I. Fundamental Analysis

1. Basic Information

Sei is built on Cosmos SDK and Tendermint Core, and is a Layer 1 blockchain targeting the DeFi field, aiming to bring the order book model onto the chain, thereby narrowing the speed gap between DEX and CEX, and becoming the "crypto Nasdaq".

Sei is a general-purpose chain focused on trading, rather than an application-specific chain. In other words, Sei is a blockchain optimized for trading, achieving this positioning through features such as order matching system, native matching engine, twin-turbo consensus, and transaction parallelism:

(1) Core - Order Matching System and Native Matching Engine:

As a Layer 1 "born for trading", Sei does not solely adopt any one of AMM or traditional order book mechanisms when processing transactions, but instead chooses a compromise solution - Central Limit Order Book (CLOB). CLOB constructs an order matching engine at a lower level in 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 on top of Sei can utilize this order matching engine. One major issue in the existing DeFi ecosystem is the fragmented liquidity of each DeFi protocol, but with Sei, all DeFi protocols share an order matching engine that can provide deep liquidity.

To illustrate, suppose there are "Red Dex" and "Blue Dex" on SEI. If user A submits an order to sell 1 ETH at a price of $2,000 on Red Dex, and user B submits an order to buy 1 ETH at market price on Blue Dex, Sei's order matching engine will match these two orders. Generally, the DeFi network suffers from fragmented liquidity because each DeFi protocol tends to maintain its own liquidity. However, with Sei, it provides a very deep liquidity pool, consolidating all liquidity related to the matching engine, minimizing financial losses caused by slippage and other associated impacts for users.

(2) Twin-Turbo Consensus:

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

1) Smart Block Propagation:

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

In Sei, block proposers do not include transaction data in the block proposal, but rather the hash value of the transactions, along with the block ID, which is a reference to the block. The hash value of the transactions is a summarized hash function of the existing transaction data, thus having the advantage of small volume. Block proposers first propagate the block proposal to the network, as shown in the figure below, and then propagate the complete block in small chunks. If a validator receives a block proposal from a block proposer and already has all the transactions corresponding to that hash value in its local memory pool, they will reconstruct the block from their local memory pool, rather than waiting for the complete block to arrive. If a specific validator is missing a transaction in its local memory pool (a very small probability), it can wait for the entire block to arrive.

The benefit of this smart block propagation process is that it significantly reduces the time required for validators to receive blocks. According to co-founder Jay, this process has been proven to increase Sei's overall scalability by 40%.

2) Optimistic Block Processing:

Sei uses Tendermint Core, but has made some modifications to significantly reduce block time and improve scalability. Tendermint Core is a consensus engine that combines Delegated Proof of Stake (DPoS) and PBFT consensus algorithms. The Tendermint BFT consensus process is: Propose - Prevote (2/3 consensus) - Precommit (2/3 consensus) - Commit.

Sei's Optimistic Block Processing modifies the Tendermint BFT process, introducing a block processing step between Precommit and Commit in the general BFT process. Assuming that malicious nodes are rare, validators have already received the data required for calculation in the Propose stage during the Prevote stage. Therefore, to further reduce block time, Sei begins parallel processing with Prevote. Reducing block time through optimistic block processing should not be a problem, as most of the time the block's validity is not in question, but if the block is rejected by the network during the Prevote and Precommit process of executing the calculation, it can simply be discarded.

Source: Four Pillars, Jay-Sei Labs

Taking a set of Sei data, according to the normal Tendermint BFT method, the total block time is 200+150+150+400+100, which is 1000ms. If optimistic block processing is carried out, it would save 300 milliseconds of Prevote and Precommit time, reducing the block time to 700 milliseconds. If the block size remains the same, reducing the block time from 1000ms to 700ms means there are approximately 1000/700 blocks in the same time, an increase of about 1.43 times, improving scalability by 43%.

(3) Transaction Parallel Processing:

Another method Sei uses to enhance scalability is transaction parallel processing. The Ethereum Virtual Machine (EVM) is the most popular virtual machine in the blockchain industry, processing transactions sequentially, which fundamentally limits scalability. By default, the Cosmos SDK on which Sei is based also processes transactions in a serial manner. In Cosmos application chains, when a block is received, validators execute BeginBlock logic, DeliverTx, and EndBlock logic in sequence, while Sei modifies DeliverTx and EndBlock to process transactions in parallel.

