Comparison between Sequentia and competitors

A comparison between Sequentia and competitors: RGB, Taro, Omni, Liquid, Rootstock, Ethereum and many others
sequentia comparison

Sequentia is a blockchain for asset tokenization, DEX transactions and smart contracts. The same or a similar purpose can be found in Bitcoin protocols like RGB, Taro, and Omni, as well as in Bitcoin sidechains like Rootstock, Liquid, or Stacks, and in many other blockchains like Ethereum, Binance Smart Chain, Tron, Solana, Cardano, Eos, Algorand, Polkadot.

In such a complex and intricate domain, it is necessary to outline the differences between these solutions and why Sequentia should, in our opinion, stand out as a compelling alternative, considering its specific trade-offs and features.

The difference to on-chain tokenization protocols on Bitcoin: no on-chain pollution

Omni Layer was the first successful protocol for asset tokenization, hosting the most important tokenized asset in the industry: Tether (USDT). Tether moved to other blockchains on account of the congestion of the Bitcoin blockchain which it provoked with its high transaction volumes, resulting in a spike of Bitcoin fees.

Since then, more recent iterations of on-chain tokenization on Bitcoin have evolved in the direction of leveraging the Lightning Network technology to bring more scalability to tokenized asset transfers. OmniBOLT was the first solution capable of performing a USDT transaction using Lightning. In addition to the promise of integrating Lightning, RGB and Taro are also more efficient than Omni Layer, because the on-chain Bitcoin transactions required are not heavier than regular Bitcoin transactions. It is also possible to aggregate more transactions of multiple different tokens and “seal” them inside a single Bitcoin transaction.

We see four key problems with these on-chain solutions:

  1. Users would use the Bitcoin chain for ordinary token transactions: if you are not a blockchain company that already performs frequent Bitcoin transactions, you need to make a new Bitcoin transaction for the sole purpose of transferring tokenized assets.

    Imagine the level of congestion that could reach the Bitcoin blockchain if USDT, USDC and any other token currently using the ERC20 or BEP20 standards was to be transferred inside Bitcoin. Unless protocols such as RGB are coupled with a sort of batching or coinjoin network to seal transactions together with a large number of different users, wide “retail” adoption of these protocols will be unable to satisfy the requirements  of a global tokenized financial market.
  1. The majority of tokens can’t be transferred over the Lightning network: major stablecoins and other extremely liquid tokens can easily be viable to transfer over lightning, but a vast majority of other tokens won’t be liquid enough to justify being exchanged over payment channels, at least not for the foreseeable future.
  1. Opening and closing Lightning Network channels to transfer tokens must happen on-chain (in Bitcoin): even if use of Lightning is maximized, at the very least channel management will continue to happen and occupy space on-chain.
  1. Issuance of new tokens requires on-chain space: in a mature financial system, we can expect hundreds or even thousands of new tokens issued everyday, which again, may congest the Bitcoin blockchain.

For these reasons, we have chosen to build Sequentia as a sidechain, in order to provide a base layer for on-chain transaction without polluting the Bitcoin blockchain. The Lightning Network can be used on top of that sidechain layer, so no sacrifice of Bitcoin interoperability is necessary.

The difference to other Bitcoin sidechains: no peg-in required

Many blockchains are defined as Bitcoin sidechains by virtue of their peg-in and peg-out mechanisms, such as Liquid or Rootstock. A peg-in mechanism locks Bitcoin on the Bitcoin network and issues a derivative on the sidechain, which can then be redeemed back for on-chain Bitcoin using a corresponding peg-out mechanism.

We see mainly two issues with having a Bitcoin peg:

  1. Bad user experience and high user friction compared to Bitcoin protocols such as the aforementioned RGB or OmniLayer;  users need to acquire and possess a BTC derivative to transfer any other tokenized asset, as transaction fees must be paid with that derivative.
  2. Said Bitcoin derivative is managed by an entity or a federation with the purpose of locking BTC on the Bitcoin network and issuing derivatives. This centralization is a major attack vector, since the entire value of the sidechain depends on the reliability of the peg-in and peg-out mechanism.

Sequentia introduces the first open fee market system, that is to say that any token issued on the sidechain can be used to pay for transfers of any (same or other) token, provided that it is accepted by a block creator. We may expect that a majority of block creators will blindly accept any token that can be easily swapped for a reliable amount of BTC on a DEX (or CEX). In any case, it’s very likely that at least all major stablecoins will be accepted, since they will also tend to have high liquidity and maintain their value over the course of the lock period before tokens can be moved and sold (a fairly typical time lock that miners in the Bitcoin network are also subject to when mining a new block).

The difference to other Bitcoin sidechains part 2: Consensus

Furthermore, Sequentia differentiates itself from all other Bitcoin sidechains with its peculiar Consensus system.

Liquid block creation is governed by a dynamic federation of entities. The selection rules for the admission of these entities are determined by a specific board. This doesn’t look like the best way to protect the network against attacks that exploit its inherent centralization, such as government-driven attacks. Although Liquid users independently validate the consensus rules and can always fork the network and substitute the federation of blocksigners, a single attack over its entire history may result in permanent damage in terms of the trust users have in the system. Also, compromising the federation that manages the peg-in mechanism may result in a huge loss of bitcoins. Sequentia “opens” the federation to the market, allowing even anonymous entities to obtain a “share” of the block generation capacity in the network, by simply buying a utility token through a DEX.

