How to scale DeFi to Nasdaq performance level, with Jay Jog of Sei Network

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Tascha

Hey guys, you’re listening to the Tasha Labs podcast. And today we have a bit of a format change. So you have been listening to this podcast. You know that I’ve never had guests on my show. So the reason is there frankly so much going on in the web series Space, and I write so much and there’s really way more than enough materials for me to talk about without bringing anybody else on. But there’s nothing wrong with having guests on. And I recently wrote about what I call the huge roadblocks for the next stage of adoption of web3, the quote-unquote, big challenges, or big problems that we see in web three today. And my thesis is the projects that are helping to solve these problems, if they’re successful, they will be the next big thing. So after I wrote about that, I got a lot of feedback from people saying, hey, Tasha, you are being too abstract. What are exactly the projects you’re talking about? So I figure out it will be useful to bring some examples of the projects that I think are doing the hard things and doing the big things that will give people some perspectives on what you can expect, what’s going to be coming in in the next couple of years in the space.

Jay Jog

Right. And also, if you are a founder operator in the website space, I also hope that this will be helpful to you in the sense that it would be useful to see what other people who are building solving hard problems in the space and what they’re doing and how they’re navigating some of the challenges. So I hope that will be helpful to you if you’re the founder navigator in the western space. I also want to emphasize that obviously none of this is investment advice. And I’m not endorsing any projects that I potentially bring on this podcast because frankly, I bring those projects on because I’m curious, I see them doing interesting things and I want to know more. So that is the perspective. That is why I invite these projects on. So I’ll be asking questions that a potential investor, a potential maybe participant, and an advisor of a project will want to know. Really, this is to help your own information gathering process, to help you to know more about the space and the future of the web3 space. So today we are going to be talking to Jay Jog, who is the founder of SeiNetwork, and it is the network a new layer1 blockchain, trying to solve the scaling issue in DeFi.

Tascha

Without further ado, let’s get started. Hey, Jay, tell us what is the same network?

Jay Jog

Yeah, so I guess I could give a brief background about myself and then also go into what says so about me. I’m a co-founder of Sei. I personally got into crypto back in 2017. At that time, my roommate was going through a finance launchpad. So we worked on a few different things together. After that, I ended up joining Robinhood. So I spent almost four years at Robinhood, saw the company Ten-X, and it was definitely interesting to work over there because one thing that Robinhood did really well is they were able to get retail to start trading options. People on Tribby tried to do that forever. In DeFi protocols have been throwing incentives to users to be trading, but no one else has really been able to replicate that. So I think Robinhood did a really good job with that. On the other hand, the way that Robinhood handled GME was definitely a mess. And I’m sure you were following along with it last year, but from a public standpoint, it was not very good. And also from an internal standpoint, there was just a lot of lack of transparency that kind of left a bad taste in my mouth.

Jay Jog

So because of that, last year, my co-founder and I decided it would be interesting to build something like Robinhood on the chain. Specifically, we started building a derivative exchange on the chain. And this led to us investigating all the layer ones, layer twos, and all the other infrastructure out there. And we ultimately came to the realization that building an exchange on the chain, especially in an order book exchange, doesn’t really work. So because of that, we started building Say, which is an L1 that is optimized for exchanges and trading.

Tascha

So who are your target users? What kind of users will benefit from the same network?

Jay Jog

Yeah, so what say is an L1 chain that has an order book and magic engine that’s built into it. So any kind of exchange that wants to build on top of Sai can make use of this order-book primitive, and they can easily create new markets, and they can make use of the matching engine to help match and filter. So a very clear type of user would be a developer that’s trying to build an Exchange, especially an order book Exchange. They could pretty easily build on top of stay. But what we’ve been seeing now is that in any kind of defied ecosystem, there tends to be strong network effects. As soon as you have one project that is able to get a lot of TV and a lot of users, it becomes very strategic for other projects to come into that same ecosystem and start building. Right. So at this point, what we’ve seen is we have over 50 ecosystem projects that are building on top of it. And these are teams that have come from other ecosystems like Salona and Terra and near. And yeah, I mean, all of them are just pretty excited about the DeFi ecosystem that stays enabling not just directly through the Dexteral use cases, but just in general, because there’s going to be an entire kind of DeFi ecosystem that gets built out over here.

