• This is an excerpt from the Quarterly Insights Q2 2023 report. Find the full report, here.

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The Cosmos ecosystem is one of the most diverse in crypto as it allows for experimentation and simple bootstrapping of new ideas, due to the accessibility of the Cosmos SDK stack. The result is the launch of multiple chains on a monthly basis, each one targeting specific issues or innovative solutions. As a recent highlight, the Cosmos Hub is on the forefront, with the implementation of ICS v1 (“replicated security”), becoming the first shared security solution in production.

The previous edition of our Quarterly Insights report covered the basic concepts and related projects pushing the boundaries for innovative solutions in staking. You can download it here.

This article starts a series of reviews of well known projects, aiming to uncover the present state of these “long lived” protocols. This edition focuses on Injective, a fast and cheap blockchain built for finance, featuring 0.9s block times and less than $0.01 fee per transaction. Injective provides infrastructure that is optimized for enterprises to build a diverse array of institutional grade financialapplications. An example of a high level contribution is the module that allows the implementation of an on-chain order book. The OpenDeFi Foundation is the non-profit organization behind the Injective protocol. Backers include high profile names, such as Binance, Jump, Pantera and Mark Cuban.

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Technical architecture

Injective is a Layer 1 (L1) blockchain built on top of the Cosmos SDKand the CometBFT Consensus protocol. The network is operated by60 validators at the time of writing. The number of validators may seem low when compared to other delegated PoS blockchains (e.g.Solana: 1900 validators), but it can still be considered similar to otherCometBFT based chains. The protocol is proof-of-stake based and has a limited validator set to optimize for throughput. The expected tendency is for the network to be secured also by social consensus,with delegators working on identifying more reliable and trustedvalidators to delegate to.

In the Injective case, the super-majority is formed by 4 validators that hold more than 33% of voting power at the time of writing.Aware of the risks imposed by centralization, and to incentivize contributions from other node operators to the development of the ecosystem, the Open DeFi Foundation recently announced theFoundation Delegation Program to increase the voting power controlled by relatively smaller validators.

From a validator's perspective, Injective can be a demanding network to run due to its short block times and, consequently, higher chance of failing to sign blocks. This characteristic is reflected in the validator “uptime”, which varies from 80% to 99% on Injective amongst all validators, while for other networks the uptime is on average closer to 100%. The update process has consistently been well-managed and smooth. Overall, we have a positive impression of the network's technical architecture.

Activity

The most popular dApp on Injective is Helix, a decentralized exchange that allows for spot and derivatives trading of cross chain assets. More than $10B have been traded since the launch in November 2021, with derivatives being responsible for $9.3B. The total value locked in pools (TVL) is $11.5M and the most active perpetual markets are BTC/USDT and ETH/USDT. INJ/USDT is the most liquid spot market.

Helix creates a seamless trading experience, with a  user interface comparable to a centralized exchange, low costs and advanced features, such as order types, graphical indicators and liquidity analysis. To start using Helix, users can connect from a Metamask, Keplr, Ledger, Cosmostation, Leap, or Trezor wallet.

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The Open Liquidity Program (“OLP”) is an initiative recently announced to foment on-chain liquidity: beginning June 13, 2023,60,000 INJ can be earned during each epoch by those executing trades through the API or on decentralized exchanges built onInjective. The program prioritizes deep, long lasting liquidity, by using the following metrics to measure the quality of the activity: dual sidemarket making, uptime, volume and spread. All information on the reward calculations and API can be found in the OLP docs here.

Additionally, the first Injective Hackathon recently concluded, with the submission of 300 projects, and 357 builders, attracting developers, entrepreneurs, and blockchain enthusiasts, the four week online event fostered new innovations across Web3. Highlights from submissions involve options trading, asset management tools, money marketing platforms and NFT marketplaces. Additionally, the Injective Ecosystem Venture Group is a group of prominent institutions and venture funds that have come together to back the future of the protocol with a $150 million initiative. The focus is to support promising projects building within a diverse array of sectors including interoperability, DeFi, trading, PoS infrastructure, rollups and scalability solutions. Visit the official page to be informed on criteria and the process to apply.

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Cross-chain Composability

Given Wormhole integration and IBC compatibility, from the userperspective, it is fairly easy and cheap to interact with multiple blockchains from- and to- Injective. According to the Map of Zones, Injective communicates with 19 different Cosmos chains. The biggest flow of assets happens between Injective and the CosmosHub.

