What you are missing is that the "tlogs" (transaction logs) actually hold the durable, fault tolerant write log. The sequencer is just a big fast in-memory data structure that checks if the many transactions coming into the system pass isolation checks (the I in ACID). That is, it accepts transaction so long as the keys that the transaction read haven't been modified in the mean time.

The reason it can fail without a correctness issue is that it can just reject all transactions in flight for the clients to retry. This is something the clients need to be prepared to do anyway because of optimistic concurrency.

It can run fine on AWS. Upon a failure, the sequencer role is very fast to re-elect onto another machine in the cluster because there is no persistent state at all.