Injective: Building an L1 Blockchain that Interoperates with DeFi

According to TradingView, from the beginning of 2023 until April 17, 2023, the Injective Protocol token (INJ) has increased by over 650%. Its ranking by market capitalization has also risen from above 100 to 76 today, according to statistics released by CoinMarketCap. Its impressive market performance has attracted the attention of many institutions and investors. In this article, we will take a closer look at what Injective is all about.

Injective is an open, interoperable Layer 1 blockchain designed to build DeFi applications. It aims to remove barriers to entry into the DeFi market while offering fast transactions, zero gas fees, and a truly decentralized and free trading experience for all.

Injective focuses on providing decentralized trading and financial application solutions that are fast, secure, scalable, and highly customizable. Built with the Cosmos SDK and utilizing a Tendermint-based PoS consensus algorithm, Injective can realize fast transaction processing (10,000+ TPS) and blockchain management. It has programmable smart contracts and supports cross-chain margin trading, derivatives, and synthetics trading with zero gas fees, aiming to provide users with more flexible and diverse trading and investment opportunities.

Source: https://blog.shrimpy.io/blog/what-is-injective-protocol

Injective uniquely provides plug-and-play financial infrastructure primitives, including high-performance on-chain decentralized exchange infrastructure, decentralized bridges, oracles, and a composable smart contract layer with CosmWasm. Furthermore, as an L1 blockchain dedicated to building DeFi applications, Injective’s core exchange module provides advanced features such as an advanced on-chain order book and matching engines for spot, perpetual, futures, and options markets, resistance to Miner Extractable Value (MEV) through frequent batch auction order matching and zero gas fees.

Additionally, Injective uses Inter-Blockchain Communication (IBC) to be highly interoperable with multiple Layer 1s, including but not limited to Polygon and Solana (via the upcoming Wormhole integration). It also uniquely builds interoperability with Ethereum through its decentralized ERC-20 token bridge, making Injective the first network in the Cosmos ecosystem to support Ethereum assets natively.

The founder of Injective is Eric Chen, who holds a dual Bachelor’s degree in Computer Science and Finance from New York University. Before Injective Protocol, Eric worked as a trading strategy researcher at Innovating Capital and at NYU Blockchain Labs, with extensive trading and research experience in financial markets and the blockchain industry. Albert Chon, CTO at the Injective Protocol, holds a Master’s in Computer Science from Stanford University and worked as a Software Development Engineer at Amazon. The founding team has rich experience in the financial and technical fields. They are committed to driving the development of decentralized trading and providing users with free and open financial services.

In terms of funding, Injective Protocol received angel investing from the Binance Labs incubation program in 2018, and then received support from the incubation community StartX. In 2020, it announced the completion of a funding round led by Pantera Capital, with the participation of K42, a strategic investment institution of OK. Finally, on August 14, 2022, Injective Protocol raised a total of $40 million in a new round, which was jointly led by Jump Crypto, a crypto investment firm, and BH Digital, the digital assets division of hedge fund giant Brevan Howard. Injective will use the funds to incentivize the liquidity of decentralized applications on its platform and develop new products.

Technical Background of Injective

Build a Fully Decentralized Network

Injective uses Cosmos Tendermint, a fully decentralized sidechain relayer service, to serve as its derivatives platform, trade execution coordinator (TEC), and decentralized order book. Injective provides unhindered access to a cross-chain decentralized derivatives market.

Tendermint is the core consensus engine that powers the Cosmos network. It uses a hybrid Proof of Stake (PoS) and practical Byzantine Fault Tolerance (pBFT) consensus algorithm to achieve consensus among all nodes in the network on transaction content and order. In the Cosmos network, Tendermint acts as a middleware layer that allows different blockchains to interoperate and communicate with each other. This is achieved through the use of a communication protocol standard called Inter-Blockchain Communication (IBC). IBC allows for transferring assets and data between different blockchains in the Cosmos network, enabling interoperability between new use cases and different applications. Based on Tendermint, Injective Protocol can seamlessly provide advanced trading features such as cross-chain margin trading, derivatives, and synthetics trading.

