Accessing the DeFi Derivatives Foundation Layer — Injective Building Cross-Chain Protocols for Decentralized Financial Applications

Injective is the first cross-chain protocol built for decentralized financial applications. Injective has started the path to the mainnet with the launch of Phase 2, Canary Chain, and the timeline shows that Phase 3 of the mainnet, Canonical Chain, will be released in late October or early November. Injective has already started its journey to the mainnet.

To learn more about how Injective is creating a more free and inclusive financial derivatives through decentralization, CryptoJ invited Eric Chen, Co-Founder & CEO of Injective Labs, to be our guest on this episode of AMA “Accessing the DeFi Derivatives Foundation Layer” on October 11, 2021. — Injective builds cross-chain protocols for decentralized financial applications” and explores the world of decentralized financial applications together.

The AMA will be separated into two parts:

1. Our guests will answer my questions

2. Our guests will answer the questions asked by our community members

Please stay quiet for the first section and ask your questions during the second section.

Question1:First of all, let’s welcome Eric to join CryptoJ’s community for the first time. can you tell us a little bit about Injective its background and vision, and what problems can solve? Can you summarize the main features of the Injective ?

Answer 1：

One of the reasons we first decided to build Injective Protocol was that we were unsatisfied with the fact that while the crypto industry espoused decentralization, so much of the industry seemed to be centralized. Centralization requires trust in an often opaque third party, which historically has led to bad outcomes for users including exchange hacks, front-running, and other unfair practices. Users and investors both can feel safe when using Injective, as our entire platform is fully decentralized, open source and designed to be trustless from day one.

Since its inception in late-2018, Injective has been driven by a communal mission to create a more free and inclusive financial system through decentralization. As one of the supporters of this mission, Injective collaborators embarked on a journey into DeFi years before DeFi projects began to take the world by storm.

The key words of Injective are decentralization, cross-chain protocols， safe and fast derivatives trading.

Question2: Injective has gained a lot of attention in the market as it continues to move forward, and has gained the support of many well-known institutions and individual partners, as well as reached cooperation with many project parties, such as the integration of Band, Chainlink and other oracles, Could you share with us the current financial status and cooperational progresses?

Answer 2：

Regarding financing, we received Binance Labs’ seed round of investment and incubation in December 2018. In July 2020, our private round led by Pantera Capital, with participation from Hashed, QCP Soteria and other institutions; In May, Injective raised a $10 million round of financing at a $1 billion valuation with investment from Billionaire Mark Cuban, Pantera Capital, BlockTower, Hashed Ventures, CMS Holdings, etc.

Injective has collaborated with many projects in DeFi, such as insurance, lending, oracle, data security, etc. Here’s an ecosystem map.

Question3: Decentralized perpetual trading platform track is developing rapidly this year, and the trading volume of a single perpetual contract once exceeded that of spot trading. In your opinion, what is the current development status and scale of the derivatives market? What are the trends in the future?

Answer 3：

From a historical perspective, CEX did drive and lead the entire crypto market boom. Basically when users are first introduced to the crypto market, they buy their first bitcoin or ethereum on CEX because of the fiat channel. So I also see DEX and CEX as having a symbiotic relationship. For example, like the AMM model of DEX, LP and users utilize arbitrage between DEX and CEX to minimize the spread.

Taking Injective’s order book model as another example, it is very similar to CEX in terms of trading experience and matching model. But interestingly enough, many of our key supporters or investors come from mainstream CEX, which account for more than half of global spot and derivatives trading volume. And the fact that these CEX are willing to trust us is an indication of what is essentially a coexisting and symbiotic relationship.

I think as time goes on and technologies such as Layer-2 and cross-chain mature, when users find that CEX is not meeting all their needs and DEX is able to fill in the gaps, such as niche markets, diversified markets that CEX cannot provide, that’s when DEX will enter a period of growth and really take over some of the market share, which will be very important in the next five to ten years.

