Injective Protocol DEX - A Step Ahead of the Front Runners

Injective Protocol DEX - A Step Ahead of the Front Runners

By Tomadachi | Tomadachi | 11 Jun 2020


Injective Protocol claim to be able to offer "Fast, Secure, and Fully Decentralised Trading" through their decentralised exchange.

Other authors on Publish0x - such as first responders Cryptonator`s Airdrop Hunt and Zunaed - have already covered Injective Protocol's model and eloquently described the difference between centralised and decentralised exchange so there's no need for me to dwell on those aspects in this article.

Instead we will be looking at the project's reason for being and a specific solution they provide to a problem that has hindered decentralised exchanges to date.

But I'm getting ahead of myself here, let's rewind to 2018/19...

First Contact

When I saw the Injective Protocol contest post on Publish0x, I vaguely remembered the name of the project but for the life of me, I couldn't think where I'd first heard it.

On seeing their profile description however, all became clear.

Injective Protocol was one of eight projects accepted in the Binance Labs incubation program in 2018.

Recalling how months ago I had quickly passed over Injective Protocol because of my own personal bias against Binance at the time, I felt a twinge of regret and decided to dig into things a little more thoroughly.

YouTube was the first port of call - hardly scientific I agree - but I wanted to get a quick sense of the project - and oh, how I wish I'd seen this 2 minute video months ago.

Special shout out at this stage to Co-founder and CTO Albert Chon who describes why they began Injective Protocol.

Enough to say, you had me at "...banned from Coinbase for many years and that was the initial motivation to look into decentralised exchanges..."

With a credible reason to completely shun centralised exchanges firmly established, the project must have seen a tangible benefit in signing on with one through the Binance Labs accelerator program.

Sure, I can understand why CZ and his crew would want to work alongside a budding DEX to see how things should really work but I was looking for a reason why Injective Protocol would engage with a centralised, fractional reserve-based exchange.

In scouring through Medium, I came across a post by Albert and his fellow co-founder Eric Chen which answered this very question.

The Binance Labs Incubation Program was invaluable to us in supporting us throughout our journey of building our company, especially on the business and legal strategy side. During the incubation program, Binance Labs welcomed us into a wonderful community of fellow BUIDLers who became our close friends.

With such a small core team, it stands to reason that Injective Protocol would need outside contractors to provide guidance and assistance with marketing and legal issues.

We all have an inkling how the SEC and other regulators operate but Binance are certainly one of those companies who have had to develop a robust strategy to 'co-operate' with the forces who are non-too-friendly towards crypto-related exchanges. So the arrangement is not as one-sided as I had first feared - certainly more symbiotic in nature at any rate. 

The Whitepaper

While published articles and videos can provide a sense of any project, they can also be more like smoke and mirrors designed to dazzle rather than inform. Not that I'm implying that in this case but I confess to have being burned through the ICO craze of 2017 and the lesson of not taking something at face value was a costly experience.

To take things to a depth beyond the surface level, the next port of call was Injective Protocol's whitepaper. 

The paper itself is compact and has shunned any pretence at being a marketing tool... there are no glossy images, graphs or charts to capture the unwary... just pages of solid detail and plenty of formulae.

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I fall into the later category where calculus is concerned so I would recommend turning to fellow Publish0x author Absolute Unit for his take on the mathematical equations involved in Injective Protocol's presentation and their implications.

Away from the lines, numbers and brackets, the thing that caught my eye in the whitepaper was how Injective Protocol intend to solve one particular issue that confronts all decentralised exchanges - i.e.: those who exploit a DEX by front running the trades.

Cutting Off the Front Runners

Injective Protocol state, "We have built every component of our protocol to be fully trustless, censorship-resistant, publicly verifiable, and front-running resistant."

Sounds good, but wait a minute.

Most of us will probably have a grasp of what trustless, censorship resistant, and publicly verifiable mean but what is front-running and how can a DEX be resistant to it?

According to Investopedia, in traditional stock markets "Front-running is when a broker or other entity enters into a trade because they have foreknowledge of a big non-publicised transaction that will influence the price of the asset, resulting in a likely financial gain for the broker."

While that definition provides some insight into what is involved, it doesn't really cover why it is so problematic to blockchain-based decentralised exchanges.

Injective Protocol's whitepaper does a good job in condensing the issue into a single paragraph, the first couple of sentences are reproduced here:

Front-runners leverage trade collisions* to profit from intercepting take orders in DEXs. Since miners of Ethereum process transactions on a gas-time priority basis, race conditions occur when the Ethereum mempool exceeds the networks maximum throughput. 

*Trade collisions are when two market 'takers' simultaneously attempt to fill the same order and/or if a 'taker' fills an order while a 'maker' tries to cancel it.

In an open order book format favoured by many DEXs, the exchange will display orders posted by market 'makers' without matching to a specific market 'taker' so any participant can fill the order. 

If a party, such as any relayer providing liquidity to the order book, has the ability to see the order flow before it is enacted, they can front run the action by placing intermittent trades with a deliberately high transaction fee. In doing so, they will incentivise miners to include that particular transaction in the block ahead of the targeted trade they saw in the order book.

Injective Protocol's answer is to use "...verifiable delay functions (VDFs) as a proof-of-elapsed-time to... prevent front-running attacks."

Again, this sounds impressive but when looking to the project's whitepaper for further explanation we're met with a lot of algebra and coding talk, so I'll have a stab at interpreting that quote for a layman (that's me) - any readers please feel free to comment below and put me straight if you feel I've gone awry.

  • A VDF is used to established a time frame that is recognised by all the participants on the DEX.
  • This allows for all orders to be time stamped in such a way as to render front-running practically impossible as the 'taker' of an order will have VDF proof to show they have observed the time duration required for an honest trade.

Injective Protocol are, in effect, aiming for a fair sequence of orders and a level playing field for all traders... now that is something I could sign up for - how about you?

 

 

 

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Tomadachi
Tomadachi

Interested in Blockchain Tech and DLT


Tomadachi
Tomadachi

Inquisitive, open and a searcher of truth... is how I see myself. Others may not be so kind in their appraisal.

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