1. The Mission

There is only one blockchain that we consider perfectly adequate for monetary settlements, and that is Bitcoin. We are also convinced that Bitcoin payments already are (and will continue for the foreseeable future) successfully scaling through the adoption of “Layer 2” technologies, that is to say, off-chain payment networks that allow self-custody and unilateral exit with on-chain (“L1”) transactions, such as the Lightning Network. The idea behind Sequentia is to complement this “L1/L2 stack” with a sidechain designed for all other financial transactions.

Despite being the most decentralized, robust, and antifragile network ever created, we contend that the Bitcoin blockchain requires such a sidechain in order to reach its full potential of becoming the backbone for not just the hardest money but also the most accessible, free, and truly global financial markets in history.

The practice of representing assets or other rights with tokens on an existing blockchain, also known as “tokenization”, initially started on the Bitcoin blockchain using solutions that relied on committing data inside of Bitcoin UTXOs, and later drifted to other public blockchain networks due in part to scalability limitations on Bitcoin. As mentioned, the Lightning Network has largely solved the scalability problem for Bitcoin itself, and a future can therefore be envisioned where the opening and closing of Lightning channels in BTC will represent the majority of on-chain transactions in the Bitcoin blockchain. However, even in this scenario, blockspace is far too scarce and costly to also support a fully dynamic and adaptable tokenized financial market, even if most tokenized assets with higher liquidity are exchanged on Lightning.

The Lightning Network requires on-chain transactions for both initial channel creation and final settlement of payments through channel closure, and having more than a single token over the Bitcoin blockchain means that payment channels must be opened and closed for all the tokens involved, at least as “assets at the edges”(1). Since the predominant use-case of tokenization is the issuance of financial instruments, many tokenized assets (henceforth simply “tokens”) will therefore likely not have enough liquidity and adoption to be easily exchanged over Lightning in the foreseeable future, especially tokens representing, for example, shares and obligations of relatively small companies and entities. Even for tokens with higher liquidity, a well-connected network of payment channels might still take years to develop properly.

Meanwhile, the so-called “Decentralized Finance” (“DeFi”) phenomenon which precedes Sequentia’s inception emerged mainly outside of Bitcoin, on blockchains where running nodes is only feasible with specialized servers rather than average consumer devices. The design philosophy of these blockchains has failed to achieve anything in favor of network utility or scalability: their fees are skyrocketing regardless, while most of their users face high barriers to entry for running a node and are therefore left outside of blockchain governance decisions. Rollbacks and changes to consensus rules, for example, are discussed only within a tiny segment of users, primarily miners or the most influential public figures. These conditions pose security threats for average users that primarily rely on light nodes or custodians, and lead to more centralized project choices.

Not only does no existing blockchain present any credible long-term plan for on-chain scalability without making unacceptable compromises to full node proliferation, but just as importantly, no other cryptocurrency can match Bitcoin’s quality as money, and all existing blockchains other than Bitcoin either impose their own separate Coin or (in the case of many Bitcoin sidechains) use a Bitcoin derivative (or "bridge") with separate network effects to (i.e. frictions in interacting with) the L1/L2 stack. Moreover, built-in Turing-Completeness, a feature of all the most well-known DeFi solutions at this time including some existing Bitcoin sidechains, has historically caused users and investors to encounter unnecessary risks while interacting with smart contracts, which may result in much more unpredictability than Bitcoin script smart contracts.

Sequentia is therefore the first Bitcoin sidechain designed for reliable, direct, and frictionless interoperability with Bitcoin and its second layers such as the Lightning Network while also leveraging and inheriting its resilience from Bitcoin’s proof-of-work, combined with an open, inclusive and market-oriented consensus mechanism to govern the creation of new blocks, and a lightweight infrastructure favoring a wide distribution of the network.

Footnotes/p1

1. e.g., in Taro. Only when there is a channel in the token Z between A and B and another between B and C, then is it possible to rely on the Bitcoin Lightning Network infrastructure already in place (like a Bitcoin channel between B and C) so that A can send Z tokens to C. However, still, it requires that the token issued has two opened Lightning channels “at the edges” of the payment route.