In addition, the Injective Chain facilitates using a two-way peg for Ethereum and ERC-20 compatible tokens. It also features an execution framework that is compatible with Ethereum Virtual Machine (EVM), making it applicable to a variety of decentralized applications (dApps). Injective’s peg-zone architecture is based on Cosmos Gravity Bridge, which allows for value transfer between the Cosmos Hub and Ethereum, while the EVM execution framework, based on Tendermint’s Ethermint EVM, enables powerful cross-chain compatibility and liquidity.

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Based on Cosmos SDK+ and connecting the Ethereum mainnet, Injective DEX can provide a high-quality decentralized order book, with order matching taking place on the Injective sidechain and settling transactions on-chain in batches. Additionally, Injective’s derivatives protocol allows users to conduct fully decentralized peer-to-peer derivatives trading using perpetual contracts and contracts for differences (CFDs). Moreover, the Injective Protocol allows anyone to create their own derivatives markets at any time, which is conducive to fostering a free, community-driven innovation ecosystem. Due to its unique Layer 2 structure, the protocol is designed to avoid network congestion and related high gas fees. Its zero gas fee model allows all platform users to trade publicly without incurring related fees while reducing network latency.

Trustless and Publicly Verifiable

The technical architecture of the Injective Protocol is built upon four different layers within the software development stack: the Injective Exchange Client, APIs, Cosmos layer, and Ethereum layer. This allows Injective to be trustless and publicly verifiable while providing users with a seamless experience.

The Injective Exchange Client is the first layer, which refers to the front-end interface that users see when they login to the trading platform. The second layer is the service layer, which consists of the Injective Application Programming Interface (API), including Exchange API, Coordinator API, Derivatives API, and The Graph API (which connects to The Graph indexing query system to help realize derivatives trading on the protocol). These APIs are used to determine how different parts of the system work together and communicate to allow the entire tech stack to function correctly. Together, they act as a middle layer, allowing the Injective Exchange Client to communicate with the Tendemint-based Cosmos layer.

The third layer is the Cosmos layer. On the other side of the software stack, the Injective API and Injective EVM RPC connect to the Injective Chain and the Injective Explorer, which is used to track all transactions taking place on the Injective Chain. The Tendermint blockchain was chosen as the most suitable infrastructure for Injective Protocol, as it can support the instant finality required to execute different spot and derivative order types. Finally, the fourth layer is the Ethereum layer, which consists of the Injective Bridge smart contract that communicates with the Injective Chain and the Ethereum network. This is achieved through Injective’s two-way ERC-20 cross-chain bridge, which is designed to send INJ-based assets between Injective and the Ethereum blockchain. This cross-chain interoperability is critical to decentralized blockchain infrastructure.

INJ’s Protocol Interactions and the Basics of its Tokenomics

Injective Protocol smart contract allows for interaction with the INJ token. The basic protocol interactions and tokenomics of the Injective ecosystem are implemented through the following five types of Ethereum-based smart contracts:

• Injective coordinator contract: This contract ensures the execution of derivative trades on both the Ethereum and the Injective Chain.
• Staking Contract: This contract manages the core functions for stakers on Injective Protocol through rewards, slashing, delegation, and governance mechanisms.
• Injective Derivatives Contract: This smart contract allows traders to create, execute, and use decentralized perpetual contracts on any market.
• Injective Bridge Contract: This smart contract manages the two-way peg between Ethereum and the Injective Chain.
• Injective Token Contract: This ERC-20 contract is specifically designed for different use cases of INJ.

INJ Token and Tokenomics

According to tradingView, as of April 17, 2023, the price of the INJ token is $8.61, with a maximum increase of over 650% since January 2023. Currently, INJ has a market capitalization of $690 million and is ranked 76th worldwide according to Coinmarketcap. There are currently 80 million INJ tokens in circulation.

