How does Sei use the order book engine to resist MEV?

Sei; is the first L1 blockchain with a specific order book tailored for trading applications. One of its main features is the built-in order matching module.

Article source: 3;V Labs, author: @Macr;0;Mark

The Sei;Network is designed to handle large-scale institutional-grade order flow, and it employs three major technological innovations:

• Original order matching
• Twin Turbo Consensus
• Market-oriented parallel chain

What is a native order matching engine? Why does this feature take MEV protection to a whole new level?

What is MEV and why is it the biggest problem threatening all Layer 1? ;

In the view of the "Sei" team, there are two types of "MEV", one is the robot/validator of the pre-transaction, and the other is the liquidator/arbitrageur. The former has negative consequences, while the latter is acceptable for a robust transactional economic model.

Sei; Attempts to minimize badness through frequent batch auctions (FBA); MEV, while maximizing goodness through off-chain lightning bot-style auctions; MEV.

Capturing token value from gas fees is not profitable enough for a high throughput chain like Sei. Therefore, Sei;plans to gain value by distributing auction profits generated by benign;MEV;robots to validators and stakeholders. Sei;'s auctions will be private and off-chain, similar to the Lightning Bot model (an MEV-boost; based implementation that allows Ethereum to be run-ahead protected). The system is private, meaning it is a blind auction (also known as a first-price closed-bid auction), where bidders can submit their exact transaction order preferences without revealing their bids and without paying for unsuccessful bids. pay.

The auction will allow bots to compete for typical; MEV; transactions, such as liquidations and arbitrage. Instead of congesting the P2P network and raising gas prices. Robots will bid on the economic value of the deal, and the winning bid will be close to the actual value of the deal. With enough market participants, the winning bid may be slightly lower than the deal value, with some going to the winner and the rest being distributed.

**For example, in a liquidation worth $100, bots will compete and mark up the price in order to participate in the liquidated transaction, but instead of spamming the Sei chain, they do it off-chain, overriding the gas fee. In an efficient market, the winning bid might be worth roughly $99, of which $1 would be awarded to the robot and the remaining $99 would be split between validators and delegators. **

Let's take a step back and look at what MEV is.

"Maximum Extractable Value, the process of maximizing economic value from block production by including, excluding, and reordering transactions in blocks".

Under MEV, validators benefit from increased gas fees paid by "seekers," or arbitrage bots, which must submit arbitrage transactions with the highest gas fees. Arbitrage bots run algorithms to detect profitable MEV opportunities and execute orders posted by ignorant retail traders, seconds (or even milliseconds) before they can fill them at a fair price, thus pre-empting them.

For a more in-depth look at MEV, check out this guide.

In his book, The Lightning Boy, Michael Lewis investigates the original Wall Street "first striker," in which high frequency trading (HFT) and unethical arbitrage practices led to the formation of a rigged market.

** Ongoing information asymmetries (front run) and lack of deep liquidity are preventing next-gen DEXs from toppling their centralized counterparts and market makers from achieving on-chain capital efficiency at multi-billion dollar scale. **

When choosing where to place their liquidity, market makers (MMs) value speed, finality, and latency. In order to provide market depth, MM tracks and updates their bilateral prices every block. Therefore, sub-second block times mean smaller price differences, so there is less risk of being exploited by high-frequency traders. Take profit in the time frame between price update and MM reaction.

A group of MMs are choosing the real transaction chain

**How does Sei's native hOMiE implement pre-transaction protection? **

The Order Matching Engine (OME) matches buy and sell orders on all kinds of trading markets including crypto markets.

Like your car engine, the OME; is responsible for speed (TPS; and finality) and torque (throughput).

Let's break down why ;Sei; has a "Ferrari" engine in detail.

• Sei;'s;OME; is native, which means that any transaction-like application built on top of the;Sei;infrastructure can use order placement and matching ("plug and play"), it does not need to be forked smart contract.
• Sei; of; OME; using frequent batch auction combined with single block order execution
• FBA; each market order can be aggregated at the end of the block, and then all orders are executed at the same unified clearing price.
• Sei; also merges order placing and execution into one block to create a faster trading experience. Regardless of the order of your transactions, you will still get the same price as everyone who issued a transaction within that block time (approximately; 450; milliseconds).

Suppose there are two orders on the order book, one is to sell $Sei at a price of $10, the other is to sell $Sei at a price of $11, and then two buyers come in. Normally the first buyer closes at $10 and the second at $11, but using frequent lot auctions, both orders close at $10.50 , which is the uniform liquidation price, obtained by dividing the sum of the two prices by two, (P;1+P;2)/2;.

Frequent Batch Auction: This model was created as a solution to the huge arbitrage opportunity of the Continuous Double Auction model (CDA). CEX; commonly used; CDA, orders are processed as soon as they reach the order book (or are filled by other bids or asks), which requires high throughput at times of high volatility. For ;DEXs, this often results in severe delays due to network congestion. *

Is Sei's engine really unique? Compare with Injective, dYdX and Serum

DEXes like Uniswap on Ethereum or Solana; Serum, execute each order one by one, which results in slower performance and higher costs associated with MEV.