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

To parallelize multiple transactions, it is necessary to ensure that they do not reference the same keys. To achieve this, Sei has built a Directed Acyclic Graph (DAG) to check the 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 the R3 in the third column depends on the middle W1. As a result, the transactions will be processed as shown in the right diagram.

Source: Four Pillars, Jay-Sei Labs

In the final 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 serial order, but are processed in parallel after confirming that they are unrelated to each other.

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

2. 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 will support the first parallel EVM.

Sei currently allows the deployment of Cosmwasm smart contracts written in Rust. As Sei continues to attract more developers' interest and expand its ecosystem, the biggest demand from developers is for the execution environment supported by Sei to have greater flexibility. With support for parallel EVM, Sei is available for global EVM developers to use.

Source: 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 very important 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 state of the blockchain. This design choice prioritizes security and reduces the potential complexity and vulnerabilities associated with parallel execution, but it may lead to network congestion and delays under high loads.

Imagine the original design of the EVM as vehicles on a single-lane road moving one after the other, with each vehicle having to travel at the speed of the preceding vehicle. Once there is congestion with a vehicle (transaction), other vehicles will be stuck on the road; whereas parallel EVM is like expanding this single lane into a multi-lane highway, allowing multiple vehicles to travel simultaneously. From a technical perspective, parallel EVM allows different independent transactions or smart contracts to proceed simultaneously, greatly improving the processing speed and system throughput of the EVM.

General methods for parallel EVM processing:

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

• Optimized algorithms: Developing 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: Implementing complex synchronization mechanisms and consistency models to ensure the security and data consistency of the entire system even during parallel processing.

In summary, by parallel processing transactions, the EVM can handle more transactions at the same time, significantly increasing TPS, alleviating network congestion, and improving scalability.

(2) Key Achievements of Sei V2

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

Backward compatibility means that new products are designed to consider previous products and can be used as they were originally made, 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 any code changes.

Source: Sei Labs

2) Optimistic parallelization - allowing the chain to support parallelization without developers defining any dependencies:

Sei V2 processes transactions in parallel, assuming all operations are valid, executing them first, and then rerunning them in case of issues during validation. The results of processing should be the same as those of sequential processing. In short, Sei V2 takes an optimistic approach, processing transactions first and using information about any issues that arise to process transactions, rather than validating transaction relationships in advance. Optimistic parallelization will apply to all transactions running on Sei, including Sei native transactions, Cosmwasm transactions, and EVM transactions.

Source: Sei Labs

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

As Sei is an integrated chain, all transactions entering different components of Sei (Cosmwasm, EVM, banking, staking) are able to communicate with each other. Although these transactions serve different purposes, they ultimately share many similar features, such as gas, sender, and transaction subject. When the chain receives these transactions, they are processed as native Sei transactions and forwarded to the appropriate storage sections (i.e., CosmWasm transactions are sent to the wasm module and executed). This brings a more seamless developer experience - EVM developers can easily access native tokens and other chain functionalities (such as staking).

Source: Sei Labs

4) SeiDB - improvements to the storage layer to prevent state bloat, improve state read/write performance, and make it easier for new nodes to synchronize state and catch up

(3) What is the significance of parallel EVM?

Former Polygon co-founder JD previously expressed on social media that he had a premonition that in 2024, every L2 will rebrand itself and label itself as "parallel EVM", while Paradigm's CTO Georgios also believes that 2024 will be the "year of parallel EVM", and stated that Paradigm is also exploring and designing related technologies internally. ```

For developers, blockchain development has always been quite unfriendly. Every time a different virtual machine or language is used, builders must adapt to a new environment. If the clients of the blockchain are the builders, then these actions have not taken into account the convenience of the clients. Ultimately, the blockchain is destined to change what it offers to meet the needs and environment of the builders. Currently, the EVM ecosystem is the most active, and parallel EVM can solve this problem.

The support of EVM in Sei V2 does not mean abandoning WASM. It plans to support both virtual machines simultaneously, and even support interoperability between the two, providing a seamless development environment. If V2 is successful, Sei V2 may become the most successful integrated blockchain supporting multiple virtual machines.