Source: Coinmarketcap.com

INJ is the native utility and governance token of Injective Protocol, playing an important role in protocol and ecosystem governance, derivative collateralization, protocol security, market making, relayer incentives, and protocol fee value capture. In addition, the INJ token has a unique mechanism of burn auction, which helps to accumulate value for the entire Injective ecosystem.

First, the INJ token plays an important role in the Injective ecosystem. It enables users to participate in protocol and ecosystem governance by voting on proposals related to derivatives protocol changes, trading parameters, and other chain upgrades through a decentralized autonomous organization (DAO) governance.

Additionally, INJ tokens can also be used as an alternative to stablecoins, serving as margins and collateral for derivatives. In some derivatives markets, INJ can be used as collateral or staked in insurance pools, allowing stakers to earn interest on locked tokens.

The Injective protocol is based on Tendermint’s PoS consensus mechanism. The ecosystem provides staking rewards to encourage nodes to participate in the network consensus, thereby improving the protocol’s security. This mechanism increases the supply of INJ tokens with an initial inflation rate of 7% per year, which will decrease to 2% over time.

To incentivize liquidity, the Injective DEX charges a fee for makers and takers. Injective provides fee reductions for market makers who bring liquidity to the DEX, and take regular snapshots of their account balances on the exchange to distribute corresponding rebate rewards within a specific period.

The unique mechanism of the INJ burn auction is also noteworthy, as 60% of all fees collected from dApps in the Injective ecosystem are auctioned off through a buy-back-and-burn mechanism weekly. This, in turn, leads to a sharp reduction in the supply of INJ over time. The INJ burn auction is unique because it helps accumulate value for the entire Injective ecosystem. Currently, Injective has the highest token burn rate in the industry.

Injective Ecosystem

According to Rootdata, there are currently 18 dApps that have been launched on the Injective mainnet. Most of the dApps are mainly related to DeFi, and others are about communication infrastructure, messaging protocols, NFTs, etc.

Source: https://www.rootdata.com/EcosystemMap/list/247?n=Injective

Below is a brief introduction to the main dApps of Injective:

Helix

A decentralized cryptocurrency trading platform, originally known as Injective Pro. It aims to provide cross-chain spot and perpetual markets. It offers zero gas fees and features a user-friendly interface. Helix can help users trade cryptocurrencies, including spot and perpetual trading.

Frontrunner

Frontrunner is a decentralized sports prediction market in the Injective Protocol. On Frontrunner, users can buy and sell shares in the sports space instead of participating in traditional sports betting. This gives users full control over their portfolio and allows them to adjust positions dynamically as the odds change.

Frontrunner aims to provide sports enthusiasts and investors with a fun and innovative way to participate in the sports market while offering them a high degree of flexibility and transparency. Frontrunner recently announced a $4.75 million seed round led by Susquehanna Private Equity Investments. Other investors include SOMA Capital, Toy Ventures, Ledger Prime, and WAGMI Ventures.

Astroport

Astroport is a decentralized automated market maker (AMM) protocol within the Injective Protocol. It initially ran on the Terra network and later joined the Injective ecosystem. Astroport supports users in trading various crypto assets using two liquidity pool types, including Curve’s StableSwap Invariant formula pools and Uniswap’s Constant Product formula pools. Astroport’s AMM can collaborate with Injective’s on-chain order module to create a more capital-efficient trading environment. Astroport also supports a flexible fee model, allowing traders to choose a fee structure of their preferences. In January 2022, Astroport launched its public testnet on Injective, marking another significant milestone in cryptocurrency trading within the Injective ecosystem.

Dexterium

Dexterium is a protocol in the Injective ecosystem that allows developers to build and deploy their own decentralized applications (dApps). The main goal of Dexterium is to provide a highly flexible and easy-to-use platform that enables developers to build various types of dApps on the infrastructure of Injective. Dexterium uses the Solidity programming language and the Ethereum Virtual Machine (EVM) to achieve this goal and provides many common dApp building tools and libraries, such as Truffle, Web3.js, and OpenZeppelin.