New AMM models have the benefit of "possibly" unlimited liquidity, but they limit users to only accept prices. On the other hand, users of the Central Order Book Exchange (CLOB) can take or place orders.

OME Comparison@;3;vLabs

Injective

Injective has over $9.2M in total lockup and a market cap of $293M (as of February 22, 2023), based on the Cosmos SDK and targeting the most liquid market makers, DEXes and traders group.

In order to reduce front-end transactions, Injective also adopts the Frequent Batch Auction (FBA) model and introduces three main features.

• Discrete time characteristics: It is stipulated that cross orders are filled with "first in first out" priority within a discrete time period;
• Unified liquidation price;
• Sealed Bids: Orders will not be published in the order book until the end of the auction interval and the batch is executed.

Serum

For Serum, with a total lock-up of $566K and a market cap of $124M (as of February 22, 2023), its order matching engine is fairly simple. The model aggregates the highest bid and lowest take price to set the current market price at which traders can execute orders immediately, thereby tightening bid-ask spreads.

This model can work well with highly liquid order books and Solana's fast transaction speeds, but is still not optimal.

In Sei, all centralized order book transactions are executed atomically within the scope of a block, unlike Serum, which requires two separate transactions to handle order placement and execution.

the lifecycle of a transaction;

DYDX

Speaking of dYdX, there are two problems with the current version: neither the performance of the Ethereum nor StarkEX application is sufficient for dYdX's needs, and also, v3 is operated through a centralized sequencer, which has authority to censor transactions.

In the words of the dYdX team:

"The fundamental problem with every L1 or L2 we can develop is that none can handle anywhere close to the throughput required to run a state-of-the-art order book and matching engine."

In terms of performance, the current version 3 handles 10 trades per second and about 1,000 orders/cancellations per second.

The dYdX team is rebuilding on Cosmos Lisk, including a fully decentralized, off-chain, order book and matching engine. dYdX v;4 is scheduled to be released in the second half of 2023 (end of September), and the public testnet will be launched by the end of July.

Sound familiar?

Sei's Competitive Advantage

Sei's optimization settings will further improve the performance of these order matching engines by:

block parallel processing

Instead of processing transactions sequentially, Sei processes transactions in parallel. Multiple transactions related to different markets can be processed simultaneously, thereby improving performance. From a recent load test, we can see a block time reduction of 75-90% compared to sequential processing; while for parallel processing the latency is 40-120ms, compared to 200-1370 for sequential processing; Compared with the delay time of ms, there is a significant improvement.

Market-Based Parallel Processing: By default, Sei treats all order book trades touching different markets as independent (if they do not affect the same market in the same block).

Native Price Oracle

Sei’s price oracles are responsible for bringing off-chain price data into the blockchain, they are built into the chain. This means that all validators need to propose their price (exchange rate) when submitting a block. Blocks are only created when all validators agree on a common price. If validators miss some voting windows or offer prices that deviate too far from the median, they will be slashed (punished).

Package of transaction order

Market makers can cancel and create orders in multiple markets in one transaction (ie, all orders for BTC perpetual contracts for a specific market will be combined into one smart contract call).

Deep Dive into Order Matching Priorities

Sei;'s Order Matching Engine (OME) will prioritize all order cancellations, removing limit orders from the order book associated with them. Then, all limit orders will be added to the order book. This ensures that orders are filled with maximum liquidity. The matching engine will then process the market order.

Injective; the protocol operates on a first-in-first-out (FIFO) principle, market orders are executed first, followed by unfilled limit orders and finally the latest limit orders.

Serum Dex; also employs a "price-time-priority" matching; FIFO; strategy, orders are ranked according to their price, and orders of the same price are ranked according to the time they were posted in the order book.

To sum up, Sei; is a custom-built L1 blockchain for transactional applications, with multiple innovative technologies including native order matching, twin-turbo consensus, and market-based parallelization. Its native order matching engine (OME) is designed to prevent front-running by using frequent batch auctions (FBA) and single-block order execution. This allows for faster trade execution and eliminates the risk of market manipulation and exploitation by high frequency traders.

Overall, Sei; aims to provide a secure and efficient platform for institutional order flow and market makers for trading applications.

References

• • "Maximum Extractable Value (MEV)", Ethereum.org; Developer Documentation*
• White Paper "Sei: Layer 1 Customized for Trading; Providing Unique Advantages for Exchanges", Sei Labs
• "Latency and Throughput", via Sei Co-founder; @jayendra_jog; Tweet
• • "Why ;dYdX; is leaving Ethereum and ;StarkWare, choosing to build a native chain on ;Cosmos;", Cryptoslate, Liam Wright*
• "Serum - Central Limit Order Book vs Automated Market Maker", DoDao.io

Learn more about Sei; related information:

• Sei official website:
• Sei official twitter:

Sei official Chinese Twitter: