Injective — The Blockchain Built For Finance
Bitcoin is for payments. Ethereum is for smart contracts. Now we have a blockchain optimized for crypto exchanges.
Injective Labs is an interoperable layer 1 protocol for building Web3 decentralized applications (dApps) with a special focus on exchanges, Decentralized Finance (DeFi), and derivatives applications. It was built through the Cosmos SDK to make a fast blockchain with quick transaction finality. The project claims 1–2 seconds of block time with up to 10,000 transactions through Tendermint.
The blockchain uses the Cosmos Inter‐Blockchain Communication protocol. IBC provides blockchains with the capability to share information and communicate enabling the transfer of tokens and other data.
It is not only compatible with Cosmos but also with Ethereum. So, one can launch Ethereum and IBC compatible tokens that can be bridged to these different chains. Through the Injective Bridge, one can transfer ERC-20 tokens from the Ethereum network and ATOM from CosmosHub network to the Injective Chain.
Also, the smart contracts on the network support CosmWasm, a novel smart contracting platform built for the Cosmos ecosystem. Therefore, smart contracts that work on other chains supporting CosmWasm can seamlessly be migrated to Injective.
Further, the project aims to cater to both individual and institutional investors.
Solving Issues of Decentralized Exchanges (DEX)
It also supports decentralized order book based DEX protocols. Injective solves different problems of DEXes such as front-running which is prevented through the Frequent Batch Auction system as its order clearing mechanism. Orders are executed at a single uniform price. Limit orders are combined with the resting order book and orders are matched as long as there is still a negative spread.
In addition to that, Injective Protocol has a special Dedicated Market Maker (DMM) Program for institutional traders providing negative maker fees and other monetary benefits.
Since it is based on Cosmos SDK, the protocol uses the Tendermint Byzantine Fault Tolerance (BFT) consensus algorithm. It is a Proof of Stake (PoS) consensus mechanism that can withstand up to 33% of node failures.
The protocol also has the usual slashing mechanism wherein if a validator is found to have misbehaved, a part of their stake is confiscated. This also concerns the delegators as they delegate INJ to validators to earn staking rewards.
INJ is Injective’s native staking token. Staked holders can govern and decide the future of the protocol. It was originally released as an ERC-20 token. But users can swap ERC-20 tokens for native INJ tokens through the Peggy bridge.
INJ is denominated in Atto. 1 Atto = 1×10⁻¹⁸ INJ.
The tentative initial supply of INJ will be set to 100,000,000 tokens and shall increase over time through block rewards.
The target INJ inflation will tentatively be 7% at the genesis and gradually reduced to 2%. But the total supply of INJ may be lower than the initial supply due to the deflationary mechanism detailed in the Exchange Fee Value Accrual. Injective burns 60% of trading fee revenues every 2 weeks through an auction.
During the auction, the fee collected is bid upon. All the bids are in INJ. Whoever bids the highest gets all the assets earned in transaction fees and their INJ tokens are burned.
Usually, the assets gained through auction are of higher value than the bids.
Say a bidder gets $100 worth of $ETH by paying $95 worth of INJ tokens. The INJ will be burned and the $ETH provides arbitrage opportunities.
As of now, 588,185.60 INJ have been burned.
The exchange relayer nodes and GUIs earn up to 40% of trading fees originating from the relayer. Relayers are entities that host off-chain order books, list buy and sell orders, and charge transaction fees.
INJ is also used for the governance of the protocol.
Some of the big names of the blockchain industry are part of the Injective ecosystem.
To name a few: API3, Avalanche, Axie Infinity, Binance, Covalent, Huobi Pool, Harmony, Klaytn, Kraken, Ledger, Near, Polkadot, Stacks, and Uniswap.
Since Injective is a DeFi first blockchain, it must partner with different data providers to get the right price feeds.
That’s why it has collaborated with well-known decentralized oracle providers such as Band, Chainlink, API3, and DIA to ensure that feeds are aggregated from multiple sources and provide a fault-tolerant and secure infrastructure.
Injective also uses the gas fees system of transaction fees according to complexity. All transactions on Injective Protocol such as claim, delegate, auction, underwriting and unbond cost a negligible fee of 0.0002 INJ.
But trading on the Injective Pro Decentralized Exchange (DEX) requires zero gas fees as the fees are paid by relayers.
Also, the Injective Protocol is collision-resistant and prevents front-running.
One can earn staking rewards by delegating their stake to validators for earning rewards. Right now, on September 28, 2022, the APR is at 13% with 32,525,609.74 INJ staked in total.
The stake commanded by the validators also decides their voting power. Injective Node 2 controls the largest stake providing it with 10.24% of the voting power.
Anyone can submit a proposal on the Injective Hub or can discuss ideas on Injective’s governance forum.
A governance proposal can have one of 4 different states at a given time: Deposit, Voting, Passed and Rejected. Once they are in the voting stage, the validators and delegators vote on it.
Therefore, only the ones who have staked INJ can vote.
The quorum for a proposal is 33.4% which means the minimum percentage of voting power that needs to be casted in a proposal for the result to be valid. A proposal is passed if it gets more than 50% votes.
Voting power is decided by the amount of INJ staked.
Proposals require a minimum of 500 INJ to be deposited.
During volatile markets, margin trading may lead to losses for many traders. They may not be in a situation to repay the winning party as they get liquidated. If a new trader takes the losing trader’s place and at a worse price than the liquidation price, the insurance fund is utilized to cover the resulting deficit.
So, when the closing price of a trade is worse than the bankruptcy price, funds are withdrawn from the Insurance Fund to pay the winning party.
Users can also back the Insurance Fund by staking INJ and in turn receive insurance pool tokens. These pool tokens represent proportional ownership of the insurance fund. Thus, as the Insurance Fund grows from liquidation proceeds, the stakers gain profit from the increase in value of their stake in the insurance fund.
The insurance fund grows when a position is liquidated at a price that is BETTER than the bankruptcy price.
One can redeem the insurance staked but there could be a wait time.
Investors and Industry Leaders Support
Injective Protocol has received funding and support from different industry stalwarts such as Pantera Capital, Mark Cuban, Binance, Jump Crypto.
It has raised more than $50 million as of now.
Injective has committed to serving the larger Web3 community by providing grants. The grant program falls under the ambit of the Open DeFi Foundation.
Areas of Improvement
Most of the validators are institutions which is understandable as this blockchain is meant to provide enterprise DeFi solutions. However, only 6 validators possess the majority voting power hai which gives them an effective veto power if a few of them align together.
The blockchain does not serve more use cases. It can process transactions quickly but it has limited its usage to just DEXes or any other DeFi operation. Therefore, developers from other segments of Web3 may be dissuaded from building on it.
Injective Protocol can explore more use cases so that it does not remain limited to monetary transactions. It is part of the larger Cosmos ecosystem. So, it can attract more users and developers.
Or, it can innovate or invent more DeFi services. It is difficult to attract more customers as they may be lured toward big players like Ethereum, Polygon, Solana, etc. To circumvent that, it can increase its marketing efforts and target individual investors.
Injective Protocol is a DEX first blockchain. It has garnered strong support from institutional investors, other projects, and big traders. A blockchain providing specialized solutions which is a part of the bigger Cosmos network can reap network effects.
With increased marketing efforts the protocol can into prominence.
Learn more about Injective on the website: Injective
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