In the Injective ecosystem, Dexterium also serves as a hub for scalability and interoperability, allowing users to integrate dApps from other blockchains (such as Ethereum, Binance Smart Chain, etc.) into the Injective ecosystem. This enables users to access dApps from multiple blockchains on Injective and leverage the advantages of decentralized trading.

Notifi

Notifi is a notification protocol in the Injective ecosystem designed to provide a fast, reliable, and secure way to send users important notifications about their transactions and accounts. Notifi helps users better understand their transaction status, account balances, and other information related to their Injective accounts.

The main features of Notifi include:

• Transaction alerts: Notifi sends users notifications when their transactions are accepted, confirmed, or fail, allowing them to stay informed about their transaction status.
• Account balance notification: Notifi can send users notifications about changes to their account balances through push notifications, email, and other means, helping users stay informed about their financial status.
• Security alerts: Notifi can also send users alerts about their account security, such as login attempts, password changes, etc.

Notifi has been designed to provide the best possible user experience and minimize latency and errors. It supports multiple notification methods, including email, SMS, mobile app push, etc. By using Notifi, Injective users have greater control over their transactions and accounts, allowing them to participate in decentralized trading more securely.

Injective Punks

Injective Punks is an NFT project launched by the Injective Protocol. It is based on the Ethereum blockchain and has been extended through the Injective Chain so that it can be seamlessly integrated with the Injective ecosystem. Injective Punks is a series of unique digital pixelated avatars, each with its own distinct appearance and characteristics.

Similar to other NFT projects, each avatar of Injective Punks is one-of-a-kind, which uniquely identifies its owner and can be traded on secondary markets. Users holding Injective Punks avatars can enjoy a range of privileges and rewards within the Injective ecosystem, such as priority access to new products and services, participation in ecosystem governance and voting, etc.

The design of Injective Punks is inspired by famous NFT projects such as CryptoPunks and Bored Ape Yacht Club, but the unique feature of Injective Punks is their application in the Injective ecosystem and their open, decentralized design logic. Unlike other NFT projects, Injective Punks are open, allowing anyone to create their own Punks and integrate them into the Injective ecosystem. This makes Injective Punks a powerful tool that can help drive the development and growth of the Injective ecosystem.

Future of Injective

Injective Protocol is creating a new decentralized economic model, aiming to build a truly free and inclusive trading ecosystem. Injective’s solutions enable crypto trading to become a decentralized public utility, providing users with essential value capture. Injective’s technology enables every user to participate in cross-chain derivatives trading. By adopting decentralized, permissionless technological innovations to increase the speed of settlement and trade execution, Injective Protocol is building a transaction model that has the potential to revolutionize the entire industry.

Although there are only 18 dApps in the ecosystem on the Injective mainnet, on January 27, 2023, Injective announced its first hackathon, offering $1 million in prizes and seed funding to further incentivize Web3 builders. The hackathon provides a platform for developers and project teams in the Web3 ecosystem to showcase their skills and talents. More importantly, this event is expected to attract more people to join the Injective ecosystem, hence improving the scale and quality of the ecosystem.

On February 3, 2023, Injective announced a $150 million ecosystem initiative, which is one of the largest funds in the Cosmos community. The initiative aims to achieve the growth of a number of users and transaction volumes by supporting the best developers and projects on Injective, with a focus on interoperability, DeFi, trading, PoS infrastructure, rollups, scalability solutions, etc. The ecosystem fund will help Injective to expand its ecosystem, improve its influence in the decentralized trading market, and promote development and innovation in the entire industry. With the growth of the ecosystem fund, Injective may have the opportunity to cooperate with other ecosystems to drive continuous development and innovation in the blockchain industry.