What is Injective (INJ)? Exploring the decentralized exchange protocol

What is Injective (INJ)?

Injective Protocol (INJ) is a decentralized exchange (DEX) that enables cross-chain margin trading, derivatives, and forex futures trading.

Built on the Cosmos blockchain as a Layer 2 application, Injective Protocol uses cross-chain bridges, allowing traders to access cryptocurrencies from platforms like Ethereum and Polkadot.

Unlike popular decentralized exchanges such as Uniswap or Bancor, Injective Protocol does not use an automated market maker (AMM) model to manage liquidity. Instead, it employs the order book model commonly used in centralized stock and crypto exchanges. This approach aims to combine the efficiency of traditional finance with the transparency of decentralized exchanges.

Rather than paying network gas fees for each transaction, traders on Injective Exchange pay standard market maker and taker fees using INJ coins. INJ coins also function as the platform’s governance token and staking mechanism, supporting Injective’s Proof of Stake-based blockchain.

How does Injective work?

Injective Protocol consists of several components that enhance the functionality and development of its decentralized exchange.

Injective Chain

The Injective Chain is a decentralized exchange (DEX) protocol built on the Cosmos blockchain that facilitates the transfer and trading of Ethereum tokens. It aims to overcome the scaling and throughput challenges faced by many Layer 1 blockchains while allowing developers to utilize familiar Ethereum development kits.

Traders can access various modules within the Injective Chain DEX:

• Auction: Allows token holders to bid on baskets of tokens accumulated from exchange trading fees. The INJ tokens paid by the highest bidder are burned, removing them from circulation.
• Exchange: Enables traders to create and trade new spot and derivatives markets. Order book management, trade execution, order matching, and settlement are managed programmatically on-chain.
• Insurance: Supports underwriters who back the derivatives markets on the exchange.
• Oracle: Gathers real-world price data (such as traditional stock market data) to set asset prices on the INJ exchange.
• Peggy: Bridges Injective Protocol to the Ethereum blockchain, allowing ERC-20 token holders to convert their tokens to Cosmos-native coins.

Injective Exchange

The Injective Exchange is an order book model exchange based on the popular 0x protocol. The Injective team has open-sourced all components of the exchange to promote transparency and accessibility. These components include the user interface, smart contract functionality, and order book management system.

The exchange also aims to eliminate trade front-running by using a Trade Execution Coordinator (TEC). The TEC introduces a delay to ensure new orders cannot be placed ahead of older ones, addressing issues with advanced information access by some market makers or bots.

Injective Hub

Injective Hub serves as the dashboard providing users with the tools and functionality needed to maximize their use of the Injective Protocol.

Users can access Injective Hub to stake their INJ tokens to become network validators, who uphold the security of the Proof of Stake blockchain. INJ holders can also delegate their tokens to network validators and earn a percentage of the rewards.

Injective Hub is also the platform where community members can propose and vote on decisions that will shape the future of Injective. Examples of proposals put to vote include new trading pairs, platform functionalities, and governance procedures.