Injective Protocol (INJ)
1.1 What Is Injective (INJ)
Injective Protocol (INJ) is a decentralized exchange (DEX) that provides cross-chain margin trading, derivatives, and forex futures trading.
Running as a Layer 2 application on the Cosmos blockchain, Injective Protocol employs cross-chain bridges, enabling traders to access cryptocurrencies from various platforms like Ethereum and Polkadot.
In contrast to well-known decentralized exchanges such as Uniswap or Bancor, Injective Protocol doesn’t rely on an automated market maker (AMM) formula for managing liquidity. Instead, it adopts the order book model, a proven method used for years in both centralized stock exchanges and crypto exchanges. This approach aims to combine the efficiency of traditional finance with the transparency of decentralized exchanges.
Rather than incurring network gas fees for each transaction, traders on the Injective Exchange only pay standard market maker and taker fees using INJ coins. INJ coins also function as the platform’s governance token and are utilized in the staking mechanism to power Injective’s Proof of Stake-based blockchain.
1.2 How Does Injective Work?
Injective Protocol comprises several components that contribute to the functionality and advancement of its decentralized exchange.
Injective Chain:
The Injective Chain is a decentralized exchange (DEX) protocol constructed on Cosmos, facilitating the transfer and trading of Ethereum tokens. This chain is designed to tackle the scaling and throughput challenges often encountered by Layer 1 blockchains while enabling developers to utilize the familiar Ethereum development kits.
Within the Injective Chain DEX, traders can access various modules:
- Auction: Enables token holders to bid on baskets of tokens accumulated from exchange trading fees. INJ tokens paid by the highest bidder are burned, removing them from circulation.
- Exchange: Assists traders in creating and trading new spot and derivatives markets. Order book management, trade execution, order matching, and settlement are programmatically handled on-chain.
- Insurance: Supports underwriters backing derivatives markets hosted on the exchange.
- Oracle: Fetches real-world price data, such as traditional stock market data, used to establish asset prices on the INJ exchange.
- Peggy: Acts as a bridge connecting Injective Protocol to the Ethereum blockchain, enabling ERC-20 token holders to convert their tokens to Cosmos-native coins.
Injective Exchange:
The Injective Exchange operates on an order book model and is built on the well-known 0x protocol. To enhance transparency and accessibility, the Injective team has open-sourced all components of the exchange, encompassing the user interface, smart contract functionality, and the order book management system.
One notable feature is the Trade Execution Coordinator (TEC), implemented to prevent trade front running. By introducing a delay, the TEC ensures that new orders cannot be placed ahead of older orders, addressing concerns related to advanced information obtained by certain market makers or bots.
Injective Hub:
The Injective Hub serves as the dashboard offering users the overview and functionality required to maximize the benefits of the Injective Protocol.
Within the Injective Hub, users can stake their INJ to become network validators responsible for maintaining the security of the Proof of Stake blockchain. INJ holders also have the option to delegate their tokens to network validators and receive a percentage of rewards in return.
Furthermore, the Injective Hub serves as the central hub for community engagement, allowing members to propose and vote on initiatives that will influence the future of Injective. Proposals cover various aspects such as introducing new trading pairs, enhancing platform functionality, and shaping governance procedures.
