SEI will be the first order book-only L1 blockchain. It features a built-in CLOB module optimized for speed, stability and cost efficiency.
With the goal of becoming layer1 for DeFi applications, the team behind SEI is building an order-matching engine where any application built on the network can leverage its IBC capabilities by building on Cosmos.
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Something different about SEI is the permissions blockchain. This means that the proposal needs to be approved and see it pass through its governance before it can be used as a smart contract.
The architecture differs from projects we already know about, especially those built on top of Cosmos, the introduction of CosmWasm and the IBC module comes with the orderbook module under construction
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MEV evidence SEI is also MEV proof. This is especially important because of the real frontrunning and MEV distractions in DeFi. SEI often does batch bidding which will prevent this and make layer1 unique MEV proof, a feature that strengthens applications built on top of SEI
(Maximum extractable value (MEV) refers to the maximum value that can be extracted from block production in excess of standard block rewards and gas fees)
Order book machine So what is CLOB? CLOB stands for Central limit order book. CLOB is basically an exchange style execution method commonly used in the equity world where all bids and offers are matched by price and time priority.
This allows all users to trade with each other, instead of being brokered by a dealer. There’s a hint of decentralization in there.
SEI aims to utilize this engine system as the cornerstone of its technology. CLOB is mostly on centralized exchanges (CEX) but they are aiming for another node in Crypto, DeFi.
Why hasn’t this been popularized yet? Apparently bringing the order book on-chain turned out to be difficult. The probable reason why CEX has found so much success in this regard is mainly due to the utilization of the existing, tried and proven infrastructure of web2.
But currently, no team has successfully scaled and built it on-chain. “The problem stems from the underlying L1 scalability, but with Sei, dApps get off-chain speed with on-chain security.”
That’s why DeFi currently uses the use of AMM (Automated Market Makers) because it’s easier to implement. Here’s a breakdown of DEX volumes.
There were others who tried this before SEI, Serum (built on Solana) for example tried to introduce CLOB on-chain but AMM continued to dominate DeFi while CEX continued to dominate CLOB trading.
But SEI believes the two must coexist, DeFi and CLOB.
Unlike dYdX and Injective, Sei’s order book matching engine is completely on-chain. This ensures security and decentralization while being able to achieve the speed and efficiency that off-chain order books provide.
They do all that by also providing deep liquidity and price-time priority matching for traders and applications.
Built on Cosmos and Tendermint Sei’s decision to build their own blockchain on Cosmos allowed them to customize the network for their specific needs, namely by including a built-in CLOB module. Permissioned blockchains are built on flexible layers.
Allowed nature allows careful curation of app launches on their network. This allows maximum compatibility and avoids compromising the performance of core protocols.
In addition, the Cosmos SDK enables inter-blockchain communication in the Cosmos ecosystem via Inter-blockchain communication (IBC).
