Injective Protocol Review: Next Gen Synthetic Dex

Last updated: Mar 30, 2023
21 Min Read

The Injective Protocol is a fully decentralized layer-2 exchange platform for trading derivatives. It offers users a fully decentralized order book and a trade execution coordinator to ensure no front-running occurs.

In addition, the Injective Protocol leverages layer-2 blockchain technology to compile transfers on the Invective Chain through the use of an EVM-compatible environment. This EVM is built on top of the Cosmos-SDK, and is actually a side chain that allows for a scalable implementation on the Ethereum Network.

If that all sounds very confusing read on for a layman's description of what the Injective Protocol is, how it is fixing decentralized exchanges (DEXs), and how it differs from the current crop of DEXs.

Injective Protocol Derivative Dex

New blockchain projects come and go, but the launch of the testnet for the Injecttive Protocol has been creating some real waves within the blockchain community.

The potential for the project to change the landscape for decentralized exchanges and cryptocurrency trading has sparked a massive amount of speculative content over the past several months.

Injective Protocol
Excitement is high around this innovative DEX project. Image via 

Given that the project has been in development at least since the release of its whitepaper in December 2018, and that it is made up of an experienced team of developers with experience in other large scale tech and blockchain projects, the excitement surrounding the project can be understandable.

The Injective Protocol is being built as a fully decentralized derivatives exchange. The goal of the project is to bridge the differences in centralized and decentralized exchanges, while also bringing in the blooming decentralized finance (DeFi) ecosystem. DEXs have been viewed as the logical solution to the security and regulatory problems affecting CEXs, however the implementation of DEXs has faced its own hurdles.

One of the major problems faced by the current DEX is the inability to match the convenience and liquidity of the CEX, which has greatly hindered the adoption of DEXs, despite the fact that they support the true spirit of the blockchain movement.

While the Injective Protocol is building a decentralized platform, it is different from what most people think of as a decentralized finance platform. It hopes to bring enhanced functionality to improve the DeFi ecosystem dramatically. As just one example, it can provide liquidity that’s equal to that found on a CEX.

To understand how it does this we need to take a deeper look into the construction of the protocol and how its parts make up a whole that is superior in the world of DEXs.

The Decentralized Exchange (DEX) Explained

When discussing cryptocurrency exchanges they can basically be broken down into two primary types – the centralized exchange (CEX) and the decentralized exchange (DEX).

Centralized exchanges are those like Binance and Coinbase, where the private keys of the digital assets being traded reside on the exchange. Decentralized exchanges are typified by the likes of Uniswap and the 1inch Exchange, where the private keys of the digital assets remain in the possession of the actual coin owners.

Aside from low liquidity the DEX is superior to the CEX. Image via 

The biggest selling point of the CEX is its ease of use, making it possible for people to purchase their first cryptocurrencies without a lot of hassle. The CEX has been a great way to increase adoption of cryptocurrencies and bring new users into the fold, but they do have problems. The DEX seeks to addess these problems.

You’re probably familiar with the phrase “not your keys, not your coins” which simply means whoever holds the private keys to a digital asset is the actual owner of that asset. This is one of the primary issues with CEXs, because in order to use them you must give them control over your private keys, in essence giving them temporary ownership of your digital assets.

Typically this hasn’t been a problem, but it has occasionally presented huge problems. Perhaps the most well known example is the Canadian exchange QuadrigaCX. In February 2019 the 30-year old CEO of the exchange passed away.

Unfortunately he was the only one with the private keys to the exchange’s cold storage vaults, which left some $145 million worth of digital assets inaccessible. Over 100,000 Quadriga users have since been unable to retrieve their funds.

A decentralized exchange avoids this problem since they are run by a global network of computers through smart contracts. This means users interact directly with the smart contracts to perform trades, and they maintain possession of their private keys at all times. A user-friendly graphical interface is added to make it easier for users to make their trades.