Question4:The decentralized derivatives track has seen a number of different projects emerge, such as dYdX, Perpetual Protocol, MCDEX, etc. Why has Injective chosen to join this track as well? What are the unique advantages of Injective compared to these protocols?

Answer 4：

Back in 2018, we started our research about verifiable delay functions (VDFs) and focused on using VDF to solve the problem of front run, which evolved into exploring consensus mechanism design and scaling solutions for things related to trading and providing services in perpetual contracts, futures, and trading platform infrastructure. A few of Injective’s unique advantages are：

1）Technical advantages. Injective has built its own customized sidechain to achieve a fast order matching mechanism, and is able to maintain a stable 1-second block time, which can bring users a decentralized and fast trading experience.

2) Diversification of product types and asset classes, which every user can achieve through the Governance module, exploring and proposing valuable and creative derivatives markets, such as synthetic assets, indices, Yield Farming derivatives, making the process of creating derivatives truly democratized and decentralized.

3) The tokenomics is designed to be used not only for the governance of the protocol and ecology to guarantee PoS security, but also for the value capture of trading fees, i.e., relayers can receive 40% of the trading fees introduced, and the remaining 60% of the trading fee revenue will be used for buy back and burn, so that the value of the entire ecosystem is accumulated to the tokens.

Question5: Injective provides traders with unparalleled access to new decentralized derivatives markets without any restrictions and has a range of unique features such as earn cross-chain yield on Ethereum, Cosmos, and other decentralized networks

、Unlimited markets (users can create any derivatives market of their choosing) etc，Can you tell us about these unique features of Injective?

Answer 5：

Injective implements this powerful functionality primarily through several important features:

First is Injective Chain, which is based on the Cosmos Tendermint mechanism, a fully decentralized sidechain that acts as a Layer-2 derivatives platform, a Transaction Execution Coordinator (TEC), and a decentralized order book. Providing Injective with a zero-hindrance cross-chain decentralized derivatives marketplace.

Next is the Layer-2 high-speed protocol, Injective Chain, which connects Ethereum and ERC-20, and is compatible with bidirectional anchoring of passes. It also has an execution framework compatible with the Ethernet Virtual Machine (EVM) for a wide range of dApps. Injective’s peg-zone architecture is based on the Cosmos Gravity Bridge, which allows for transactions between Cosmos Hub and Ethereum, while the EVM execution framework is based on Tendermint’s Ethermint EVM, which enables strong cross-chain compatibility and liquidity.

Injective’s order matching mechanism uses a fully decentralized order book model, where orders are aggregated on the Injective sidechain and trades are settled in bulk on-chain. injective’s derivatives protocol allows users to trade fully decentralized peer-to-peer derivatives using perpetual contracts and contracts for differences (CFDs). In addition, Injective enables anyone to create their own derivatives marketplace at any time, fostering a free, community-driven ecosystem of innovation.

Question6: Next, I would like to ask a question about Injective’s fees. How are the funding rate, margin and fees calculated and charged in the protocol?

Answer 6：

The calculation of the funding rate is actually similar to other derivatives DEX, there is no essential difference, Injective mainly takes into account the premium between the contract market price and the spot index price, the specific formula will be given when the main chain phase 3 is finally launched The tentative plan is that taker charges 0.2% and maker charges 0.1%.

Question7: Over the past few months, Injective community has made many technical upgrades and product releases, for example, the community has voted to support Cosmos IBC, and the upcoming release of the Canonical Chain mainnet, can you please talk to us more about the recent developments?

Answer 7:

Over the past few months, the Injective community has been working on several upgrades..The next phase, Canonical Chain, represents a mature version of the Injective Chain mainnet without any kind of deposit or transaction restrictions. In addition, it marks the standardized manifestation of the Injective Protocol — the first fully decentralized cross-chain spot and derivatives trading protocol.

