tasks on a single platform, bringing a unique fusion of game development, market integration, and launchpad services aimed at changing the way games are experienced, created, and distributed in the Web3 space.

Dagora (NFTs): Dagora is Coin 98’s multi-chain NFT marketplace, supporting BNB Chain, Polygon, Sei, and others. Dagora features Marketplace (NFT trading market), Launchpad (NFT release platform), and Hot Drops (free minting section). Additionally, Dagora allows C98 token holders to participate in auctions, launchpads, Hot Drops, and various activities.

Webump (NFTs): Webump is dedicated to supporting development teams and creator communities on the Sei blockchain. In collaboration with Lighthouse, it provides open-source smart contracts designed for seamless NFT creation on Sei. Lighthouse, an open protocol and toolkit, enhances the NFT creation process, making it easier and more efficient for NFT creators and developers to access.

As a blockchain focused on providing high-performance DeFi, Sei’s current on-chain DeFi TVL, both in overall and individual project data, demonstrates early-stage development in terms of data performance and product construction.

Source: Defillama

Kryptonite: Kryptonite is a decentralized AMM and staking protocol based on Sei. It can be used in conjunction with any bAssets on the Cosmos blockchain and other blockchains. The protocol aims to bring a robust native currency market to the Cosmos ecosystem, fostering financial innovation and flexibility. Users can stake Sei Network’s token SEI to receive liquidity staking tokens bSEI. Subsequently, bSEI can be used as collateral to mint the stablecoin kUSD at a 200% collateralization ratio.

Levana Perps: A perpetual contract trading platform on Sei supporting leverage of up to 30x. Currently, Levana supports leveraged contract trading for assets like BTC, ETH, ATOM, and OSMO.

Yaka Finance: An upcoming native Dex on Sei that allows users to interact on its platform. Users can currently engage with it on the official website, and there may be future airdrops.

Sushiswap and Vortex Protocol: On February 23, 2023, Sushiswap announced the acquisition of the derivatives Dex, Vortex, and collaboration with Sei. There were plans to launch a decentralized derivatives exchange on Sei in the future. However, there have been no new developments disclosed for the project, with Vortex’s latest official update dating back to February 2023.

2. Team, Funding and Partnerships

1. Team background

Sei Network was founded in 2022 by Jeff Feng and Jayendra Jog. Jeff Feng, a co-founder of Sei Labs, graduated from the University of California, Berkeley. From 2017 to 2020, he worked in the TMT investment banking division at Goldman Sachs.

Jayendra Jog, also a co-founder of Sei Labs, graduated from the University of California, Los Angeles, and previously served as a software engineer at Robinhood from 2018 to 2021.

Phillip Kassab is the Director of Growth and Marketing at Sei Network. He graduated from the Stephen M. Ross School of Business at the University of Michigan and previously held positions as Marketing Director at Trader Joe and Swim.

Other team members have backgrounds from notable companies such as Google, Amazon, Airbnb, Goldman Sachs, etc.

2. Funding history

In August 2022, Sei Labs, the team behind Sei Network, completed a $5 million seed round. Multicoin Capital led the round, with participation from Coinbase Ventures, GSR, and others.

In February 2023, Sei announced a $400 million Series A funding round with plans for an airdrop. In April, Sei Network raised $30 million at an $8 billion valuation, with participation from Jump Capital, Distributed Global, Multicoin Capital, Bixin Ventures, and others. These funds were allocated for development and market expansion in the Asia-Pacific region. In the same month, Sei Labs’ ecosystem fund secured $50 million in a new funding round with participants including OKX Ventures and Foresight Ventures.

In November 2023, Circle made a strategic investment in Sei Network, supporting the launch of the native USDC on the network.

Source: Rootdata

3. Operations and Partnerships

(1) Testnet activities and airdrops: During the Atlantic 2 testnet phase, Sei explicitly stated its commitment to allocate token incentives as rewards for early community members using the chain. Once the Pacific-1 mainnet is publicly released, these rewards will be open for claiming, encouraging user engagement on the network.

(2) Sei Ambassador Program: The introduction of the Sei Marines Ambassador Program involves designing levels and tiered rewards for ambassadors based on their contributions. This program aims to stimulate promotional efforts in various regions.

(3) Sei Launchpad Accelerator Program: The launch of the sei/acc program involves investing in and supporting ecosystem projects by providing resources, guidance, and incentive measures. A product manager will be assigned to assist in developing a strategic roadmap and collaborate with key members of the Sei Foundation team.

(4) Expansion and promotion in the Asia-Pacific region: In December 2023, Sei sponsored Binance’s event in the Maldives. On December 21, Sei announced a strategic partnership with KudasaiJP to expand its market share in Japan. In January 2024, the South Korean research firm Four Pillars revealed that Sei is preparing various initiatives to further expand its influence and collaborations in the Korean market.

