Сan Sei’s functionality solve the Exchange Trilemma?
The prospects and nuances of the development of the crypto market are one of the most important burning topics discussed among financial analysts, developers and crypto enthusiasts. And the “stock exchange trilemma” is one of the most difficult problems on the way to the widespread introduction of crypto technologies. The Exchange trilemma holds back the development of the crypto market. Lack of reliability and transparency do not contribute to the formation of user confidence. Difficulty in processing transactions on more than 1 computer leads to network congestion, delays and increased costs.
The current state of affairs is called a trilemma, since 2 fundamental characteristics of the blockchain are at risk: a decentralized structure that ensures transparency of work, and security.
Currently, exchanges are able to offer only two of the 3 components of the trilemma: decentralization, scalability, and capital efficiency.
Scalability
Scalability is the ability of a network to process a large number of transactions without losing performance. This functionality is necessary to attract a wide range of potential users and investors to the project. Scalability is the most important functional factor for exchanges, as it is necessary to control the infrastructure used and maintain high throughput while providing liquidity.
Decentralization is considered an important means to achieve the goals of exchanges and blockchains, which is why it is at the heart of most popular projects. And scalability is necessary for successful and efficient operation.
When network bandwidth is disrupted, there is a gradual reduction in the number of transactions. This leads to a reduction in the number of users.
Decentralization
Decentralized exchanges (DEX) are decentralized finance (DeFi) platforms based on the blockchain network. They do not have any governing body. Managed either automatically (smart contracts) or semi-automatically (by developers and the community.
Decentralized exchanges (DEXs) do not have a single governing body as such. Exchanges are managed automatically or semi-automatically. With semi-automatic management, decisions about the development of the project are made by developers together with the community. the exchange does not receive or store any user data. The user is responsible for the safety of the funds.
Summarizing the above, we can highlight the pros and cons of decentralized exchanges:
The main advantages of DEX:
- anonymity: registration and KYC is not required;
- security of funds: a decentralized exchange does not store users’ funds, so there are no financial risks in case of a hacker attack or the collapse of the exchange;
- lack of a single point of entry: working on the basis of a distributed ledger deprives hackers of the possibility of hacking and makes the attack meaningless.
The main disadvantages of DEX:
- limited functionality: lack of margin trading, the ability to set Stop-Loss, etc.;
- low liquidity: the liquidity pool is smaller than on centralized exchanges, so the possibility of slippage is high;
- no support service: no single management, no technical support.
Capital efficiency
Capital efficiency is the ability of an exchange to maximize the return on investment for its users, which is equally true for centralized and decentralized exchanges.
Is it possible to find a solution to the Exchange trilemma?
Sei Network is a first level blockchain designed for trading. Every aspect of the blockchain has been optimized to help exchanges perform better and offer the best user experience for their end users. Thus, Sey is designed to create DEX exchanges, with a user-friendly interface and throughputs like centralized exchanges, with minimal fees, without KYC and transferring their funds to centralized organizations.
The presence of Sei’s unique architecture makes it possible to create a variety of new types of financial products:
- Proprietary order matching engine — Provides scalability to DEX orderbooks built on Sei
- Breaking Tendermint — Sei — fastest chain to the final — ~600ms
- Twin-Turbo consensus — improves latency and throughput
- Anticipation Protection — Combats malicious anticipation that is prevalent in other ecosystems
- Market-Based Parallelization — Dedicated DeFi Parallelization
As the first level 1 specialized for trading, Sei is the fastest chain to complete, optimizing each level of the stack to give exchanges an unfair advantage. Exchanges are a killer application for crypto, but the current level 1 is holding them back. Sei opens up a new design space between the two as the industry's L1.
The Exchange trilemma can be solved using the Cosmos SDK and Tendermint Core. Cosmos is a decentralized ecosystem of independent blockchains that can scale and interact with each other.
Cosmos is based on the Tendermint Core protocol, which uses a Byzantine Fault Tolerant /BFT consensus mechanism. The consensus mechanism in Cosmos is Proof-of-Stake. The Cosmos ecosystem is evolving and constantly changing, thanks to its flexibility and modularity, contributors can easily develop and connect new modules.Cosmos SDK — The world’s most popular blockchain framework.
Tendermint offers consensus and network layer tools, while Cosmos SDK is basically an application layer SDK. Therefore, using both of them, it is possible to develop applications such as major blockchains, tokens, wallets, exchanges, dApps, smart contracts, and so on.
I can safely assume that Sei Network can be an excellent alternative to exchanges. This is a whole sector with the usual DeFI, NFT. The first level 1 industry blockchain implies an entire ecosystem capable of add-ons, scalability, compatibility with other blockchains.
In a relatively short time, Sei has attracted a huge number of partners, many successful mergers and interactions have been carried out. The main benefits are undeniable: scalable order book infrastructure, greater liquidity, fully decentralized matching service.
Developers get a convenient infrastructure, traders get a decentralized chain protected from anticipation and hacking. And all this will certainly lead to an increase in capital, and the number of users.
To improve performance, there are three main functions:
- “Twin Turbo Consensus”, optimizes block propagation and Tendermint and Cosmos block processing elements, reducing time to completion from 300ms to 600ms
- The second one, Parallelization, increases throughput to 22,000 operations per second.
- Own order matching mechanism built into the chain itself allows exchanges to create new markets.
This will scale exchanges, prevent lead times, and provide a better experience for market makers by grouping orders. Using these measures, exchanges can scale while maintaining decentralization and capital efficiency.
Official links:
Twitter: https://twitter.com/SeiNetwork
Discord: https://discord.gg/sei
Website: https://www.seinetwork.io
Wednesday: https://medium.com/@seinetwork
