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Injective: what it is and how it works

January 8, 2024

7 min

Injective: what it is and how it works

Discover what Injective (INJ) is and how it operates as one of the most promising new projects in the Cosmos ecosystem. The mission of this network is effectively captured by its tagline: “The blockchain built for finance.” But what sets this network apart from others, its technical structure, and what incentives should convince you to hold the native INJ token? 

Let’s answer all these questions, starting with the main one: what is Injective (INJ), and how does it work?

Understanding Injective: A New Layer 1 Blockchain

Injective is a Layer 1 blockchain, and like most networks of this kind, its primary goal is to enhance scalability, thereby accommodating an increasing number of users. It aims to become a viable alternative to Ethereum, which, despite periodic updates, can improve in this aspect.

A key distinction of Injective is its design to democratise access to financial markets, enabling users to overcome the high entry barriers characteristic of this sector. The team’s idea is simple yet ambitious: to allow anyone to interact with a global financial ecosystem, regardless of who they are or where they are.

Part of the answer to “What is Injective (INJ)” lies in the project’s philosophy, which has been guided by several pillars from its inception: scalability, interoperability, and ease of development. It is a Layer 1 network with a Proof-of-Stake consensus mechanism built using the Cosmos SDK (Software Development Kit). This feature simplifies the development of decentralised applications on the infrastructure optimised for cryptocurrency exchange and trading, both spot and derivatives.

A primary feature of Injective that addresses what it is and how it works is its fully decentralised on-chain order book. This aspect makes it resistant to two types of attacks: MEV (Miner Extractable Value) and particularly those nicknamed Sandwich attacks.

MEV attacks occur when a malicious actor, using a bot, places a large buy order just before one or more orders from “normal” users. After the user’s order is executed, the attacker immediately sells the same amount of tokens, thus capitalising on the price fluctuation caused by their initial order and transactions within this “sandwich.” Injective, through the Frequent Batch Auction (FBA), used to order transactions, manages to prevent MEV attacks and, generally, front-running attempts.

Moreover, all financial markets on the network, whether spot, derivatives, or options, are built on-chain, and funds can be transferred to and from all significant existing networks, EVM compatible (Ethereum, Avalanche, Arbitrum, etc.) and others (Solana, Sei, etc.).

The Structure of Injective

Now that you understand what Injective is and how it works let’s delve deeper into the technical structure of this Layer 1 blockchain. The main software components of the network are fourfold:

1. The Injective blockchain utilises the Tendermint Proof-of-Stake consensus mechanism and is designed to host cutting-edge decentralised applications. The network’s specific smart contracts, CosmWasm, are optimised to interact with other blockchains to maximise network interoperability.

2. The bridge and the smart contract managing it are central components that enable cross-chain cryptocurrency exchanges. Injective’s bridge is decentralised and controlled by the identical validators responsible for the blockchain’s security.

3. The API nodes serve two vital functions: acting as a database by collecting blockchain information, making it accessible to external agents, and providing a transaction relay service, covering the transaction fees traditionally borne by users. This allows users of some decentralised applications to perform blockchain operations at zero cost.

4. The heart of any decentralised network is its decentralised applications. Despite Injective’s recent launch, several Dapps have already been built on the network.

INJ Token and Governance

Understanding what Injective (INJ) also involves knowing about its utility and governance token, which, like all Layer 1 Proof-of-Stake (PoS) blockchains, is crucial for its proper functioning. From a network validation perspective, there are no significant differences between Injective and other existing PoS blockchains, but the distribution of rewards differs.

An automated buy-back-and-burn mechanism manages a portion of the INJ tokens spent by users to process transactions (about 60%, according to the development team). This progressively reduces the circulating supply of the token, making it scarcer and, consequently, more valuable.

The INJ token is also essential for participating in governance: token holders can vote on future project decisions, which, once approved, are executed on the blockchain. This process is managed by the Injective DAO, active since the main-net launch.

Finally, INJ can be provided as collateral in the derivatives market present on the network. In return, users receive rewards paid by traders. GMX introduced this innovative liquidity mining form, which is becoming increasingly popular.

In summary, this cryptocurrency is the pivot around which the entire ecosystem revolves, and understanding it is essential to grasp what Injective is and how it works.

The Origin of Injective

To fully understand what Injective is and how it works, one must also know its history, founders, and investors who believe in the project.

Injective Protocol was founded in 2018 by Eric Chen and Albert Chon and initially was “just” a decentralised exchange. The founders aimed to build a token exchange product that overcame the traditional issues plaguing such platforms, such as inferior liquidity and low transaction speed.

Despite their youth, since 2021, they have raised over $190 million in several funding rounds. These capital increases have involved significant investment funds and exchanges, such as Pantera Capital, Jump Capital, BlockTower, Binance Labs, Kraken Ventures, and even Mark Cuban, the NBA’s Dallas Mavericks general manager.

Using Injective

Now that you know what Injective is and how it works, it’s time to take action. This section is what you need if you want to use the network. As mentioned earlier, this blockchain and its development team have given interoperability a central role. Therefore, it is relatively easy to transfer funds to this infrastructure.

To transfer funds, you can use the native bridge and then start interacting with the many available dapps. Various decentralised exchanges also allow trading with derivative instruments like Helix, Lending and Borrowing platforms, and NFT marketplaces.

So, how do you use all these services on Injective?

First, you need a wallet. Most of Injective’s decentralised applications are compatible with Metamask, while some require a native wallet from the Cosmos ecosystem, such as Keplr. Once you have used a bridge or a centralised exchange to move funds to the network, you can connect your crypto wallet to the dapps and try using them.However, be highly cautious when exploring decentralised applications. Unfortunately, some could be attacked and compromised, so there’s always a risk of encountering scammers. To protect yourself, you can use a crypto wallet explicitly created for this purpose (burner wallet) to store only the amount of cryptocurrencies strictly necessary to explore the ecosystem.