What is Injective Protocol (INJ) – How Does it Work?

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What is Injective Protocol (INJ) - How Does it Work?
What is Injective Protocol (INJ) - How Does it Work?

DeFi presents itself as an oversaturated market, dependent on the ability to crowdsource more funds by launching hundreds of projects in one place with no visible regulations. There are so many lending protocols, decentralised exchanges, and yield farming platforms.

Now each newly developed Defi project focuses on different ways to stand out. Speaking of injective protocols, it is a project targeting the derivatives market with a scalable and decentralised approach. With the backing of major industries like Pantera, Binance, and CMS, it’s hard to ignore that a team can enter the DeFi market without barriers.

In this article, we will be discussing what injective protocol (INJ) is and how it works.

What is Injective Protocol (INJ)

Injective Protocol (INJ) is a decentralised exchange (DEX) that offers cross-chain margin trading, derivatives and forex futures trading.

The Injective Protocol is based on the Cosmos blockchain as a layer 2 application. The protocol uses a cross-chain bridge that allows traders to access cryptocurrencies from platforms like Ethereum and Polkadot.

Unlike other popular decentralised exchanges like Uniswap or Bancor, Injective Protocol does not use an automated market maker formula (AMM) to manage liquidity. Instead, Injective follows the order book model that has been widely used on centralised stock and cryptocurrency exchanges for years—injective aims to balance the efficiency of traditional finance with the transparency of a decentralised exchange.

Instead of paying network gas fees to execute each transaction, Injective Exchange traders use INJ coins to pay standard market maker and taker fees. The INJ token also serves as the platform’s governance token and staking mechanism, powering Injective’s proof-of-stake-based blockchain.

Tokenomics

The maximum supply of INJ tokens is 100,000,000. As of March 10, 2021, the current circulating supply is 48,653,970.93 INJ.

Token allocations of Injective protocol supply:

Ecosystem development – 36.33%.

Team – 20%.

Private sales – 16.67%.

Community growth – 10%.

Binance Launchpad Sales – 9%.

Seed sales – 6%.

Consultants – 2%.

Features of the Injection Protocol (INJ)

  • High Credibility: Injective Chain is a permissionless public blockchain network that allows any person or organisation to participate in the consensus.

Anyone who joins this public blockchain network can read or write to the network anonymously. All transactions are traceable or legible, indicating a high level of trust. You have complete control over your trades and even develop new derivatives markets.

  • Resistant to Front-Running: Front running is impossible in an injective protocol. To gain a price advantage, predatory executives cannot change order settlement procedures or intercept incoming orders.
  • Resolvable: The settlement logic can deterministically handle conflicting orders (transaction conflicts) and front-running transactions submitted in the same block.
  • Neutral Liquidity: The protocol has no restrictions on accessing multiple liquidity pools and allows for fully decentralised and trusted open exchanges.
  • There are no MEV and gas fees: Because Ethereum and Injective Chain are connected via a two-way bridge. Due to its innovative Layer 2 design, Peggy Bridge differs from existing token bridge arrangements and allows Ethereum users to seamlessly transition any asset into a transactional or miner extractable value (MEV) environment without gas fees. This will enable users to trade freely without incurring any fees while reducing network congestion.
  • Decentralised System: A decentralised autonomous organisation (DAO) oversees all new market listings and protocol-level updates, giving the network full community control.

How Does Injective Protocol Work?

The injective protocol consists of four key components:

  • Injective Chain: Injective Chain operates as a fully decentralised sidechain relay network. Injective Chain adopts the Tendermint consensus method, and the Cosmos SDK module implements the basic logic of the protocol. This is achieved by combining injective futures protocols and traditional smart contracts.

The Injective Futures protocol is an application based on the Cosmos SDK. Use this protocol to trade decentralised perpetual contracts and CFDs on any market.

Injective Chain provides an EVM-compatible execution environment for DeFi applications, as well as a bi-directional Ethereum peg zone for ETH and ERC-20 token transfers. Peg-zone builds on top of Peggy, and Ethermint runs the EVM.

  • Smart Contracts on Ethereum: The Injective Protocol is a token-based protocol tied to the INJ token. As a result, smart contracts enable protocol interactions and token economies.

There are four different types of smart contracts: Injective Coordinator Contract, Staking Contract, Injective Futures Contracts, Injective Bridge Contracts and Injective Token Contracts.

  • API Node: The transaction relay service is provided by the API Injective Node, and the data layer of the protocol is provided by the API Injective Node.
  • Front-end Interface: The decentralised Injective Protocol allows anyone to use the protocol without prior permission.

To interact with the protocol, Injective provides a user-friendly front-end interface that can be operated locally by individuals and companies or hosted on a web server. The Interplanetary File System also uses this interface (IPFS).

These tools offer decentralised peer-to-peer exchanges, which is nothing new, but the features added to the ecosystem make the Injective protocol stand out.

The project uses Tendermint-based Proof of Stake (PoS), enabling cross-chain derivatives transactions between Cosmos, Ethereum and other Layer 1 protocols. It also allows for staking and delegating rewards.

Because Injective Exchange’s underlying software is open-source, it can be thoroughly audited to filter out bugs and security vulnerabilities. The exchange infrastructure eliminates the usual technical barriers to entry.

What is an Injective Token (INJ)?

The INJ token is the native token of the Injective protocol with a maximum issuance of 100 million tokens. The token was created on the Ethereum network under the ERC-20 standard, and its Genesis transfer took place on October 20, 2020. Below are several use cases for the INJ token:

  • Staking: Used to secure the blockchain through proof-of-stake protocols. Staking earns 5% APY.
  • Governance: INJ tokens can be used to participate in the protocol’s governance. Governance capabilities include making decisions about protocol development, parameter sharing, and other decisions discussed by the DAO.
  • Collateral Support for Derivatives: INJ is an alternative to stablecoins as margin and collateral in the Injective derivatives market. In some futures markets, INJ can also be used as collateral or to create insurance funds where participants can earn interest on their locked tokens.
  • Incentives for Market Share: Injective developers plan to integrate with the liquidity mining program and distribute a fixed amount of INJ tokens per day based on the liquidity provided by each network participant.

Where to Buy INJ Token

The token is available on several cryptocurrency exchanges and brokers. The exchange includes Binance, Bilaxy, Huobi Global, and Uniswap.