What Is Injective? (INJ)
Injective (INJ) Explained
Injective Protocol (INJ) is a decentralized exchange (DEX) that offers cross-chain margin trading, derivatives and forex futures trading.
The Injective Protocol is built on the Cosmos blockchain as a Layer 2 application. The protocol uses cross-chain bridges which allow traders to access cryptocurrencies from platforms such as Ethereum and Polkadot.
Unlike other popular decentralized exchanges such as Uniswap or Bancor, Injective Protocol does not use an automated market maker (AMM) formula to manage liquidity. Instead, Injective follows the order book model that has been widely used for years across centralized stock and crypto exchanges. In doing so, Injective aims to match the efficiency of traditional finance with the transparency of decentralized exchanges.
Instead of paying network gas fees to execute each transaction, Injective Exchange traders only pay standard market maker and taker fees using INJ coins. INJ coins also serve as the platform’s governance token and staking mechanism to power Injective’s Proof of Stake based blockchain.
Who Created Injective?
Injective was founded by Eric Chen and Albert Chin. Chen earned a degree in Finance from New York University's Stern School before working as a Venture Partner at Innovating Capital, an early Injective Protocol investor.
Chin previously worked as a Software Development Engineer at Amazon after earning a masters degree in Computer Science from Stanford University.
Injective has raised tens of millions of dollars in capital from notable investors including Pantera Capital and Mark Cuban.
How Does Injective Work?
Injective Protocol is made up of several components that support the functionality and development of its decentralized exchange.
The Injective Chain is a decentralized exchange (DEX) protocol built on Cosmos that also allows for the transferring and trading of Ethereum tokens. This chain aims to address the scaling and throughput limitations many Layer 1 blockchains experience, while still allowing developers to use the Ethereum development kits they are familiar with.
Traders can access several modules within the Injective Chain DEX:
- Auction – allows token holders to bid on baskets of tokens that have been accumulated from exchange trading fees. The INJ tokens paid by the highest bidder are burned, or eliminated from circulation, by the protocol.
- Exchange – helps traders create and trade new spot and derivatives markets. Order book management, trade execution, order matching and settlement are programmatically managed on chain.
- Insurance – supports underwriters who back the derivatives markets hosted on the exchange.
- Oracle – obtains real-world price data (such as traditional stock market data) used to set asset prices on the INJ exchange.
- Peggy – bridges Injective Protocol to the Ethereum blockchain, allowing ERC-20 token holders to convert their tokens to Cosmos-native coins.
The Injective Exchange is an order book model exchange based off of the popular 0x protocol. The Injective team open sourced all components of the exchange, aiming to build the platform with transparency and accessibility. These open source components include the user interface, smart contract functionality and order book management system.
Injective Exchange also strives to eliminate trade front running by implementing a Trade Execution Coordinator (TEC). The TEC creates a delay to ensure new orders cannot be placed ahead of older orders, thus attempting to solve for advanced information obtained by some market makers or bots.
Injective Hub is the dashboard that provides users with the overview and functionality they need to make the most of the Injective Protocol.
Users can access the Injective Hub to stake their INJ to become network validators tasked with upholding the security of the Proof of Stake blockchain. INJ holders can also choose to delegate their tokens to network validators and earn a percentage of their rewards in return.
Injective Hub is also the location for community members to propose and vote on proposals that will shape the future of Injective. Examples of proposals that are put to vote include new trading pairs, platform functionality and governance procedures.
Why Does INJ Have Value?
The INJ token has a variety of functionalities across the Injective Protocol that give it value:
- Proof of Stake Security – INJ token holders can stake their tokens to earn a reward for securing the Injective Protocol.
- Governance – INJ token holders can vote on changes to the Injective Protocol and influence the future development of the platform.
- Relayer Incentives – relayers who originate orders can earn up to 40% of the trading fee, paid in INJ, from orders that they source.
- Exchange Fee Value Accrual – the remaining 60% of exchange fee is burned, thereby deflating the INJ supply.
- Collateral Backing For Derivatives – INJ can be used as margin and collateral for derivatives markets.
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Why Use INJ?
Decentralized exchange traders looking to pay lower gas fees while capturing the efficiency of an order book model and transparency of a decentralized exchange may find value in the Injective Protocol.
Investors looking to earn income on their tokens may find value in delegating their INJ with validators on the Injective Protocol and capturing a portion of the INJ rewards.
Developers looking to build more efficient blockchain applications while still utilizing their same trusted toolkits and programming languages may find value in Injective Protocol as well.