Injective is a Decentralized finance (DeFi) protocol that offers cross-chain derivatives trading. The protocol was designed with the mission to provide a fully decentralized, limitless and permissionless trading experience that is accessible to everyone.
In case you are not already familiar, derivatives are financial contracts or instruments that are based on the value of an underlying asset. ‘Derivative’ is actually an umbrella term that can apply to a huge range of contracts and instruments, but futures and options are the two clear top dogs in the crypto space.
How it works
Injective Protocol is a layer 2 sidechain built on the Cosmos blockchain. Cosmos is more of a network than a single blockchain, made up of a web of decentralized, independent, scalable, and interoperable blockchains that are built using the Cosmos Software Development Kit (Cosmos SDK).
Each blockchain created using the Cosmos infrastructure is completely customizable for specific use cases and connected to all other chains on the network. For more detail on Cosmos, check out our research report.
In this case, Injective Chain was specifically created to host Injective Exchange (the decentralized exchange built on top of the Injective Chain).
Blockchain (or cross-chain) interoperability is the ability to share information and assets across different blockchains. Because Injective Chain was built using the Cosmos SDK, the chain, and therefore the exchange, are interoperable with several other blockchains like Ethereum and Polkadot. More specifically, the protocol uses cross-chain bridges that allow traders to access cryptocurrencies from different blockchains.
Injective uses a Tendermint Proof-of-Stake consensus framework to verify transactions, which allows transactions on the exchange to be processed almost instantly.
Another important point to note is that users do not have to pay gas (i.e. network) fees when trading on the exchange. All other transactions (e.g. claiming, delegating and unbonding) cost a negligible 0.0002 INJ (the protocol’s native token) to process.
Community-driven
Injective is self-described as a “fully decentralized public utility that’s owned and controlled by the community of INJ holders.”
In other words, individuals who hold INJ are granted access to a voting model in which they essentially act as shareholders of the exchange.
The voting is operated through a Decentralized Autonomous Organization or DAO in which the INJ community has the power to remove or change any feature of the exchange, as well as propose new updates. Voting power is in proportion to users’ INJ balance and a proposal must gather 1% of INJ’s total supply before it enters a referendum period.
The INJ token
The maximum supply of INJ tokens is 100,000,000 with an annual inflation rate of 7% that will decrease over time to 2%. However, 60% of the exchange fees are used to buy back and burn INJ tokens every week therefore decreasing the supply. Here are some of the token’s main use-cases:
Governance: As mentioned, INJ token holders have the right to vote on changes to the protocol that influence the future development of the platform.
Proof of Stake Security: Users can stake their INJ tokens by delegating to an existing validator or becoming a validator themselves. Stakers receive rewards in return for safeguarding the network.
Collateral: INJ can be used as collateral for Injective’s derivatives markets.
