Injective Protocol ($INJ): fully decentralised derivatives exchange

Injective Protocol ($INJ) is a fully decentralised derivatives exchange. It aims to bridge the divide between centralized exchanges (CEXs) and decentralized exchanges (DEXs), all whilst keeping an eye on the decentralised finance (DeFi) scene. After security breaches, regulatory restrictions and even arrests (see our article on OKEx suspending withdrawals) significantly affecting the daily operations of CEXs, DEXs were viewed as a solution, one that promotes the true spirit of blockchain technology: decentralization. Unfortunately, DEXs could not match the liquidity and convenience of CEXs, which has hindered the former’s widespread adoption.

Meanwhile, blockchain-based platforms are being launched in a bid to make DEXs as attractive as CEXs. Apart from bridging the gap between these two types of cryptocurrency exchanges, new platforms are keen on fueling the DeFi ecosystem- Injective Protocol is one such example.

Although the protocol is a decentralized platform, it moves away from the stereotype definitions of such platforms to bring a new era of DeFi with better functionality. For example, it provides the liquidity that matches that of CEXs. To understand how it achieves this and more, let’s take a more in-depth look into the platform.

Check out our interview with Co-founder and CEO Eric Chen!

Background

Injective Protocol is developed by a team with a vast experience in blockchain technology and other closely related technologies. Its Co-founder and CEO, Eric Chen, is a protocol researcher at Investing Capital, while its CTO, Albert Chon, is a software developer at Amazon.

Others include full-stack developers, Solidity developers, and Golang developers. Moreover, the Injective team comprises members experienced in ASIC design and computer science.

Apart from the core team members, the protocol is supported by notable names in the industry, such as Bitlink Capital, Binance, Pantera, Hashed, and QCP Capital.

What is Injective Protocol?

Injective Protocol is a distributed protocol bringing the features of centralized exchanges onto DEXs. The network brings speed, security, and liquidity into DEXs unlike most of the top projects at the moment,  and thus, aiding DeFi adoption. The system achieves this through a layered design and the employment of various technological advancements.

3 main features of Injective Protocol

Inter-chain trading

By interfacing with other blockchain-based networks, Injective can support many trading pairs. Consequently, traders can choose between trading pairs considering their profit margin. Ethereum, INJ, MKR, and DAI are the cryptocurrencies tradable on the Injective platform.

A Combination of DeFi and Derivatives

Injective has its eyes set on the DeFi space. For this reason, it includes features that enable the interaction between DeFi networks and the digital currency derivatives space, which culminates with an innovative trading offering.

Distributed Futures and Margin Trading

This is among the differentiating factors in the Injective ecosystem. It allows traders to trade futures and derivatives while enjoying the fruits of decentralization.

What’s in it for users?

Through its features, it is evident that the platform is focused on end-users. Among the immediate benefits are security, low entry barrier, flexibility, convenience, speed, trust, and liquidity.

5 primary layers of Injective Protocol

The 5 primary layers of Injective Protocol are interlinked to run the entire protocol. Below is the technical architecture of the protocol.

injective technical architecture
Injective’s technical architecture (Image credit: Binance Research)

Let’s take a look at each of the layers in detail.

Injective Chain

The Injective chain forms the network’s core and powers decentralized trading. However, instead of being a full chain per se, it is actually a sidechain that is connected to the Ethereum blockchain. Notably, Ethereum is the home of the vast majority of the DeFi platforms.

Moreover, the chain, through a connection to the Cosmos IBC, provides cross-chain functionalities. This layer acts as a derivatives platform and holds the exchange’s distributed order book.

In addition, the Injective chain comprises a system that coordinates the platform’s trades, an execution space for the Ethereum virtual machine (EVM), and a bridge that makes it easier to interact with Ethereum-based tokens on the Injective protocol. Note that EVM handles the execution of smart contracts allowing for the creation of decentralized applications (Dapps).

Other features domiciled in the Injective chain include, but are not limited to, DEX contracts, derivatives contracts, 0x V3 exchange contracts, and the staking contract.

Exchange Client

The client allows permissionless participation on the network by supporting an open-source front-end. For ease of use, it has a professionally designed graphical user interface that appeals to both novice and experienced users.

API Provider

Application programming interface (API) providers form a key part of the Injective ecosystem by interacting with transactions and acting as a data layer. Note that API providers are nodes on the protocol.

An API node can either provide a transaction relay service or be a data layer. As a transaction relay service, it provides mechanisms for users to interact with the system.

On the other hand, API providers acting as a data layer provide data and analytic capabilities to external users.

EVM RPC Provider

This aspect of Injective Protocol deals with the interconnection between Injective and Ethereum.

Ethereum Bridge

The bridge provides an interface for exchanging tokens built using the Ethereum standard (ERC-20) on the protocol. Also, it creates a peg-zone where the exchange takes place.

Injective token (INJ) and its use cases

Injective Protocol has a native token called INJ. It has a maximum circulating supply of 100 million tokens. Though only around 15.2 million tokens are in circulation, it is projected to increase due to inflation, which happens at roughly 7%. Luckily, the platform has instituted measures to reduce inflation to around 2% over time.

The token was first made available to the public via Binance Launchpad, the exchange’s Initial Exchange Offering (IEO) platform. INJ is currently listed on Binance and on Uniswap.

INJ token’s uses on the Injective platform

  • Offering discounts on transaction fees – Traders on the platform are charged less when paying their transaction fees using the network’s native currency.
  • Rewarding stakers – Since the platform supports staking, rewards to stakers are paid using INJ.
  • Governance rights – Being a decentralized community-focused platform, governance-related issues are decided by the Injective community. However, to participate, members have to hold INJ.

The more the tokens held, the stronger the voice on the governance table since INJ is required when submitting a proposal and when voting.

  • Providing passive income – Apart from paying staking rewards in the native token, INJ can be locked in a wallet to attract tips.
  • Incentivizing market makers – Market makers or liquidity providers are key Injective Protocol roles. Therefore, to attract more liquidity, the platform uses its native token to incentivize liquidity providers.

Conclusion

By providing the required liquidity to power an active trading experience on a decentralized platform, the Injective Protocol can siphon users from CEXs to DEXs. Consequently, cryptocurrency users and traders are hedged away from potential risks.

In addition, enabling cross-chain interaction opens the platform to DeFi enthusiasts. Additionally, providing support for ERC-20 tokens increases interaction with DeFi tokens and protocols.

Decentralised Finance (DeFi) series: tutorials, guides and more

With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. We also take a deep dive into popular DeFi topics such as Yearn.finance ($YFI), Balancer ($BAL) and ($COMP).

The DeFi series on this website also covers topics not explored in YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

Learn about Yearn.finance ($YFI) and all its various hard forks and iterations:

For in-depth information other specific DeFi projects, check out our DeFi token guides:

Tutorials and guides for the ESSENTIAL DEFI TOOLS:

More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel and (for now) FREE weekly newsletter so you can be notified as soon as they come out!

The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.

David Lancaster
David enjoys cryptocurrencies, photography, stealing candy from babies, and tennis. His top pursuit is to be financially independent.

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