Rootstock implements a merged mining mechanism. Bitcoin mining pools create Rootstock blocks, which implies that the mining-controller of the pools (rather than the individual miners themselves) have governance power over the sidechain. In the case of Bitcoin, if a pool is malicious the individual miners are likely to move the hash rate to a different pool, but a miner may have no direct incentives to avoid a pool that is acting maliciously on the sidechain.

This means that there are fewer economic incentives preventing a possible attack on the sidechain by a Bitcoin pool. But even if miners have control, they might have no interest in the well-being of the sidechain, if they aren’t invested in it in the first place (unlike Sequentia block creators, who have a stake in the chain). The revenue from the Rootstock network in terms of fees has always been so tiny relative to the business model of a bitcoin miner, that a hypothetical attack on the sidechain would cost practically nothing. It also just so happens that the value of many transactions on the sidechain are much bigger than the value of the entire sidechain measured in fees paid on the network over a very long period of time.

Stacks doesn’t require a Bitcoin peg-in, but it introduces a new Proof of Stake coin that is mined when you make the biggest transfer in BTC to an address randomly selected by the STX protocol, among those proposed by STX stakers. The more STX you stake, the more the chances to have your BTC address selected. In short, it is a new PoS like many others, where STX token is required to pay for fees and is mined like any altcoin, adding the fact that you need to make a BTC transaction to mine a block. Therefore, Stacks may conceptually fall under the other blockchains listed in the next section rather than a Bitcoin-centric model.

The difference to non-Bitcoin-centric blockchains

The main difference to all other blockchains like Ethereum, Binance Smart Chain, Tron and most of the “layer one”s currently in the market is that Sequentia doesn’t introduce a new coin that is necessary to pay for transaction fees and which would, ultimately, constitute an alternative coin to Bitcoin. Often, these networks are explicitly advertised as payment routes for a new form of money that is “better” than Bitcoin, and another unfortunate commonality is that they are always focused on the same dumb “more speed, more capacity” narrative, which has many flaws that have been repeatedly pointed out by bitcoiners. Although Sequentia introduces a governance token for block creation, there are two main technical differences between such a token and an altcoin:

1) The SEQ token is not used to pay for transaction fees. Although in theory it can be used for that purpose, since the fee market is completely free and it makes no sense to single out and deliberately restrict SEQ (especially because it would still require another, different token to move SEQ, which is a bad user experience). However, using SEQ to pay for fees of transactions involving other tokens is likely not a good option. First, because when you move a token, you want to pay fees with the same token you are moving (which is a frictionless user experience and also helps scalability). Second, because tokens that are highly stable in value (e.g. stablecoin) are more likely to be accepted by block creators, since there is a locktime for tokens collected (like any coinbase reward). So if you can’t move a token by paying fees directly with that token (like for example an NFT) then you would probably choose a stablecoin to pay for that, or any other fungible token already in your wallet.

2) There is no mining of new tokens. Meaning SEQ is not subject to the speculative and circular reasoning of mining more tokens in the hope it increases in value, just because other people want to mine and hold SEQ in the future, which is purely a “greatest fool theory”. Instead, the token represents a fixed share of the potential block creation capacity and its value would reflect the network value (in terms of fees) or at least the estimated future network value.

Besides this, the aim of Sequentia is to provide maximum interoperability with Bitcoin, in particular to allow direct DEX transactions between actual bitcoins (not derivatives!) and any tokenized asset issued on the sidechain. Having this ultimate goal, Sequentia’s architecture is that of a UTXO chain using an enhanced version of Bitcoin script (Elements script, that will also support Simplicity in the future), and it is the first such protocol to implement an anchoring system, which maximizes the cross-chain consistency of coin swap and HTLC contracts with Bitcoin.

The difference to a traditional Proof of Stake consensus

Sequentia’s Consensus is a hybrid between Bitcoin’s Proof of Work and a Proof of Stake mechanism. The theoretical paper describes how the Bitcoin network is used:

  • As a partial source of randomization, for the selection of the Sequentia stakers that will participate in a round of block creation
  • As a “master” chain to command the “slave” sidechain to follow a chain reorganization through the anchoring mechanism
  • As a reference to measure “time” and activate an “escaping stall” mechanism when the network stalls
  • As a basis for the checkpointing system, snapshotting the status of the Sequentia network inside a Bitcoin transaction

Aside from these consensus rules which leverage Bitcoin’s Proof of Work, the Proof of Stake part closely resembles Algorand’s cryptographic sortition. In fact, Sequentia aims to rewrite Algorand’s consensus for the Elements codebase (the same used by Liquid), and furthermore also applying on top of Elements the changes required to enable the anchoring system. As a second step, other improvements can be implemented including the escaping stall consensus and the new convergence rules.

An important difference between Sequentia and various PoS protocols, for example blockchains using the Substrate framework, is the fact that users can independently verify the Consensus rules and enforce them. Users will fork from the network if some “authorities” (a majority of stakers) are attacking it. Systems like Polkadot, where the consensus rules are stored on-chain and can be changed by a majority of stakers, are totally conflicting with the philosophy of Bitcoin, where there is a “market” balance comprising game theoretically-sound incentives that ensure a balance of power between users and miners.

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