INJECTIVE PROTOCOL: Trading as a Public Utility

10 min readAug 4, 2020

Internet finance and the digital age

Into the 21st century, human civilizations have made significant progress in digitization. In only 20 years, the web has skilled three ages: the age of portal (Web 1.0), the age of search/social (Web 2.0), and therefore, the age of the Internet (Web 3.0). The continual development of the web has altered and revolutionized the ways in which humans think, behave, and interact. It started about 300 years ago during the economic age, people were working endless to extend productivity and efficiency on machines to manufacture from stream engines to automobiles; the keywords were production, automation with machines, and efficiency optimization for maximized profitability. Now everything has changed, and therefore, the passing of your time seems to be even faster as we witnessed the iteration of technologies. Humans shift their attentions far away from basic productions and machines back to humans themselves; the web connects integrates humans, information, and machines/devices. Now as “data” continues to evolve because it gets produced, stored, organized, and utilized on higher levels, we start to ascertain a replacement system with new rules slowly penetrating and seizing our world that more justice, fairness, value accruals and distributions are demanded by all. Given the above, that’s why we are witnessing the “decentralization” of matters happening and being facilitated more passionately than ever by the overall populace. Now as things and other people get connected and integrated into an “unseen network” the characteristics of blockchain decentralization or however you call it, became extremely incentivizing for people to act and innovate upon. Specifically, works are done on all layers of the web from, again, data productions, storage, to applications (dApps), and of couse alongside all the innovations accompany innovative business models and even “token economies”. Among various applications of blockchain technologies, DeFi, or decentralized finance has been one among the foremost hyped recently given the space of imagination and schemes like liquidity mining. Traditionally even though we did see the boom of the Internet finance within the past years starting from payments, crowdfunding, neo-banks, P2P lending and more, however, non has provided the present anticipation of “evolution” instead just “iteration” as they didn ‘t really change the principles, and systems.

Position of exchanges

Now either in traditional finance or internet finance, “exchange” plays a fundamentally crucial role. The essence of the commodity economy is exchange economy, and within the commodity economy, productions and consumption are matched through market exchanges. When the correct equilibrium is achieved for supply and demand, the marginal substitution rate between any two commodities are going to be an equivalent for any consumer, and therefore the exchange of values is optimized.

Needless to mention, the exchange medium and platform are of top importance throughout the financial history. The medium has gone from shells, stones, and metals to paper and now digital numbers at our eyes. The platform has evolved from the physical markets to the electronic stock trading systems and exchanges and more. Digitalization and “internalization” are the new focuses. Within the past decade, since Satoshi Nakamoto invented Bitcoin, the exchange medium and platform have again shifted from centralization to decentralization. After the ICO hypes in 2017, the tokenization of assets has grown popular and now towards better maturity. At an equivalent time, various digital asset trading and exchange platforms also utilize blockchain technology to realize decentralization, hinting a promising future for internet finance and exchange as a function itself.

The development and current status of traditional exchanges

An exchange may be a trading platform with diverse products, which provides price discovery and liquidity for traded products. Technological advancements have facilitated and effected also the business model and infrastructure of the exchanges. Not many of us stands in offline market places and shout out the costs of their goods to draw in buyers nowadays, but attempt to get their goods sold through electronic trading systems. In terms of the business model, most exchanges in Europe and therefore the us have went from membership based to make for-profit companies.

As the hub of the financial activities, the event of exchanges is heavily suffering from regulatory policies. However as technology develops, regulations loosen, and business competitions keep it up, Alternative Trading System (ATS) has emerged since 1990 within the US (Multilateral Trading Facility (MTF) in Europe), adding flexibility and variety to the financial world.

The development of exchanges based on blockchain technology

With the appliance of blockchain technology in asset tokenization and therefore the trading of it, many digital asset exchanges have emerged, like Binance, Coinbase, Bitmex etc. These well-known exchanges also are classified as centralized exchanges within the blockchain and digital asset industry.

Centralized exchanges, because the name suggests, means the assets deposited by the users are stored within the hands of the exchange owners, and matching of trades and even prices of products are subject to centralized controls operated on centralized servers. In other words, we, as users, do everything on the platform supported our trust within the team and institution running it.

In comparison, the essence of decentralized exchanges (DEXes) is to permit users assets to be under decentralized custody (assets are stored on the blockchain), with every transaction record stored on the blockchain giving transparency and traceability. Simply put, this whole decentralization is supposed to stop malicious human behaviors and to facilitate users to trust in codes and technology rather than other citizenry. Let’s probe further in details:

On Centralized Exchange:

When employing a centralized trading platform for the primary time, you would like to finish the registration required by the centralized exchange, and KYC (real name authentication and etc.). Upon different levels of tasks completion, you’ll have the permission to deposit, withdraw, trade, and more.

Deposit: deposit a particular amount of assets from other exchanges or your own wallet to the newly registered centralized exchange. It should be noted that the address to receive the deposit is assigned to you by the centralized exchange, and thus you are doing not have the private key to the present address.

Withdraw: to withdraw assets far away from the exchange, you’re subject to centralize risk control conducted by the exchange persons as you are doing not have control of the address. It’s usually the case that you simply will get to complete the very best level of KYC (e.g. video chat, picture with yourself holding your ID and written waiver of rights). Further the discharge of your assets is totally subjected to the permission and execution of the exchange staff.