3. Token Overview

1. Basic information

SEI’s current market capitalization is 1.674 billion US dollars, FDV is 7.947 billion US dollars, the total supply is 10 billion SEI tokens, the circulation rate is 23%, and the 24-hour trading volume is 793 million US dollars. The main trading venues are Binance (26.91%), Upbit (25.85%), Coinbase (8.37 %).

Compared with other new public chains, Sei’s market value is lower than Aptos and higher than Sui, accounting for 0.5% of Eth’s market cap and about 3.9% of Solana’s market cap. In terms of TVL of Defi applications, Sei is much smaller than Sui and Aptos, with only 12.19 million, which indicates that Sei is in a relatively early stage.

Source: LD Capital

2. Tokenomics

The SEI token serves various functions within the Sei ecosystem:

1. Network Fees: Used to pay transaction fees on the Sei blockchain.
2. DPoS Validator Staking: SEI holders can choose to delegate their assets to validators or stake SEI to run their own validators to secure the network.
3. Governance: SEI holders can participate in the future governance of the protocol.
4. Native Collateral: SEI can be utilized as collateral for native asset liquidity or applications built on the Sei blockchain.
5. Fee Market: Users can pay fees to validators for prioritized transaction processing, with these fees potentially shared with users delegating to that validator.
6. Transaction Fees: SEI can be used as fees for exchanges built on the Sei blockchain.

The total token supply is capped at 10 billion, with 51% allocated to the community, 48% to the ecosystem reserve, 9% to the foundation, 20% to the team, 3% to the launch pool, and 20% to private sales and investors. The ecosystem reserve, constituting 48%, is further divided into three parts:

1. Staking rewards

As part of Sei’s decentralized proof-of-stake mechanism, validators are responsible for securing the Sei blockchain and ensuring its accuracy. Validators run programs called full nodes that enable them to verify every transaction made on the Sei network. Validators propose blocks, vote on their validity, and add each new block to the chain. Users can stake their Sei to validators and receive staking rewards, while validators themselves can set fees to compensate them for their important role. Validators also play an important role in the governance of the Sei protocol.

1. Ecosystem initiative

SEI tokens will be distributed through grants and incentives to contributors, builders, validators, and other network participants who contribute or meaningfully build on Sei.

1. Sei airdrops and incentives

A portion of the SEI supply is allocated to airdrops, incentivized testnet rewards, and ongoing programs designed to quickly distribute SEI into the hands of users and the community.

Origin: Sei Labs

Unlocking schedule

On August 15, 2024, SEI experienced its first major unlocking event involving private investors and the team. Regular monthly unlocks occur on the 15th of each month, primarily for ecosystem releases and foundation unlocks. The monthly unlocking volume is 125 million tokens, approximately valued at $91.61 million.

Source: CryptoRank

3. Recent trading activity

Since its launch on August 15, 2023, SEI has experienced a prolonged period of declining prices for approximately three months. However, starting from November 22, the token has shown a significant surge from around $0.14 to its recent peak of $0.88. On January 3, it touched the upper band of the Bollinger Bands before retracing, accompanied by a slight decrease in daily trading volume.

Source: Binance

In recent days, with the rise in token prices, there has been a significant increase in both long and short contract liquidation amounts. Concurrently, the open interest in contracts has decreased. In the recent period, the net difference between active buying and selling actions has been negative, indicating a decrease in open interest. Despite this, the long/short ratio has shown an upward trend.

Source: Binance

4. Summary

1. Fundamentals: Sei distinguishes itself with a centralized order book-based underlying architecture, suitable for building DeFi. However, the on-chain ecosystem, overall applications, and TVL are in the early stages, lacking standout DeFi applications. The introduction of parallel EVM in Sei V2 opens up new narratives, but other chains and L2 solutions may gradually support parallel EVM. The success of SeiV2 depends on effectively attracting funds, quality projects, and users to gain a competitive advantage. The V2 upgrade is scheduled for release in Q1 2024 on the public testnet and deployment to the mainnet in H1 2024.

2. Team background and recent development: The core team is young but with a solid background, backed by strong financial support. Recent efforts in promotion and operations in the Asia-Pacific region show continuous development.

3. Tokenomics: With a total supply limit of 100 billion tokens, 51% will be allocated to the community, with the team and investors accounting for 40%. Market capitalization, when compared to other new chains, is lower than Aptos and higher than Sui, representing around 0.5% of Eth’s market value and approximately 3.9% of Solana’s market value. The first significant unlock for private investors and the team occurred on August 15, 2024, with monthly routine unlocks mainly for ecosystem release and foundation unlocking, totaling 1.25 billion tokens per month, approximately $91.61 million.

4. Recent trading situation: Starting from November 22, the token price has seen a significant rise from around $0.14 to the recent high of $0.88. Recently, the price touched the upper Bollinger Band, experiencing a slight pullback. Daily trading volume and contract trading volume have shown a minor decrease.

5. The token’s recent unlocking, coupled with the V2 parallel EVM upgrade in the next quarter, may positively impact ecosystem development and the token price.

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