We are excited to announce Injective Protocol — the first layer-2 fully decentralized exchange protocol that unlocks the full potential of decentralized derivatives and borderless DeFi.
For those of us (cough me) that aren't fully entrenched in the lingo it reads like my calculus book in college. What I hope to do here is #1 figure out what the above means and #2 simplify it for the average person to read and hopefully understand because what Injective Protocol is aiming to do could be a game changer in Crypto.
Chapter 1: Layer 2 Technology
When comparing Ethereum to the multitude of Altcoins out there the topic of scalability will come up 100% of the time. This is where Layer 2 comes in. Whenever you hear the term Layer 2 it just means any scaling mechanism that is built on the existing ETH blockchain. The aim of these mechanisms is to help with transaction speed, gas fees and scaling difficulties.
Chapter 2: Decentralized Exchanges
image credit: coincenter.org
Thus the advent of Decentralized Exchanges (DEXs). The goal of a DEX is to remove the need for you to hand over your Crypto to a nameless entity, such as the case with the exchanges above. In a DEX your Crypto need not ever be handed over, you keep the private keys securely in your grasp throughout, and the DEX acts merely as a broker in a peer-to-peer interaction.
Chapter 3: The DEX Dilemma
If there's this long track record of Centralized Exchanges being hacked and all these benefits to using a DEX, then why do they still exist and people not use DEXs more frequently? There's several reasons for this but the easiest one is a lack of robust features. The majority of DEXs out there lack the same user base as a Coinbase due to poor liquidity, high latency and a lack of robust product features.
Chapter 4: Injective Protocol's Goal
Injective Protocol is an end-to-end decentralized protocol allowing decentralized perpetual swaps, futures, margin and spot trading. We have built every component of our protocol to be fully trustless, censorship-resistant, publicly verifiable, and front-running resistant.
What does all this mean? That for the first time we will get a ROBUST Decentralized Exchange that doesn't just hold on to it's one benefit of privacy over centralized exchanges for dear life.
Chapter 5: Sidechains & Futures
Injective Protocol also includes a Layer-2 Sidechain and Cosmos Zone that will be connected to ETH. A sidechain in the simplest terms is exactly what it sounds like, a separate blockchain that depends on the mainnet, in this case, ETH. Sidechains are used to increase scalability, privacy and many other valuable functions for the main blockchain.
What are Crypto Futures? Futures are essentially a contract between two parties to sell or buy an asset on a pre-determined date or at a pre-determined price. The difference here is that Injective Futures will be a decentralized, peer-to-peer protocol that will allow for decentralized perpetual swaps, contracts for difference (CFDs), and many other derivatives.
Chapter 6: Closing Thoughts
One thing I can't stand is when a company makes a phenomenal product and then forgets that people are going to be using it so all this technology and research goes to waste due to poor UI/Product Offerings/Marketing. That doesn't seem to be the case with Injective Protocol. The technology is clearly important but they seem to be taking the average Crypto user into account and what we want in an exchange - which is more than just an orderbook.
If Decentralized Exchanges ever plan to take over the market space that the big name Centralized Exchanges have carved out they will need a more robust product catalog and will need to take their users more in mind when creating their products. I believe Injective Protocol is a huge step in the right direction and I'm excited to see where it goes.
If you enjoyed this you may like reading about the last time I tried to get on an Exchange - An Exchange Newbie's First Trade on Loopring.IO.