Jay, co-founder of Sei Labs, stated on social media at the end of 2023 that Sei V2 will enable EVM and Cosmwasm contracts to call each other through the use of stateful precompiles and chain-level message scheduling. After the audit is completed, this upgrade will be released on the public testnet in the first quarter of 2024 and deployed to the mainnet in the first half of 2024.

3. On-chain Ecosystem Development

In the past 30 days, the total transaction volume on Sei Mainnet was 728,000, with 62,500 independent users, averaging 23,500 transactions per day, showing an increasing trend in both transaction volume and user numbers.

Source: Flipside

Data from the past 30 days shows that the current users and transaction volume on Sei Mainnet are relatively high, and the top four active applications are Astroport, Tatami, Dagora, and Webump.

Source: Flipside

Astroport (Dex): Astroport's vision is to become the mainstream next-generation AMM, providing deep liquidity pools and huge trading volume for the Cosmos ecosystem. Better pricing will attract more liquidity to Astroport, 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 meets a prominent need in the Web3 space - a dedicated game publisher. As countless games are scattered across various chains, Tatami provides users with a unique position to play games, collect assets, and complete tasks on a single platform, bringing a unique fusion of game development, market integration, and launchpad services, aiming to change the way games are experienced, created, and distributed in the Web3 space.

Dagora (NFTs): Dagora is a multi-chain NFT marketplace in the Coin 98 ecosystem, supporting BNB Chain, Polygon, Sei, and others. Dagora's features include Marketplace (NFT trading market), Launchpad (NFT release platform), and Hot Drops (free minting section). In addition, Dagora allows C98 token holders to participate in auctions, launchpads, and hot drops.

Webump (NFTs): Webump is dedicated to supporting development teams and creator communities on the Sei blockchain and collaborates with Lighthouse to provide open-source smart contracts designed specifically for seamless NFT creation on Sei. Lighthouse is its open protocol and toolset that enhances the NFT creation process, making it easier for NFT creators and developers to access and be more efficient.

As a blockchain focused on providing high-performance DeFi, Sei's on-chain DeFi TVL is still in the early stages in terms of overall and individual project data performance and product development.

Source: Defillama

Kryptonite: Kryptonite is a decentralized AMM and staking protocol based on Sei, compatible with any bAssets on the Cosmos blockchain and other blockchains, aiming to bring a powerful native currency market to the Cosmos ecosystem, driving financial innovation and flexibility. Users can stake Sei Network token SEI and receive liquidity staking token bSEI, which can then be used as collateral to mint stablecoin kUSD at a 200% collateral ratio.

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

Yaka Finance: A native Dex on Sei, soon to be interactive on the official website, with potential future airdrops.

Sushiswap and Vortex Protocol: On February 23, 2023, Sushi announced the acquisition of derivative Dex - Vortex and collaboration with Sei, planning to launch a decentralized derivative exchange on Sei in the future. However, there have been no new developments disclosed for this project since February 2023.

2. Team, Funding, and Partnerships

1. Team Background

Sei Network was founded by Jeff Feng and Jayendra Jog in 2022. Jeff Feng is a co-founder of Sei Labs, a graduate of the University of California, Berkeley, and worked in the TMT investment banking department at Goldman Sachs from 2017 to 2020. He co-founded Sei Labs with Jay in 2022.

Jayendra Jog is a co-founder of Sei Labs, a graduate of the University of California, Los Angeles, and worked as a software engineer at Robinhood from 2018 to 2021.

Phillip Kassab is the Growth and Marketing Director of Sei Network, a graduate of the Stephen M. Ross School of Business at the University of Michigan. He previously served as the marketing director for Trader Joe and Swim.

Other team members have worked at companies such as Google, Amazon, Airbnb, and Goldman Sachs.

2. Funding History

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

In February 2023, Sei announced a $400 million Series A financing round and mentioned an airdrop plan. In April, Sei Network announced a $30 million funding at an $8 billion valuation, with participation from Jump Capital, Distributed Global, Multicoin Capital, Bixin Ventures, and others. The funds from this round were used for development and market expansion in the Asia-Pacific region. In the same month, Sei Labs' ecosystem fund completed a new round of $50 million in financing, including OKX Ventures and Foresight Ventures.