In May 2022, the protocol started working with the Wormhole bridge, making it easier for users and developers to interact with other blockchains. The most common asset bridged to Injective isUSDT, with more than 11 million of USDT at the time of writing. Other bridged assets include wETH, USDC, SOL, wMATIC and LINK.

Also, in March 2023, Cascade was launched - a layer-2 testnet that utilizes the Solana’s Sea Level Virtual Machine (SVM) provided byEclipse. This means that Solana developers can test their apps for use in the Cosmos without needing to change the programming language or tooling used. More information can be found here. April 2023 was the time for Injective to start communicating with Polkadot. The integration happens through the Celer Bridge, and allows users to transfer INJ, ATOM, ASTR and DOT between the Injective blockchain and the Astar parachain. More information can be found here.

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Economics

Injective mainnet is live since November 2021. INJ, its native token,has multiple purposes in the ecosystem, as it is used:

I. to secure the PoS chain;  

II. to participate in the on-chain governance;  

III. to pay for exchange fees, and in the buy back and burn model;

IV. as margin and collateral backing derivatives positions. The current supply of INJ is 600m tokens and it increases over time through block rewards - incentives to token holders when locking INJ to help secure the Proof of Stake (“PoS”) network (“staking rewards”).

The emission rate (“inflation”) at the time of writing is 10% per year, and 62.5% of INJ total supply is currently locked in staking, resulting in 15% yearly yield. INJ is being traded at $7.94 and the fully diluted market cap is $794million. INJ price has been showing resilience throughout this bearmarket, as it was able to recover a good part of its value, despitemost of the market still struggling with low prices in the same period.

According to IntoTheBlock, Injective has a 94% concentration bylarge holders, i.e. whales - addresses with more than 1%; and investors - addresses with more than 0.1% of circulating supply.

The protocol suggests a global minimum fee structure, meant tofavor those adding liquidity to markets, also known as “marketmakers''. Maker fee is 0.01% of the total amount of the order, whilemarket taker orders - those trading against the orderbook, pay0.02% of the trading amount. Although the maker/taker model iscommon on centralized exchanges, Injective fees are half of what auser would pay when trading on Binance, for example. For a more indepth analysis of fee models in different exchanges, we recommend this article by Deribit.

Additionally, as a way to support the applications, the protocol transfers 40% of trading fees back to the dApp. This value can be used to source the trading activity on the exchange, offering fee rebates and other incentives to increase financial yield to users. The other 60% are kept by the protocol and periodically auctioned in exchange for INJ. The INJ proceeds of this auction are then burned, thus creating a potential deflating mechanism in the total INJ supply.  Each application built on top of Injective may implement fees and incentives in a slightly different way. For example, Helix adds discounts to the taker fees, depending on the amount of INJ staked by the user and the amount traded in the last 28 days. Discounts start at 7.5%, when staking 25 INJ and trading volume $100,000. It can get to 80% for users staking at least 75,000 INJ and $100m trading volume.

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Wrapping Up

Injective has been actively working on growing its ecosystem, tackling the different aspects to promote the activity and adoption of the network. On the TVL level, Injective is the 52nd chain on the DeFiLlama ranking. There are relatively few spot and derivative markets with significant liquidity levels - greater than $10,000 on the top of the book, and trading volumes are still low compared to otherdecentralized exchanges. On the other hand, Injective provides a fully on-chain experience, in contrast with most decentralized exchanges, through its order book and seamless trading experience, including advanced order types and technical analysis tools, that are partially unique in the crypto space, and we consider to be good differentials for the protocol.

Centralization of stake in a small number of validators is another concern for this network. Both points are subjects of the initiatives created by the Foundation and presented in detail in the previous sections.

When looking at tokenomics, the INJ token is one of the most valuable assets in the Cosmos, second only to the $ATOM token according to Mintscan. It also has multiple use cases, from staking to buy back and burn auction, which tend to power the demand and keep its value in the future. In terms of price, it has shown resilience compared to most assets in the Cosmos ecosystem during the recent tumultuous times crypto and global markets went through. The staking yield of around 15% annually is also aligned with other high value Cosmos chains.

As our final impressions, Injective seems to be taking the right steps to address its short comings while pushing ahead with its coremission. Chorus One is an Injective validator. You can find more information on how to stake INJ tokens on https://chorus.one/crypto-stakingnetworks/injective or reach out to us: staking@chorus.one.

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To stay up to date with Injective

Blog: https://blog.injective.com/

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