Dear Ninjas,
As we begin scaling the Injective ecosystem through the launch of Injera, we would like to share more on how Injera was designed and the reasons behind the architecture.
Why Injera is a Powerhouse Protocol
Injera was designed from the ground up to be a self-sustainable protocol with significant protocol flywheels that seek to accelerate growth and effectiveness. Primarily, the protocol has a few core design principles:
- Synthetic USD Token (USDi): USDi is a synthetic dollar built on Injective to power the Web3 ecosystem. It is minted through the creation of delta-neutral positions, which earn funding fees. These fees are then funneled back to USDi stakers as a means to incentivize holding and utilizing the USDi stablecoin.
- Collateralized Debt Position (CDP) Money Market: The Injera money market serves as a stability mechanism for the USDi peg and as a key component in enabling capital efficiency for the funds being utilized. More importantly, the money market provides a means for users to participate in yield farming within Injera by holding any major asset they wish, such as BTC, ETH, INJ, SOL, etc. By participating through supplying assets, these holders may earn yields, comprising borrows and GEM/ERA emissions.
- ERA Governance Token: The ERA token governs the Injera protocol, allowing adjustments to key protocol parameters for different markets alongside fee-share utilities. Once the entire protocol has been stabilized, various utilities will be rolled out over time for the ERA token.
Why this model was built to work
- In most newly created money markets, there tends to be a chicken-and-egg issue, where it is tough to build up both the supply side and the demand side of the equation. However, for Injera, the demand for assets is substantial, with market makers actively borrowing major assets such as BTC, ETH, SOL, and INJ to earn funding yields. With a constant and voracious demand side of the money market, yield farmers are highly incentivized to supply assets into the Injera money market.
- During volatile market events that typically result in liquidations, the Injera money market can easily process large volumes due to the nature of how each liquidation can be efficiently matched. The USDi stablecoin can be redeemed for assets (thus winding down delta-neutral positions) that service liquidations within the Injera money market with minimal slippage. This helps reduce the potential of the protocol incurring losses during significant market events, thereby mitigating risks.
- For each USDi that is minted, it is always collateralized at least 1:1 against delta-neutral positions. Temporary depeg events might occur due to a shortfall in liquidity during major market events (e.g., if a large entity decides to sell USDi for USDT). However, the underlying USDi remains 1:1 collateralized and will be readily arbitraged back to peg by market makers with access to USDi redemption capabilities. With the inception of the Injera money market, firms and individuals seeking yield can easily participate in arbitraging USDi through the use of borrows, aiding in market stability.
- The Injera money market has significant growth potential, with a target of $1 billion TVL (at minimum). By operating at scale, we can lower the spreads taken by the protocol, effectively creating an even larger liquidity black hole due to the low costs of borrowing. In addition to earning delta-neutral yields, the Injera protocol also earns borrowing spreads and liquidation fees. All these factors contribute to potential benefits for USDi and ERA holders.
How this benefits the Injective ecosystem
The Injera protocol was built with Injective in mind, focusing on optimizing growth for the chain and the dApps within the ecosystem.
By simply existing, the Injera protocol has immense capabilities to attract capital into the chain. This has the net effect of boosting overall chain TVL and liquidity, benefiting all existing dApps. This capital may eventually opt to stay as the returns are stable and sustainable, converting them into long-term users of the chain. With significant TVL and deeper liquidity, we aim to bring back the glory days of Cosmos chains dominating as liquidity hubs for not only the Cosmos world but also the EVM world. We strongly believe that the conditions are ripe for this to happen through Injera.
A simple summary
The Injera protocol aims to become a source of stable and sustainable yield powered through the USDi stablecoin. Extensive research has already been conducted on yield sustainability and the ability to maintain the stablecoin peg. Additionally, the Injera money market seeks to grow and retain a larger user base by servicing the supply and borrowing of assets. All these features are designed to enhance protocol stability, increase engagement, and attract more users. Over time, we anticipate Injera to make significant waves across the Cryptosphere.
With love,
From the Injera team
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