Injective Protocol (INJ) is a Layer-2 DeFi protocol designed for cross-chain derivatives trading.
Summary
Injective Protocol facilitates cross-chain derivatives trading on Cosmos, Ethereum, and several other Layer-1 blockchain networks. Injective’s decentralized exchange (DEX) makes use of several cutting-edge technological innovations that afford robust network speed, exceptional security, and a high degree of decentralization. Injective Protocol enables gas-free trading through its Layer-2 sidechain and is powered by its native utility and governance token INJ.
Contents
Injective Protocol Exchange Structure
Injective Protocol (INJ) is a decentralized exchange (DEX) protocol that offers advanced features like cross-chain margin trading, derivatives, Forex (FX), synthetics, and futures trading. Injective was designed to be a completely decentralized, permissionless, and high-performing exchange protocol with zero gas fees. Injective achieves this with its Cosmos-backed Layer-2 sidechain infrastructure that enables speed, accessibility, and decentralization with optimized connections to the main Ethereum chain.
Injective Protocol’s mission is to remove barriers of access to decentralized finance (DeFi) markets, eliminate gas fees while maintaining high transaction speeds, and provide a decidedly decentralized and limitless trading experience for everyone. To achieve this robust functionality, Injective Protocol implements several important features:
Fully decentralized network construction: The Injective Chain — based on the Cosmos Tendermint standard — is a fully decentralized sidechain relayer service that acts as a Layer-2 derivatives platform, trade execution coordinator (TEC), and decentralized order book. Injective offers access to a cross-chain decentralized derivatives marketplace with zero restrictions.
Layer-2 protocol speed: The Injective Chain facilitates the use of a two-way peg for Ethereum (ETH) and ERC-20 compatible tokens. It also boasts an Ethereum Virtual Machine (EVM)-compatible execution framework for numerous decentralized applications (dApps). Injective’s peg-zone architecture is based on the Cosmos Gravity Bridge, which allows for the transfer of value between the Cosmos Hub and Ethereum, while the EVM execution framework is based on Tendermint’s Ethermint EVM implementation. This enables powerful cross-chain compatibility and liquidity.
State-of-the-art decentralized order book: Injective’s order book solution is a fully decentralized order book that matches orders on the Injective sidechain, while transactions are 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. Moreover, Injective Protocol makes it possible for anyone at any time to create their own derivatives market, cultivating an ecosystem of permissionless, community-driven innovation.
Low network latency and no gas fees: Because of Injective’s unique Layer-2 structure, the protocol is designed to avoid network congestion and related high gas fees. Its gas-free model allows all platform users to trade openly without incurring costs, while reducing network latency.
The Role of INJ Tokens Within the Injective Protocol Ecosystem
INJ is the native utility and governance token of Injective Protocol. It plays an integral role in governance, derivatives collateralization, protocol security, market maker and relayer incentives, and exchange fee value capture.
Protocol and ecosystem governance: The INJ token enables users to participate in ecosystem governance by voting on proposed changes to the futures protocol, exchange parameters, and other protocol upgrades through a decentralized autonomous organization (DAO) structure.
Collateral backing for derivatives: The INJ token can also be used as a stablecoin alternative to supply collateral for margin trading and for the use of Injective’s derivatives market. Additionally, in specific futures markets, INJ can be used for collateral backing and insurance pool staking, allowing stakers to accrue interest on their locked liquidity provider (LP) tokens.
Tendermint-based Proof-of-Stake (PoS) security: Injective Protocol is secured by a PoS consensus that is based on Tendermint. The ecosystem incentivizes nodes to participate in network consensus by providing staking rewards. This mechanism inflates the supply of the INJ token, which began at 7% per year at genesis launch and will decrease over time to 2%.
Market maker incentives: The Injective DEX initially charges users exchange fees of 0.1% for makers, and 0.2% for takers. Fee reductions are provided to market makers who help bootstrap liquidity on the DEX trading platform. These market maker rewards will be distributed periodically by taking exchange balance snapshots from user accounts to determine their fee savings for specific periods of use.
Key Technical Components of Injective Protocol
The Injective DEX is a highly technical apparatus that was designed to be censorship-resistant, trustless, and publicly verifiable — all while boasting a sleek user experience for users. To make all of this possible, Injective Protocol’s technical architecture is built upon four distinct layers within the software development stack.
The Injective Exchange Client is the front-end interface a user sees when they log into the trading platform. The service layer is made up of the Injective Application Programming Interface (API) which includes the Exchange API, Coordinator API, Derivatives API, and The Graph API (used to connect The Graph indexing query system to help realize derivatives trading on the protocol).
The APIs mentioned above are used to determine how certain parts of the system work together and communicate to allow the entire technical stack to operate correctly. Collectively, they serve as the middle layer that allows the Injective Exchange Client to communicate with the Tendemint-based Cosmos layer.
Cosmos layer: On the other side of the software stack, the Injective API and the Injective EVM remote procedure call (RPC) are connected to the Injective Chain and the Injective Explorer, which is used to keep track of all the transactions made on the Injective Chain. The Tendermint blockchain was chosen as a suitable foundation for Injective Protocol because it can support the instant finality needed to execute different spot trading and derivative order types.
Ethereum layer: Finally, the Ethereum layer is made up of the Injective Bridge smart contract that communicates with the Injective Chain and the Ethereum network. This is made possible by Injective’s bi-directional ERC-20 token bridge that’s designed to send INJ-based assets back and forth between Injective and the Ethereum blockchain. This cross-chain interoperability is a critical aspect of decentralized blockchain infrastructure, as it allows for different networks to share data and assets.
Injective Protocol Smart Contracts
Injective Protocol is woven together by the INJ token. Essential protocol interactions and token economics of the Injective ecosystem are made possible via the following Ethereum-based smart contract types:
Injective Coordinator Contracts: Injective Coordinator contracts facilitate the use of both Injective's derivative transactions on Ethereum and the Injective Chain.
Staking Contracts: Staking contracts are designed to manage the core functionality for stakers on Injective Protocol through rewards, slashing, delegation, and governance mechanisms.
Injective Futures Contracts: Injective Futures contracts are smart contracts that allow traders to create, execute, and make use of decentralized perpetual swaps on any arbitrary market.
Injective Bridge Contracts: Injective Bridge contracts are smart contracts that manage the two-way peg between Ethereum and the Injective Chain.
Injective Token Contracts: Injective token contracts are ERC-20 contracts designed for the different uses employed by the INJ token.
Injective Protocol’s Vision For Tomorrow
Injective Protocol is pioneering a new decentralized economy with the goal of creating a freer and more inclusive financial system. Injective has created a solution that allows crypto exchanges to become a decentralized public utility, giving users and their community the much-needed value capture in the exchange landscape. Injective’s technology allows anyone in the world to participate in cross-chain blockchain-based derivatives, futures, and FX trading.
By making use of technological innovations that increase settlement and trade execution speed in a highly decentralized, permissionless, and censorship-resistant way, Injective Protocol is building an exchange model that has the potential to transform the industry as we know it.
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