Current progress includes：

• Injective Hub: the interconnected DeFi hub
• Injective Bridge: Seamless cross-chain transfers
• Institutional Grade API: Enabling access for liquidity
• On-chain rewards: Trade, Earn, Repeat
• Oracle Integrations: Band, Chainlink, etc.
• Cosmos IBC: A new era of interoperability
• Injective Exchange: Improvements and upgrades

You can learn more about Injective through our blog: https://blog.injectiveprotocol.com/road-to-canonical-chain-mainnet-release/

Question8：For value capturing, what is the tokenomics of Injective ？How do you incentivize the users to hold the tokens in the long run? What are the application scenarios of the token ? Will there be liquidity staking and other activities?

Answer 8：

The use cases intended for INJ include but are not limited to: protocol governance, trading fee value capture, derivative collateralization, liquidity mining, and staking. Further details regarding each of these use cases can be found below.

Protocol Governance: The INJ token can be used to govern various components of Injective’s chain including the futures protocol, parameters and upgrades via a DAO.

Collateral for Derivatives: INJ will be utilized as an alternative to stablecoins as margin and collateral for Injective’s derivatives markets. In some futures markets, INJ can also be used for collateral or insurance pool staking where stakers can earn interest on their locked tokens.

Tendermint-based Proof-of-Stake (PoS) Security: To ensure the security of Injective’s sidechain, Injective will incentivize nodes to stake INJ and participate in the sidechain’s network consensus with block rewards.

Market Making Incentives: The foundation plans to incorporate a liquidity mining scheme and distribute a fixed number of INJ tokens daily weighted by the liquidity each network participant provides.

With the arrival of the phase 3 of the mainnet, a series of activities will be taken to enhance the liquidity of the trading platform, so stay tuned!

Question9：Injective Bridge has been added to Injective Hub, can you share with us Injective’s cross-chain bridge solution?

Answer 9：

Injective’s decentralized cross-chain bridge to Ethereum has been operating seamlessly to date, securing over $100 million in crypto assets. In addition, the Injective Bridge boasts industry leading withdrawal speeds, with withdrawals back to Ethereum taking mere minutes to process. Secure cross-chain bridges are nontrivial to both implement and operate. We are thrilled to have pioneered the first production deployment of a bidirectional decentralized ERC-20 token bridge to a Cosmos-SDK based chain.

Injective Bridge has extremely fast withdrawal, taking only minutes to withdraw back to Ethereum, while today’s mainstream Ethereum scaling solutions typically take days. At the same time, the average transaction cost is about $0.02 when trading on the Injective chain, making it one of the lowest transaction cost cross-chain solutions on the market today. You can try here：https://hub.injective.network/bridge

Beyond just the Band oracle IBC integration, the Injective Chain will also enable IBC transfers which will allow for cross-chain asset transfer from any IBC-enabled blockchain, including the Cosmos Hub, ThorChain, Terra, etc. By doing so, individuals will be able to create new spot and derivative markets with assets native to various other blockchains.

Question10：What are the next plans for Injective and when will the Canonical Chain network go live? Will it be developed in cooperation with other projects?

Answer 10：

Collaboration with other projects is always ongoing, such as integration with decentralized oracle providers. Integration with decentralized oracle providers is a critical requirement to provide secure price feeds for the decentralized derivative markets on our exchange protocol. Upon the initial canonical release, users will be able to create new markets with Band oracle pricefeeds transmitted through IBC and Chainlink’s OCR 2.0 (off-chain reporting) protocol.

The main priorities before Canonical Chain release will be the following:

• Completing decentralized oracle integration with Band Protocol and/or Chainlink OCR
• Continuing to onboard institutional liquidity providers to the Injective Exchange
• Improving the stability and performance of the Injective API
• Upgrading the exchange (backend and frontend)

Injective’s next big plan is to launch phase three of Canonical Chain on the mainnet as soon as possible, which is expected by the end of October or early November.