CEX or DEX: how about Injective Protocol?

By CryptoTrainee | cryptoTrainee | 16 Nov 2020

Introduction

Lately we have had several problems with centralized exchanges (CEXes), and just to mention as examples, the hacker attack on Kucoin that stole Bitcoin assets, ERC-20 based tokens, along with other types of tokens for an estimated value of $150M, not to mention the problems with justice in China that suspended OKEx withdrawals since October 15. CEXes bring the highest trading volume, although DEXes, like Uniswap, are increasingly having a higher trading volume. Having balances frozen or lost due to legal problems or hacking is one of the main fears of users who entrust their assets to the custody of these exchanges. When we talk about CEX, the user gives up the custody of their funds, leaving them deposited on the platform. In this way, the user no longer has exclusive access to his own private keys in exchange for the convenience of operating in a more dynamic, but not always the most secure, trading environment.

Decentralized exchanges (DEXes), on the other hand, are trading platforms where the investor keeps custody of their assets, that is, trading is carried out directly from the user's wallet who never loses access to their assets. Only the user has possesion of his private key. In addition, anonymity and privacy are inherent characteristics of decentralized exchanges, which allow users to open accounts and operate without any mandatory documentation or KYC policies on most CEXs.

However, DEXes also have some problems like lack of liquidity (mitigated by the existence of AMMs - Automated Market Makers, such as Uniswap) and the inability to carry out typical trader operations, such as placing limit orders. Other limitations of DEXes are evidenced by the difficulty of operation, either because of low quality user interfaces (UI) or by very bad user experiences (UX).

For all these brief reasons listed, the exchange market is full of opportunities for improvement and this is where the Injective Protocol intends to stand out.

What is Injective Protocol?

The Injective protocol is a layer-2 DEX protocol that aims to act as a decentralized derivative platform and in the integration and development of DeFi solutions. It is a decentralized and open platform, based on a fully trustless protocol, resistant to censorship, publicly verifiable and front-running resistant, for all types of derivatives: perpetual swaps, futures, margin and even spot trading.

One of the main characteristics of the Injective Protocol is that it is permissionless, allowing for the permissionless creation of any derivative product.
Injective Protocol also will allow trading across different chains, as it will be a cross-chain platform. Injective transforms exchange into a fully decentralized public utility that’s owned and controlled by the community of INJ holders.

Components

Injective Chain

The Injective Chain is the core backbone for Injective's layer-2 derivatives platform and hosts a fully decentralized orderbook, Trade Execution Coordinator (TEC), Ethereum Virtaul Machein (EVM) execution environment, and bi-directional token bridge to Ethereum.
This chain is built on top of Tendermint and allows for the transferring and trading of Ethereum-based assets on the Injective Chain.
Further on, Injective will be integrated with Cosmos IBC, bringing advanced inter-chain decentralized finance capabilities to users.

Everyone is aware of all the problems of congestion, slowness and high prices of gas fees faced by decentralized exchanges and which often make it impossible for a trader to respond quickly to any market movement. Such problems will not be noticed in the Injective.
Injective will allow free and near-instant order cancellations, greatly increased trading speed and settlement on the Layer-2 chain.
Injective will offer a fast, secure, and fully decentralized trading experience, combined with a better UX, currently offered only by centralized exchanges.

Injective will avoid both network congestion and the associated high gas fees. This zero gas fee structure enables anyone to trade freely without having to worry about high gas fees or network latencies.

The Injective Chain also provides a two-way Ethereum peg-zone for Ether and ERC-20 tokens to be transferred to the Injective Chain as well as an EVM-compatible execution environment for DeFi applications. The peg-zone is based off Peggy and the EVM execution is based off Ethermint.

Injective Exchange

The basic premise of the Injective Exchange is that it will be a decentralized and public platform, permissionless and governed by its users. Everything — from the front-end exchange interface, back-end infrastructure, smart contracts, to orderbook liquidity — is provided openly and for free.

Injective Futures

The Injective Futures protocol is a decentralized peer-to-peer futures protocol that will support any type of derivative product, such as decentralized perpetual swaps and CFDs. Any user will be able to create and trade on arbitrary derivative markets with just a price feed.

User iteration

There are several possible ways for users and token holders to iterate through the injection protocol ecosystem. Here is a non-exhaustive list:

Creating and Trading of New Derivatives Markets:
As it is an open and permissionless protocol, anyone can trade freely and even create new derivatives markets on the platform.
If your trade is profitable, you can be aldo rewarded with $INJ tokens.
Hosting an Exchange Relayer Node:
This is one of the most profitable ways to participate in the Injective ecosystem.
When you host an exchange relayer node, by sourcing liquidity into the protocol, you will be rewarded with a generous 40% of the exchange rates of the orders you source.
Participating in the Exchange Fee Auction:
Each month, the remaining 60% of the exchange fee for each trade in the Injection Protocol is aggregated and auctioned to the public through a buyback-and-burn. INJ token holders can bid using $INJ to purchase the aggregate exchange fee.
All INJ's revenue from this auction is burned, decreasing its supply.
Staking INJ:
If you are an INJ token holder, you can stake your tokens by delegating to an existing validator or by being a validator yourself.
If you wish to be a validator, you need to accumulate enough delegated stake and meet the hardware requirements.
As a validator, you will earn a sizable yield from block rewards while providing security to the exchange.
By staking your $INJ, you will earn staking rewards for securing the network. In addition, you can also participate in the governance of the Injection Protocol.
Participating in Governance:
INJ Token Holders can vote on decisions to help shape the protocol's future, such as proposing or deciding on new feature proposals, protocol upgrades and parameter changes and even changing the governance system itself.
Developing in the Injection Chain:
Since the Injective Chain hosts a fully EVM compatible execution environment, developers can create new decentralized applications with smart contracts written in Solidity.
For instance, you will be able to build your own specialized exchange or launch new markets on the Injective Futures.

Seed and Token Sale

The Injective Protocol raised $2.6M in its seed funding which was backed and led by Pantera Capital and which included other large companies, such as QCP Soteria, K42, Bitlink Capital and Krypital Group.

In addition, Injective was the first project incubated by Binance Labs to debut its sale to the public via Binance Launchpad on October 19th and 20th.
The IEO was conducted through a single session in which participants purchased INJ tokens using BNB.

In this session, all 9,000,000 INJ tokens were sold to Launchpad participants who drew and claimed winning lottery tickets. As each $INJ was sold for $0.40, the total raised in the IEO was $3,6M.

Conclusion

The Injective Protocol aims to be an efficient alternative to the traditional and centralized model of CEXes, as well as to the decentralized model of the current existing DEXes.

Combining the well-evaluated features of CEXes and DEXes and eliminating the problems faced by both types of exchanges, the Injective Protocol can stand out in this market already full of competitors.

Let's wait in more detail for what is to come.