Trading: this is often where it gets interesting also, once you make a trade, all transaction related data and record is stored on the exchange’s server, on a number of the exchanges, the settlement of a transaction doesn’t even happen (you only see the transaction completed on the front-end), and for many you are doing not have access to their back-end and thus, if there’s any dispute on a transaction/order, you almost certainly wouldn’t have any edge arguing with a centralized exchange.

On Decentralized Exchange:

With the advancement of blockchain technology and therefore the emergence of more public blockchains, there are now a spread of decentralized exchanges. DEX are different due to various public blockchains they’re supported and their respective concepts and technologies. Here we only discuss the decentralized exchanges pertaining the overall traits.

One of the key aspects of decentralized exchanges are the exchange accounts equate to smart contract accounts. In brief, storing assets on DEX is to store them in smart contracts which is to store them in codes, and in codes you trust.
Generally most DEX will only invite registration (some even require KYC, and it’s been criticized for a platform to call itself a DEX whilst posing for KYC), and to deposit, withdraw, and trade:

Deposit: you deposit by transferring your assets into the smart contract address assigned to you by the platform.

Withdraw: directly withdraw to anywhere directly from the smart contract address.

Tradin: your asset is transferred from the smart contract address on to that of your counterpart. This transfer are often checked on the blockchain through blockchain browser, and therefore the entire transfer process relies on smart contract’s automatic execution by the codes.

DEX are often further divided into two focuses: spot and derivative markets. Most of the DEX alive focuses on the spot markets, and aren’t many derivatives DEX given the complexity of monetary designs development workloads. However, it’s become palpably clear that derivatives markets have grown exponentially in digital asset domain, and that we are a already seeing subsequent boom coming from derivatives trading. Few strong contenders that have emerged in 2020 include Injective Protocol, DerivaDEX and Serum. Here let’s explore Injective Protocol, which can be launched in August.

To resolve common issues faced by DEX like user-friendliness, speed, and more, Injective Protocol proposes a worldwide solution: Injective chain, Injective derivatives protocol, and Injective DEX.

About Injective Protocol

Injective Chain
The Injective Chain is a layer-2 sidechain and Cosmos Zone connected to Ethereum. We leverage verifiable delay functions (VDFs) to enforce a fair transaction ordering consensus that reflects real-world time via proof-of-elapsed-time, solving critical race conditions and miner extractable value issues present in Ethereum.
Currently, Injective Chain powers our layer-2 derivatives platform, serves as a decentralized Trade Execution Coordinator (TEC), and hosts a decentralized open orderbook. The chain itself is built on top of Tendermint and allows for transferring and trading Ethereum-based assets on the Injective Chain. In the future, Injective will be integrated with Cosmos IBC, bringing advanced inter-chain decentralized finance capabilities.
Injective Exchange
Unlike traditional exchanges which serve as the gatekeepers of the crypto industry, Injective makes exchange a decentralized public utility. What truly differentiates Injective is that we decentralize and open source every component of decentralized exchange. Everything — from the front-end exchange interface, back-end infrastructure, smart contracts, to orderbook liquidity — is provided openly and for free. This turns the traditional business model of exchange on its head, as we eliminate the technical barrier of entry for one to permissionlessly run a highly performant exchange.
Injective’s model instead rewards relayers in the Injective network for sourcing liquidity. By doing so, exchange providers are incentivized to better serve users, competing amongst each other to provide better user experience, thus broadening access to DeFi for users all around the world.
Injective Futures
The Injective Futures protocol is a decentralized peer-to-peer futures protocol which currently supports decentralized perpetual swaps, contracts for difference (CFDs), and many other derivatives! Our protocol allows individuals to create and trade on arbitrary derivative markets with just a price feed.

Injective chain is based on the Cosmos zone and is a decentralized protocol built on Layer-2, providing a high-speed Ethereum decentralized trading experience. It will use the Cosmos IBC protocol to achieve cross-chain transactions, VDF (Verifiable Delay Function) to simulate real time through Proof of Elapsed Time, and standardize order sequencing to eliminate early tradings. In addition, the Injective chain supports token staking and provides technical support for creating more services such as staking in the future.

A derivatives protocol is an important “weapon” of Injective. It is an open protocol that supports the development of open derivatives markets. It is also the world’s first fully decentralized P2P futures and perpetual swap contracts exchange, which supports simple access to various markets. According to the team, compared with other products of the same type, Injective is the fastest, fully decentralized derivatives trading platform without gas fees in the DeFi market.

Based on the Injective chain, Injective’s trading platform has also achieved a fully open source design, which allows it to be a completely decentralized network. It also provides a market-maker friendly API interface, which is close to the current mainstream exchange interface, allowing the user experience to be similar to that of a centralized exchange. Additionally, in the management system, the Injective trading platform has borrowed the design from the auditing systems of centralized exchanges, modularized design, and the audited listing system, but it is based on community management, not just one people. In addition, Injective has introduced liquidity support for DEX from a considerable number of top global market makers, including QCP, CMS, Bitlink, Altonomy, etc. Together with a powerful incentive mechanism, Injective can ensure the liquidity of the trading platform.

The future is coming, and the exchange, as the infrastructure of the digital age, is undergoing rapid and unprecedented development. In 2020, we will witness this change.

Team Information

The team is led by people who have worked and have many years of experience in the cryptocurrency market, on this basis we will feel more confident with a project where the development team is good people. .