Injective Protocol is a decentralized finance protocol that seeks to offer permissionless trading capabilities in arbitrary derivatives markets. In this way, Injective users can create and trade on any derivatives market of their choice and in a fully decentralized way.
Injective Protocol (INJ) is a decentralized finance project focused on offering tools that allow its users to trade derivatives. To do this, Injective has developed a DEX that runs entirely on a sidechain with cross-chain capabilities, which offers great scalability and low cost of operation.
The Injective sidechain is built using the Cosmos SDK. Thanks to these web development tools Cosmos, Injective can achieve its mission and, at the same time, be part of that huge ecosystem.
Objective of Injective Protocol
The main objective of Injective Protocol is to offer permissionless trading capabilities in arbitrary derivatives markets. In this way, Injective users can create and trade in any derivatives market of their choice and in a fully decentralized way.
To achieve this, Injective has designed its protocol on the Cosmos SDK and the consensus protocol Tendermint. It is these two tools on which all the programming necessary for the Injective Protocol to function as a DEX is built.
Among the capabilities of Injective Protocol we can find:
- Derivatives markets creation
- Derivatives trading
- Carrying out staking in insurance pool
- Provision of decentralized exchange services
- A decentralized governance system
- A network of validators that works thanks to the scheme Proof of Stake using the Tendermint algorithm.
Injective Protocol main features
Among the main characteristics of this protocol we can highlight:
- Fully decentralized: Injective transforms a stock market into a decentralized public service by opening up every component of that market, from its own interface to the back-end infrastructure and order book liquidity.
- Without permissions: Full decentralization turns the traditional business model of a stock exchange upside down, removing the technical barrier to entry for users through a high-yielding, permissionless market for spot and derivatives trading.
- Censorship resistant: Full decentralization combined with permissionless access ensures an open and unrestricted market, resistant to censorship.
- Community property: Injective Chain nodes are incentivized through the token economy to act as order relays, host a decentralized order book, and serve as a decentralized trade execution coordinator.
- Scalable: Injective optimizes the speed of transactions by scaling the execution and settlement of trades at Layer 2.
The Injective Protocol infrastructure consists of three main components:
- Injection Chain
- Injective exchange service
- Bridge Injective-Ethereum
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How does Injective Protocol work?
Injective Protocol makes use of Cosmos (ATOM) functions to create a blockchain network associated with its ecosystem. We could say that Injective works as a branch or sidechain of the Cosmos network, through its SDK, the Cosmos development tools. Thanks to this, Injective is able to use all the capabilities of Cosmos as its advanced capabilities of smart contracts and cross-chain operation skills.
An important point in the operation of Injective is that this protocol has its own public blockchain network known as the Injective Chain. Thus, anyone can freely review and audit the network. But, not only that, it also allows anyone to create a node and become a validator of the network, helping its security and earning rewards for it.
In addition, Injective Protocol also makes use of the Tendermint consensus protocol for its operation. Tendermint is a consensus protocol with advanced capabilities BFT (Byzantine Fault Tolerance or Byzantine Fault Tolerance). The main advantage of choosing this protocol is reflected in the scalability of Injective, which is enormous. We are talking about the fact that an operation in Injective usually takes an average of three seconds to be verified and included in the blockchain, which is in contrast to networks such as Ethereum (30 seconds) or Bitcoin (10 minutes). In addition, the cost of these transactions is negligible, which makes operations within the network more economical.
In addition, the Injective Protocol team is working hard to expand its cross-chain capabilities (currently it works with the Ethereum and Terra-Luna networks), and offer developers and users compatibility with Ethereum Virtual Machine (EVM), which would allow to expand the offer of native Ethereum tokens and compatible networks within Injective and its network.
What is a derivative and its role in Injective?
Injective Protocol is a DEX for derivatives, but What exactly is a derivative? Well, A derivative is nothing more than a financial contract whose value depends on changes in the value of an underlying asset.
For example, let's think of a derivative whose underlying asset is Bitcoin. If said contract has been made for 10 BTC and the exchange rate at the time of the contract is 42.000 euros, that BTC / EUR derivative would have a total value of 420.000 euros. Of course, the value of BTC when fluctuating will change the value of the contract, and on it there will be clauses that will control those conditions, which must be accepted by the parties participating in said contract.
Derivatives are very useful and are designed to help traders hedge trading positions and use leverage. In fact, derivatives have been around for centuries, and it is believed that they were first used in the agricultural industry. The idea is that these would help farmers and sellers to properly manage risk and protect themselves against unfortunate results in the future. A good example of derivatives (futures), we see in the Dojima Rice Market, which dates from the feudal era of Japan, in the seventeenth century.
Today, derivatives represent one of the largest financial markets in the world with a value of more than two trillion dollars (2 × 10 ^ 18 $) globally, making it the largest market in the world.
Injective Protocol seeks to bring these types of operations to the blockchain ecosystem and make them available in a decentralized way.
