Injective has seen unprecedented growth over the past year. As we begin 2021, it is important for us to lay out an overall vision that will aim to serve as the path for Injective’s exponential growth and mass adoption globally.
Ever since its inception, Injective was built to create a platform that is fully decentralized, entirely permissionless, and exceptionally performant. This piece will provide an overview of how Injective aims to rectify the salient issues that persist within crypto-native networks and our vision towards creating a truly innovative financial paradigm.
The true value of a decentralized network derives from its permissionless, censorship-resistant nature, allowing anyone in the world to freely participate in an open and global financial system. To that end, we believe that allowing individuals to engage in exchange without having to trust a centralized point of authority is a fundamental necessity and right.
The unfortunate reality, however, is that most protocols today only retain a facade of decentralization. Many projects have made the unfortunate choice of maintaining centralized control underneath the surface. While expeditious in the short run, this approach introduces inherent existential vulnerabilities that hamper the infinite potential of the space. We believe that the foundation of this new financial system cannot be predicated on satisfying the interests of a single central authority and therefore must be decentralized.
It is for this reason that every component of Injective Protocol has been built to be fully decentralized from day one.
Injective transforms exchange to a decentralized public utility that is wholly owned, operated, and governed by the community. Much like how P2P torrenting protocols decentralized the ability for individuals to freely share data, Injective Protocol decentralizes the ability for individuals to express their market views by engaging in exchange with an unprecedented level of freedom and diversity.
Beyond just adhering to a dogmatic view of decentralization, we leverage decentralization as a process towards efficiency for the long run. Full decentralization is the foundational ethos serving as the bulwark protecting the robustness, longevity, and freedom of this new financial system.
Today, centralized exchanges (CEXs) act as gatekeepers to the crypto industry and wield an undue amount of control over their users, restricting who is allowed to trade, what they can trade, and under what terms.
The cornerstone capability that Injective provides is the ability for individuals to create and trade on new derivative markets without the permission of a central authority.
This ability has been demonstrated on our public Solstice Testnet, where users can trade perpetual and futures markets that are impossible to create elsewhere. This includes synthetic assets such as gold as well as the first-ever yield farming derivative. We have also announced the upcoming release of decentralized stock futures trading which will allow our users to trade markets such as Tesla and Airbnb. This only encompasses a mere portion of the endless possibilities provided by Injective.
Ultimately, it is the vibrant Injective community that will continuously govern the Injective ecosystem for the years to come. By allowing any member of the community to shape our protocol, the pace of innovation can be accelerated by the collective intelligence of the global Injective community, which is far superior to that of any one centralized team.
The pedestrian impulse is to claim that centralized platforms outperform their decentralized counterparts. This has unfortunately led to most projects embedding certain forms of centralization into their protocols, thereby undermining the growth of truly decentralized networks.
We at Injective have been hard at work to build an unparalleled network that retains the usability and speeds enjoyed by centralized exchanges while still maintaining a completely decentralized infrastructure. As a case in point, during the testnet period alone, we have maintained a stable 1 second block time with over 1 million trades processed. Although achieving such performance and usability while maintaining a fully decentralized infrastructure is a seemingly insurmountable engineering feat, we rose to the challenge of making the speed and usability of our decentralized exchange protocol rival that of centralized exchanges.
We strive to pioneer a new standard in decentralized finance — one that provides users a high quality experience without compromising on fundamental values. Only by doing so, do we believe that our innovations in this early niche of decentralized finance can rise in adoption and be part of the next generation of financial products that will transform the world.
Decentralized Derivatives: A New Era in Trading
Derivatives are powerful tools that empower individuals and institutions to hedge risk and express more complex beliefs about the market. Their impact on our world today cannot be overstated, as derivatives continue to be the most heavily traded asset class globally with a market size that is worth quadrillions of dollars.
However, there exist numerous structural barriers in place that only allow a select group of market players to freely utilize derivatives, rendering this asset class largely inaccessible for individuals and institutions alike, even in the most developed countries.
Injective solves this problem by democratizing access for individuals to create and trade on any derivative market of their choice using just a price feed. Similar to how derivatives provided rice farmers in Japan in the 1600s with the ability to lock in profits from their harvests by hedging risk against future price fluctuations, so too will individuals today be able to utilize Injective to obtain market exposure to various underlying assets in a fully free and permissionless manner.
All of this is made possible on Injective with a simple user interface that enables the creation of complex derivative markets in seconds. By reducing the friction that exists to create avenues for individuals to exchange risk, we seek to make our global financial system more free, fair and efficient.
This is particularly compelling when considering the numerous barriers within distinct layers of Decentralized Finance (DeFi), Centralized Finance (CeFi), and Traditional Finance (TradFi) which cause fragmentation and thus distort natural market dynamics. As an example, DeFi users on Ethereum cannot easily access the unique market exposure Polkadot DeFi applications may offer, while Chinese CeFi traders cannot access crypto markets easily, and US traders cannot easily gain exposure to Chinese equity markets.
