1. The Mission
Despite being the most decentralized, robust, and antifragile network ever created, we contend that the Bitcoin blockchain requires 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 utilities with tokens on an existing blockchain, also known as “tokenization”, initially started on the Bitcoin blockchain using on-chain solutions and later drifted to other public blockchains due in part to scalability limitations with the on-chain approach. The Lightning Network has largely solved the scalability problem for Bitcoin, and a future can be envisioned where the opening and closing of Lightning channels on the Bitcoin blockchain will represent the majority of on-chain transactions. In this scenario, blockchain space is far too scarce and costly to support a fully dynamic and adaptable tokenized financial market, even when most tokenized assets with higher liquidity are exchanged on Lightning.
Payment settlement still needs on-chain transactions, and having more than a single coin over the Bitcoin blockchain means that payment channels must be opened and closed for all the coins involved, at least as assets at the edges (1). Since tokens issued on Sequentia are mostly tokenized financial assets, not all of them may 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.
There is only one blockchain that we consider perfectly adequate for monetary transactions, on-chain, and off-chain, and that is Bitcoin. The idea behind Sequentia is to couple that blockchain and complement it with a sidechain designed for all financial transactions. The Bitcoin blockchain is not designed to handle the on-chain workload of more coins and tokens than Bitcoin itself. Any change to Bitcoin’s infrastructure intending to make more space on-chain or to extend Bitcoin script’s capabilities and flexibility risks creating inefficiencies and trade-offs, chiefly at the expense of decentralization.
Outside of Bitcoin, long-term viability is rarely considered when designing blockchain technology. Consequently, we are presented with a situation where many existing and dominating networks face a cluster of issues. Blockchains get clogged, causing a spike in transaction fees, and their users face high barriers to entry for running a node. This cost to node proliferation, in turn, sacrifices the core feature of blockchain technology: decentralization.
Before Sequentia, the Decentralized Finance (“DeFi”) ecosystem mostly ran on blockchains where running nodes was only feasible with specialized servers rather than average consumer devices. This policy achieves nothing regarding the chain’s usability: fees are skyrocketing regardless, and most users are left outside the blockchain’s governance decisions. These conditions pose security threats for daily users that primarily rely on light nodes or custodians and lead to more centralized project choices. Several examples, such as rollbacks and fork upgrades, are discussed only within a tiny niche of users, primarily miners or the most influential public figures.
The lack of long-term plans for scalability makes all present blockchains in the market an unsuitable long-term solution for truly decentralized finance. Clogged networks cannot guarantee proper functionality of DEXs unless they can be integrated with off-chain layer solutions such as the Lightning Network while concentrating most of the throughput on-chain will inevitably lead to gigantic nodes with increasingly slow syncing time. Moreover, built-in Turing-Completeness, a part of all the most well-known DeFi solutions, 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 the first Bitcoin sidechain designed for reliable, direct, and frictionless interoperability with Bitcoin and its 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.
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.