Validation of transactions on the network
To make the entire Injective Protocol network work, the protocol has a transaction validation structure that keeps the Injective Chain functioning and safe. This structure is made up of:
Validators
The validators they are complete nodes that have been created thanks to the fact that a user has fulfilled the staking requirements to put one of these nodes into operation. Thanks to the staking carried out, these nodes have the ability to be chosen as validators to verify transactions and generate a block, in exchange for earning rewards.
These validator nodes have two addresses which are:
- owner's address: This address is of the validator that is in charge of the functionalities related to the administration, such as seasonally adjusting, taking rewards and establishing delegation parameters.
- signer's address: This address belongs to the validator that signs the checkpoints and executes the node.
Delegates
The delegators they are token holders who are unable or unwilling to run full node validator software, but have an interest in participating in the consensus mechanism. In addition, delegators can staking their tokens with the validators that are in the network, thus reinforcing its operation and obtaining rewards for said participation.
Delegators have the following options:
- Choose not to participate in the consensus at any time, but they must wait for the termination period before withdrawing their participation.
- Staking your INJ tokens with whatever validator they choose.
- Re-delegate your tokens to another validator that offers better conditions for the reward for the delegated tokens.
It is important that delegates are aware that staking their tokens is not a risk-free process, and that tokens can be automatically trimmed or unlinked from delegates during transitions between validator states.
Injective Protocol staking status
The validators can have the tokens in staking in different states (as it happens in other networks, example, Terra-Luna). These states are as follows:
Unlinked
In this state, the validators are in an unbound state or not in the active set of nodes on the network. This means that nodes cannot generate blocks and therefore cannot earn rewards.
However, in this state the nodes can receive delegated tokens and change their state to be part of the consensus of the network.
Linked
When a node has enough tokens to be part of the network and its consensus, its status changes to linked. At this point, they can sign blocks and earn rewards.
Unlinking
This is a transitory state in which a validator is withdrawn from the active set of nodes on the network, either by choice or as a result of slashing or tombstoning (penalties for behaviors detrimental to the integrity of the network).
During this transitory state, the separation of their delegations begins. Your stakers will be able to move their INJ back to their wallets after 24 hours. Once the staked tokens are returned to the delegates, they can delegate to another validator that is in the unbound or unbound state.
jailed
If a validator enters the unbound state as a result of a slashing, it immediately enters the jailed state. This status exists because there is a delay between the detection of the violation and the evidence of the violation. In this state they are not allowed to rejoin the set of active validators until the JailPeriod ends, at which point they can be rejoined to the active set.
tombstoned
This substate describes a validator that is placed indefinitely in the jailed substate with a JailPeriod set to infinity. Validators are jailed as a result of consensus security flaws (for example, double spend attempts).
Your validators will be able to carry your INJ (minus the penalty for clipping) from the BondedPool back to their wallets after the UnbondingTime (24 hours).
Commissions
Another important point in the operation of Injective Protocol are the transaction fees, which are governed by the rules of Cosmos.
Commissions are allocated to the proponent, community fund, and global fund. When the validator is the proponent of the round, that validator (and their delegates) receives between 1% and 5% of the commission rewards. The community reservation commission is then charged, and then the rest is distributed proportionally by voting power to all adhered validators regardless of whether they have voted (social distribution). It should be noted that the social share applies to the proponent validators in addition to the reward to the proponent.
The proponent's commission amount is calculated from Tendermint pre-commit messages to incentivize validators to wait and include additional pre-commits in the block. All provisioning rewards are added to a provisioning reward pool that the validator maintains individually.
As such, transactions on the network do not have gas commissions (Injective, uses a Gas system such as Ethereum), however, commissions are charged for the operations carried out in the DEX, which are:
- 0,1% for makers
- 0,2% for takers
And all of the above is deducted from these commissions.
INJ Token
The INJ token is the native token of the Injective Protocol and its maximum issuance is 100 million tokens. The token was created on the Ethereum network under the ERC-20 standard and its genesis issuance took place on October 20, 2020.
Token uses
Below are the multiple use cases of the INJ token, namely:
- Staking: It is used to secure the blockchain through the Proof of Stake protocol. Staking receives a 5% APY.
- Governance: The INJ token can be used to participate in the governance of the protocol. Governance capabilities include making decisions about protocol evolution, exchange parameters, and other decisions that are discussed through the DAO.
- Collateral support for derivatives: INJ will be used as an alternative to stablecoins as margin and collateral for Injective's derivatives markets. In some futures markets, the INJ can also be used as collateral or for the creation of an insurance fund in which participants can earn interest on their locked tokens.
- Market share incentives: Injective developers plan to incorporate a liquidity mining scheme and distribute a fixed number of INJ tokens daily weighted by the liquidity each network participant provides
Conclusions
Injective Protocol seeks to expand the offer of available decentralized markets by allowing us to have the ability to offer derivatives through its platform. Currently, Injective Protocol incorporates the use of perpetuals (through Perpetual Protocol), in addition to integrating Ethereum tokens (wETH, LINK, USDT,), the UST token and LUNA.
The enormous ability to attract new markets and liquidity to the blockchain world is what makes Injective Protocol a worthwhile project to take into account within the huge blockchain ecosystem and decentralized finance.