Injective Protocol: The interoperable cross-chained Layer-2 Decentralized Exchange for Spot, Swaps , Futures and Derivatives in a completely permission-less way.

frankydoodle (59)in #injectiveprotocol • 4 years ago (edited)

Hello everybody! This is me again your Mr. Decentralized that will talk about another blockchain project that you will surely love. Today, let me discuss the pioneer in the crypto derivatives market: The Injective Protocol. I will do my best to talk about in simple and layman's term way about their architecture, use-cases, features, and technicalities when it comes to blockchain trading and its huge contribution to the crypto community.

What is Injective Protocol and why it was created

---> For a general overview from myself, I researched the Injective Protocol (INJ), I noticed that they are the first ones to create a Decentralized Exchange for the crypto derivatives market. When we say derivatives, it is a type of contract wherein, for example, today, you see the price of 1 ETH at about 400 USD. If you go into Injective Protocol DEX and you will trade or invest in their derivatives contract, you will need to lock a contract at 1 ETH=400 USD. You will need to set the amount of money that you will lock into that derivatives contract as well as the time that the contract will be sold onto the market. So, let's say, for example, the contract is set for 3 months and after that 3 months, you went back to Injective Protocol DEX derivatives and you saw that the price of the ETH increased to 800 USD, Whatever quantity of the money and the ETH that is set to be bought or sold after that 3 months, will still follow the price which is on the contract 3 months back which is only 400 USD. So, since you set the contract at 400 USD per ETH, after the 3 months' time, you would still be able to buy the ETH at 400 USD and not 800 USD. You will be able to get the ETH at 50% lower the price. Then you can sell it at the current market price and you can profit with it. However, if the price of ETH let us say after 3 months it went from 400 USD to 200 USD only, you will still need to buy the 3 months the back price of 400 USD instead of the current market price of 200 USD only. Giving you a -50% on your bet for the specific derivatives on ETH.

So why this is being used by traders, speculators, and investors you may ask me? This is for the hedging of the different kinds of crypto assets in the cryptocurrency space. As we all know, cryptocurrencies are so volatile and could spike up and rush down in a matter of seconds, minutes, hours, days, weeks, months or years depending on your time frame horizon investing zone. So to recap based on my understanding, it is like making your volatile cryptocurrency into a stablecoin's price of the underlying asset but it is NOT. You are still holding the contract at just the specific price being locked.

Not only crypto can have derivatives but also in the airline industry wherein they call for derivatives for airline gasoline. Therefore, even though the price of gasoline for airlines for their other competitors who do not use derivatives pay the current price of gasoline for their flights, other airlines who do derivatives trading can enjoy the lower price of the oil for years! Giving them much more profit. That is how derivatives, futures, and swaps work.

Main features of the Injective Protocol

1. Inter-chain crypto trading

---> When we say Inter-chain, the Injective Protocol exchange gives you the full support of trading not only in the Ethereum blockchain but also in different blockchains such as COSMOS, BTC, etc. Basically, native blockchains cannot communicate with each other because of the difference in the protocol and the blockchain architecture inside it. Worry no more because Injective got your back to solve these problems! You will be able to trade spots, swaps, futures and derivatives without going to a different blockchain wallet. Amazing!

2. Layer-2 Fully-Decentralized DEX and its architecture

---> The Injective protocol does have what we call the Layer-2 scaling solutions. Wherein there would be no more congestion and no more extreme high fees compared to Ethereum's gas fees. Because most of the transactions can be taken off-chain and will be validated by a series of validators on the Cosmos SDK on Tendermint. Given that, there are factors and features under Layer 2 of Injective.

a. Decentralized order books

--> This is the Injective's DEX order relays in the sidechain wherein all the orders will be queued up but the settlement will still be on the blockchain layer of the Injective DEX. These are all 0x orders.

b. Trade execution coordinator (TEC)

---> There are times wherein people especially in the stock market will be front-running your order to get executed. Meaning, they want to profit quicker than your trade. This is being eliminated by the Injective DEX. Because they are implementing the TEC. Which means a first-come-first-serve system of executing trades on the INJ'S DEX.

c. Bi-directional token bridge

---> Because the Injective protocol is cross-chained capable DEX, there is what we call bridges wherein you can transfer or trade ERC-20 tokens to the Injective's EVM in COSMOS and other blockchains and back. So on and so forth. There is what we call as 'Peg' zone in the Cosmos network.

d. Layer-2 EVM execution environment

---> The Layer-2 EVM was the Ethereum's virtual environment with the help of Ethermint on the top of COSMOS' SDK. It is the one that is executing orders and the smart contract calls on the COSMOS blockchain and back to the Ethereum blockchain and another blockchain that will integrate with Injective.

For a reference, here is how the Layer-2 execution proposal if there would be an improvement for ETH. This Layer-2 is now already implemented here on Injective in an advanced time. Good job! Here is the Youtube video of the sample for Layer 2.

Here is also the one that I have researched about the Injective's Layers
Source: Binance research

3. Zero-gas fees

---> If there is something that excites me for using the Injective protocol, it would be the zero-gas fees ordering implementation! Of course, with the recent DEFI craze, more developers and traders are wanting to have a platform of their choice or DEX wherein no more gas fees are needed! Thanks to the sidechain layering of Injective!

Injective Protocol's native token: INJ

---> INJ is the native token of the Injective Protocol. It is decentralized, cross-chained enable and has different useful use-cases already for the Injective ecosystem

1. Protocol Governance

---> When we say governance, you can be a direct influencer of the protocol's roadmap and improvement in the coming years for the INJ ecosystem. You can vote, propose, and decline the proposals to be made in the INJECTIVE ecosystem.

2. Fee value capture

---> This is like the burning mechanism of the INJ ecosystem whenever the relay fees are already all good. It is good for the INJ token to go up in price for the remaining holders of the token.

3. Collateral

---> If you remember a while ago, wherein there should be a cushion to have the price of a certain contract for derivatives are to freeze the prize until the contract expires? That is one use-case of the INJ token. The INJ token can be utilized as the collateral instead of a stablecoin. It can also be used on insurance pool staking on INJ and earn on the interest of the locked INJ tokens.

4. Injective Exchange participation incentives

---> These can range from the liquidity mining incentives, staking incentives, market-maker incentives and relayer incentives in both the bi-directional token bridge validators.

Injective Protocol partners

Injective Protocol's BIGTIME team

TOKENOMICS

Source: Binance Injective Protocol Research

ROADMAP

To summarize, based on my research and reading their white paper and other materials, INJ token and its ecosystem as a whole will give you a sense of direction that in this world of trading crypto, you are not alone. You have other developers' support and community members in trading within the Injective exchange. This is also my first time to see a DEX that supports derivatives. Because most derivatives trading platforms that I encounter are all CEX. More power to Injective Protocol! Thank you so much as well for reading this blog post of mine. I hope you learned a lot!

If you have more questions and need more details to see, go ahead and check their website below, as well as their documentation and social media channels.

Website: https://injectiveprotocol.com/

White paper: https://docsend.com/view/zdj4n2d

Medium blog: https://medium.com/injective-labs

Github: https://github.com/InjectiveLabs

Documentation: https://docs.injectiveprotocol.com/#introduction

Telegram: https://t.me/joininjective

Twitter: https://twitter.com/injectivelabs

Discord: https://discord.com/invite/NK4qdbv

Reddit: https://www.reddit.com/r/injective/

Email: [email protected]

Facebook: https://www.facebook.com/injectiveprotocol