Injective Protocol is a groundbreaking decentralized exchange (DEX) that has captured the attention of investors and traders alike. Offering cross-chain margin trading, derivatives, and forex futures trading, it has the potential to redefine the landscape of digital asset trading.
In this article, we will explore the background of Injective Protocol, its unique features, the role of its native INJ token, and why this innovative project is so important for the future of decentralized finance (DeFi). By delving into Injective Protocol, you’ll gain a comprehensive understanding of its vision, technology, and impact on the industry.
Table of Contents
Background
Injective Protocol was established in 2018 by co-founders Eric Chen and Albert Chin. The company’s headquarters can be found in New York City.
Eric Chen completed his Finance degree at New York University’s prestigious Stern School. Before Injective, he served as a Venture Partner at Innovating Capital, a firm that later became an early investor in Injective Protocol.
Albert Chin acquired his Master’s degree in Computer Science from Stanford University. Before joining forces with Chen, Chin held the position of Software Development Engineer at Amazon.
Injective Protocol has attracted significant investments, totaling in the tens of millions of dollars. Some of its most distinguished investors include Pantera Capital and billionaire entrepreneur Mark Cuban. The project is built on the foundations of the Cosmos-SDK and Ethereum network, incorporating a verifiable delay function (VDF) to protect against trade manipulation and front-running. In recognition of its potential, Injective was chosen as one of the eight projects to participate in the Binance Labs Incubation Program in 2018.
What is Injective Protocol?
Injective Protocol (INJ) is a unique decentralized exchange (DEX) that facilitates cross-chain margin trading, derivatives, and forex futures trading for its users.
Built as a Layer 2 application on the Cosmos blockchain, Injective Protocol leverages cross-chain bridges to enable traders to access a variety of cryptocurrencies from platforms like Ethereum and Polkadot.
In contrast to other well-known decentralized exchanges such as Uniswap or Bancor, which rely on automated market makers (AMMs) to manage liquidity, Injective Protocol adopts the order book model. This model has been a staple in centralized stock and crypto exchanges for many years. By using the order book model, Injective Protocol aims to combine the efficiency of conventional finance with the transparency that decentralized exchanges provide.
When trading on Injective Exchange, users are not required to pay network gas fees for each transaction. Instead, they pay standard market maker and taker fees using INJ coins. These coins also function as the platform’s governance token and staking mechanism, supporting Injective’s Proof of Stake-based blockchain.
Why is Injective Important?
Injective Protocol envisions a reimagined economy built upon decentralization. The driving force behind this vision is the creation of a safer and more private system for exchanges, payments, and remittances. By developing a solution for exchanging cryptocurrencies, Injective Protocol transforms crypto into a public utility with a decentralized nature. This solution offers value to users and their communities in the exchange landscape.
The cross-chain blockchain-based technology of Injective Protocol enables forex trading, derivatives, and futures on a global scale, inviting participation from individuals worldwide. This accessibility has been made possible through Injective’s innovative technology.
Injective Protocol’s exchange model has the potential to revolutionize the industry, as it leverages cutting-edge technology to enhance settlement and trade execution processes. This is achieved in a decentralized and efficient manner, free from permission or censorship. By doing so, Injective Protocol is poised to have a significant impact on the future of digital asset trading and the broader financial landscape.
What Makes Injective Protocol Stand Out?
- Fully decentralized network structure: Injective Chain, built on the Cosmos Tendermint standard, functions as a completely decentralized sidechain relayer service, serving as a Layer-2 derivatives platform, trade execution coordinator (TEC), and decentralized order book. This offers users access to a cross-chain decentralized derivatives marketplace with no limitations.
- Layer-2 protocol speed: Injective Chain enables a two-way peg for Ethereum (ETH) and ERC-20 compatible tokens and supports an Ethereum Virtual Machine (EVM)-compatible execution framework for various decentralized applications (dApps). Its peg-zone architecture, based on the Cosmos Gravity Bridge, facilitates value transfer between the Cosmos Hub and Ethereum. The EVM execution framework, based on Tendermint’s Ethermint EVM implementation, ensures robust cross-chain compatibility and liquidity.
- Advanced decentralized order book: Injective’s order book solution is a fully decentralized system that matches orders on the Injective sidechain, with transactions settled on-chain in batches.
- Unrestricted market creation and usage: The Injective Futures Protocol allows for fully decentralized peer-to-peer (P2P) trading via perpetual swaps and contracts for differences (CFD) derivative products. Injective Protocol empowers anyone to create their own derivatives market at any time, fostering an environment of permissionless, community-driven innovation.
- Low network latency and no gas fees: Injective’s unique Layer-2 design helps to prevent network congestion and associated high gas fees. Its gas-free model enables users to trade openly without incurring costs while minimizing network latency.
INJ Token
The INJ token is the native utility and governance token of the Injective Protocol. It holds a crucial role in various aspects of the platform, including governance, derivatives collateralization, protocol security, market maker and relayer incentives, and exchange fee value capture.
In terms of protocol and ecosystem governance, the INJ token allows users to participate in governance through voting on proposed changes to the futures protocol, exchange parameters, and other protocol upgrades. This voting process is facilitated by a decentralized autonomous organization (DAO) structure.
The INJ token can also be used as an alternative to stablecoins for supplying collateral for margin trading and accessing Injective’s derivatives market. In certain futures markets, INJ tokens can be utilized for collateral backing and insurance pool staking. This enables stakers to earn interest on their locked liquidity provider (LP) tokens.
Injective Protocol’s security is maintained by a Tendermint-based Proof-of-Stake (PoS) consensus. The ecosystem encourages nodes to take part in network consensus by offering staking rewards. This incentive mechanism results in the inflation of the INJ token supply, which initially started at 7% per year at genesis launch and will gradually decrease to 2% over time.
Market makers on the Injective DEX are incentivized through fee reductions. Initially, the DEX charges exchange fees of 0.1% for makers and 0.2% for takers. Market makers who contribute to liquidity on the DEX trading platform are eligible for fee reductions. These rewards will be distributed periodically, with exchange balance snapshots taken from user accounts to determine their fee savings for specific usage periods.
Conclusion
Injective Protocol is at the forefront of a new decentralized economy, striving to establish a freer and more inclusive financial system. By providing a solution that turns crypto exchanges into a decentralized public utility, Injective Protocol delivers value to users and their communities within the exchange ecosystem. Its technology enables individuals from around the globe to participate in cross-chain blockchain-based derivatives, futures, and FX trading.
Leveraging cutting-edge innovations to enhance settlement and trade execution speed, Injective Protocol fosters a highly decentralized, permissionless, and censorship-resistant environment. As a result, the project is shaping an exchange model with the potential to revolutionize the industry as we know it, making Injective Protocol a vital player in the future of decentralized finance.