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

3. Operations and Partnerships

1. Testnet activities and airdrops: During the Atlantic 2 testnet phase, Sei explicitly stated that token incentives would be distributed to reward early community members using the chain. When the Pacific-1 mainnet is publicly released, the rewards will be open for claiming to encourage user interaction on the network.

2. Sei Ambassador Program: The Sei Marines ambassador program was promoted, with different levels and gradient rewards designed for ambassadors contributing to stimulate promotional activities in relevant regions.

3. Sei Launchpad Accelerator Program: The sei/acc program was launched to invest in and support on-chain ecosystem projects by providing resources, guidance, and incentives. 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 a Binance event in the Maldives. On December 21, Sei announced a strategic partnership with KudasaiJP to expand its market share in Japan. In January 2024, South Korean research firm Four Pillars indicated that Sei is preparing various initiatives to further expand its influence and cooperation in the Korean market.

1. Token Situation

SEI's current market capitalization is $16.74 billion, with a fully diluted valuation of $79.47 billion. The total supply is 10 billion, with a circulation rate of 23%. The 24-hour trading volume is $793 million, with the main trading venues being Binance (26.91%), Upbit (25.85%), and Coinbase (8.37%).

Compared to other new public chains, Sei's market capitalization is lower than Aptos and higher than Sui, accounting for about 0.5% of Ethereum's market capitalization and around 3.9% of Solana's market capitalization. In terms of TVL in DeFi applications, Sei is much smaller than Sui and Aptos, with only 12.19 million, indicating it is in the early stages.

2. Token Economics

The use cases of SEI tokens include network fees, DPoS validator staking, governance, native collateral, fee markets, and transaction fees. The total supply limit is 10 billion tokens, 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. The 48% ecosystem reserve will be allocated for staking rewards, ecosystem initiatives, and Sei airdrops and rewards.

Unlocking Situation

On August 15, 2024, the first major unlock for private investors and the team occurred. Regular unlocks occur on the 15th of each month, mainly for ecosystem releases and foundation unlocks, with a monthly unlock amount of 125 million tokens, approximately $91.61 million.

3. Recent Trading Situation

Since its launch on August 15, 2023, SEI's price has been declining for about 3 months, but starting from November 22, it has significantly risen from around $0.14 to a recent high of $0.88. On January 3, it touched the upper Bollinger band and then retraced, with a slight decrease in daily trading volume.

In terms of contract performance, with the recent price increase, both long and short contract liquidations have significantly increased, while contract positions have decreased. The difference between active buying and selling and the trading volume is negative, and the long/short ratio is showing an increase.

Conclusion

1. Fundamental Analysis: The key difference between Sei and other chains lies in its order book-based underlying architecture, which is very suitable for building DeFi. However, in terms of on-chain ecosystem, its overall applications and TVL are in the early stages, lacking outstanding DeFi applications. The launch of parallel EVM in Sei V2 has introduced a new narrative, but in the future, many other chains and L2 solutions may gradually support parallel EVM as well. The effective introduction of funds, high-quality projects, and users to Sei in V2 upgrade would give it a certain first-mover advantage. The V2 upgrade will be released in the public testnet in the first quarter of 2024 and deployed to the mainnet in the first half of 2024.

2. Team Background and Recent Developments: The core team is young but has a good background, and the backers are strong. There has been continuous effort in promotion and operations in the Asia-Pacific region recently.

3. Token Economics: The total supply limit of the token is 10 billion, with 51% allocated to the community and 40% to the team and investors. Compared to other new public chains, Sei's market capitalization is lower than Aptos and higher than Sui, accounting for about 0.5% of Ethereum's market capitalization and around 3.9% of Solana's market capitalization. The first major unlock for private investors and the team occurred on August 15, 2024, with regular unlocks occurring on the 15th of each month, mainly for ecosystem releases and foundation unlocks, with a monthly unlock amount of 125 million tokens, approximately $91.61 million.

4. Recent Trading Situation: Since November 22, the price has significantly risen from around $0.14 to a recent high of $0.88, but has retraced after touching the upper Bollinger band recently. Daily trading volume and contract trading volume have seen a slight decrease.

5. After the recent token unlock, the first quarter will see the V2 parallel EVM upgrade, which may be favorable for ecosystem development and price.

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