Tascha

Okay, so if I hear you correctly, the basic use case is for like, for example, Adex that wants to use an on-chain order book.

Jay Jog

Exactly, yes.

Tascha

So if we step back for a little bit, over the past couple of years, the major innovation in decentralized exchanges is automatic market makers. So that’s what, like protocols like uni swap use. So can you tell us just to compare the AMM and the order book? Right? So first of all, why did the decentralized exchange start with the AMM approach, not the order book approach?

Jay Jog

Yeah, so order books are effectively the backbone of how traditional finance works right now. It is the default way that exchanges work in the trade line. The problem is that you can’t easily bring that onto a blockchain because things get too expensive and slow, especially if you’re ML one, which is where a lot of D five was happening before. So one of the major reasons that were kind of created and became more popular is because of these limitations around building an order book on the chain. So in terms of what an order book is and what an M is, an order book is basically just a list of trades. So it’ll have a list of people that say they want to buy Bitcoin for $9 and sell Bitcoin for $10. Whereas an AMM is a pool where people can go and deposit, let’s say, two tokens, and then other people can come and trade against this pool. So with an order book, you need people who are called market makers to be putting trades on this order book so that other people can come and buy assets from it. And this requires a lot of transactions to be going through, which doesn’t really work on any kind of general purpose chain.

Jay Jog

Definitely did not work. On Ethereum. On the other hand, with an AMM, it’s very simple. You can have liquidity providers just passively put in a couple of tokens and then afterward people can come and trade against them. So that’s why DEXes has been historically built on top of MMS, at least in D five so far. And we think that newer L one, like, say, for example, that have really high throughput really low latencies, will be much better at enabling any kind of order book based use case because they’re kind of solving a lot of the problems that we’re seeing right now with trying to build an order book on a general purpose chain like Ethereum or Slava.

Tascha

Well, in addition to that, and by the way, thanks for the overview of the comparison of the two models. But in addition to that, is it also correct to say that AMN is really more suitable for a wider variety of assets? Because for the order book to work, you need to have orders, right? So for really long tail assets, like if I launch a parser coin today, I have five holders of this token, let’s say on day one and I have like, I don’t know, $10,000 of liquidity for this token, that order book will not work. Right. So in the case of the default space, anybody, because it’s open and permissionless, anybody can launch any tokens. So it’s really the AMA approaches more user-friendly for the long tail of assets, is that correct?

Jay Jog

Yes, I would agree with that statement. So if you’re getting a new token created that’s going to have very low liquidity or even like an established token with very low liquidity, it’s going to be difficult to find market makers who will help provide these orders to be placed on an order book, to be enabling seamless trading. So I think there are a few types of use cases where AMS ends up being a better choice. Long tail assets end up being one of these use cases that are better. In the other use cases, if you primarily want retail to be providing liquidity, in that case, retail isn’t going to be updating their positions every single block or every single second or something. So in that case, it ends up being better to have an AMM supporting the exchange as well. But in a lot of other cases, especially if you have deeper liquidity or market makers are open to making markets and order book ends up being better because it leads to better pricing and better capital efficiency than making use of an Mm cell approach.

Tascha

Got it. So obviously we’ve had order books on a chain before, a famous one in serum, in Salona, right? So what’s not working in serum? Why do we need a new chain for order books?

Jay Jog

Yeah, so we don’t really think it’s serum’s fault, but we think that fundamentally you can’t build an order book on a general purpose chain. It just does not scale. And there are a few different issues that come up. The first issue, which is particularly true for serum and also other exchanges built on, like Ethereum for example, is tied to network congestion. Basically, you are not going to be necessarily able to always get in your trade. This ends up being really bad for any kind of order book-based exchange because in an order book-based exchange, you need market makers to be constantly updating their positions and if they have congestion issues…

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