With Injective’s global derivatives platform, anyone can gain exposure to any market regardless of the locality or limitations of the underlying asset, thereby creating a truly borderless financial system.
Injective Chain: An Unmatched Platform
It is no secret that applications built on top of Layer-1 Ethereum are plagued by numerous scalability issues that cause significant degradation in user experience.
Transaction costs alone can become prohibitively expensive, pricing out large swaths of users from sending on-chain transactions. Furthermore, Ethereum exhibits a 15 second block time with probabilistic finality and gas price based transaction ordering. Such characteristics greatly increase the friction to building widely adopted financial applications on Ethereum, as such high latency to access new information paired with lower certainty on transaction execution guarantees reduce the ability for individuals to efficiently participate in markets.
Despite these challenges, the current DeFi ecosystem is largely concentrated on Ethereum due to network effects and the composable nature of smart contracts on Ethereum. As we’ve seen recently with Uniswap volume eclipsing Coinbase, it is entirely possible for decentralized exchanges to surpass the transaction volumes on their centralized counterparts. While it is undeniable that Ethereum as a platform has experienced great success in gaining adoption through the rise of decentralized finance, we believe that the future of the new global financial system cannot be built on platforms with prohibitively expensive gas fees and slow transaction times.
The Injective Chain is a self-sovereign blockchain based on Tendermint built for the purpose of supporting the next generation of decentralized exchange for the masses. As an independent chain, the Injective Chain natively hosts the core infrastructure components required for a fully decentralized exchange in a scalable and robust way along with its own layer-2 EVM execution environment. This unique architecture provides users high transaction throughput and fast finality for Injective’s decentralized orderbook and decentralized trade execution coordinator, while supporting full smart-contract composability on the Injective EVM, where the core derivatives protocol exists. As an application-specific chain, Injective has provided the ideal bespoke environment for decentralized derivatives trading while retaining the optionality of further optimizations in the future.
In contrast to the walled garden approaches of other layer-2 solutions, the novel architecture of the Injective Chain also enjoys the best of both worlds by obtaining scalability without sacrificing smart contract composability. By natively supporting inter-chain composability through Cosmos-IBC as well as bidirectional Injective/Ethereum ERC-20 transfer, Injective has an Ethereum bridge secured by the Injective Chain consensus without sacrificing the flexibility of integrating with other Layer-1 protocols. This technical capability will serve as a key differentiator for Injective as we begin to integrate popular platforms such as Cosmos, Polkadot, Binance Smart Chain (BSC), and many others.
Decentralized Orderbook: A New Age of Adoption
In both the traditional financial markets as well as the centralized crypto markets today, order books continue to dominate. Although Automated Market Makers (AMMs) have gained traction with the launch of popular projects such as Uniswap, there remain a number of issues that limit their overall growth among more sophisticated traders.
Fundamentally, limit orders allow individuals to accurately express nuanced, self-contained views on the market, which can be easily updated as the market changes over time. By doing so, the order book model affords individuals participating in these markets a broad ability to express intentions that allow them to act in accordance to maximizing their individual welfare. As a result, order book-based markets can be more capital-efficient, with tighter spreads and deeper liquidity which benefits all market participants.
AMMs have largely been growing in popularity due to the ease with which they can be built. So most developers choose to take this route given its ease in building. There also continues to be a large volume of academic work focused around the debate on AMM versus orderbook models.
However, we at Injective did not sacrifice overall usability and growth just for the sake of saving development time. We decided to support orderbook simply because it’s more dynamic, capital-efficient, and better suited for niche derivatives.
Injective: A Limitless Future
To this day, we still firmly believe that the vertical stack of finance will be slowly engulfed by a decentralized infrastructure. We are on the cusp of a new age of rebirth of our existing financial system as we know it — one that decentralizes power, democratizes access, and disintermediates existing authorities.
This is where we see Injective going in the future. We see it not just restricted to being a derivatives exchange catering to traders with a specific set of hedging or risk exposure needs, but rather a decentralized ecosystem that acts as a global and borderless network of market exposure. Now Injective users can access crypto native assets, synthetics, traditional markets, and much more. In turn, this allows Injective to pioneer a new era in adoption globally.
We aim to transform our global capital markets and financial system away from being reserved for the privileged few by creating a decentralized ecosystem open and accessible to every individual in the world. Each day, as societal awareness and global adoption of cryptocurrency grows, our confidence in our ability to pioneer a new era of financial freedom only continues to rise.
We are incredibly excited for the journey ahead this year and hope you join us in our mission to create a more free and inclusive financial system through decentralization.
About Injective Protocol
Injective Protocol is the first layer-2 decentralized exchange protocol that unlocks the full potential of decentralized derivatives and borderless DeFi. Injective Protocol enables fully decentralized trading without any restrictions, allowing individuals to trade on any derivative market of their choosing. Injective Protocol is backed by a prominent group of stakeholders including Pantera Capital, one of the most renowned venture capital firms in the world, and the leading cryptocurrency exchange, Binance.