Decentralized Exchange
A decentralized exchange has many benefits. Image via 

The DEX allows cryptocurrency holders to maintain control and ownership of their assets, which remain stored in their own private wallets. This allows users to maintain true ownership over their assets.

The DEX is still really in its infancy however, and as such it has been facing some early adoption issues that need to be overcome before DeFi becomes commonplace and widely accepted in the mainstream.

Current DEX Challenges

DeFi has been built on the network and blockchain of the second largest cryptocurrency by marketcap – Ethereum. There are already hundreds of decentralized applications that run on the Ethereum network, and many of them are DeFi related.

However Ethereum remains slow and is only at the beginning of implementing the layer-2 and sharding solutions that will allow the network to scale and offer faster, and cheaper transactions.

Currently the large influx of users to DeFi has caused congestion on the Ethereum chain, and a huge increase in transaction costs. The combination of a huge number of users and a low number of transactions per second means each transaction is competing to be verified.

Miners will naturally choose the transactions with the largest transaction fees attached since this increases their earnings. However this also means the transaction fees are bid up as the increased number of users compete to have their transaction verified.

Gas Price
Ethereum Gas prices have risen dramatically in the past year due mainly to DeFi. Image via 

This means increased costs for making transactions, and more delays waiting for transactions to be processed. In fact, the transaction costs are now such that smaller transactions don’t make financial sense, and this is causing some to pull back from using the new DeFi applications.

Yes a scaling solution for Ethereum is supposed to be on the way, but in the meantime users are returning to the centralized exchanges for faster, cheaper transactions and a better overall user experience.

Enter the Injective Protocol and its innovative feature set meant to resolve many of the common problems faced by DEXs.

Injective Protocol’s Key Features

  • Injective Protocol is a universal Decentralized Finance (DeFi) protocol for cross-chain derivatives trading across a plethora of financial products such as perpetual swaps, futures, and spot trading.
  • The Injective Chain is implemented as a Cosmos SDK module, built with Ethermint (EVM on Tendermint). It utilizes a Tendermint-based Proof-of-Stake to facilitate cross chain derivatives trading across Cosmos, Ethereum, and many other layer-1 protocols.
  • Injective Protocol is collision resistant and utilizes Verifiable Delay Function (VDF) to prevent front-running.

INJ is the native asset of Injective Protocol and is used across a diverse range of functions such as:

  • Protocol governance
  • Exchange fee value capture
  • Derivative collateralization
  • Liquidity mining
  • Staking

The Injective platform enable users to:

  • Take part in decentralized cross-chain derivatives trading with zero gas fees.
  • Access cross-chain yield generation for a multitude of assets.
  • Create and trade on any derivative market with only a price feed, thereby opening up more opportunities for trading on markets not found on other exchanges.

Injective Protocol Improves the DEX

The most recent DEX versions are applying innovations that make them as close to fully decentralized as we’ve yet seen. The Injective Protocol is a great example of this and the project is using some of decentralized finance’s best functionality to create a platform that is both flexible and diverse.

With a group of institutional level market makers as partners the Injective Protocol is giving users better liquidity, faster execution, more market diversity, and no gas fees. These are just a few of the things that make the Injective Protocol stand out and has given it the designation as the “first truly decentralized exchange”.

Injective Exchange
A first look at the future of decentralized exchanges. Image via Injective Exchange Testnet

The improvements being introduced by the Injective Protocol can be expected to change the face of decentralized finance and the way people trade forever.

The infrastructure being built with the Injective Chain allows it to host a variety of DeFi applications. This includes the order execution environment, an order matching technology, and the first fully decentralized orderbook.

Put together, these applications create a decentralized peer-to-peer exchange, which isn’t a new development, but the tools being added to the environment are what distinguish the Injective Protocol from other DEXs.

The Protocol’s Consensus is built on a Tendermint-based Proof-of-Stake (PoS) to help with cross chain derivative trading across Cosmos, Ethereum, and other layer-1 protocols. It of course also allows for earning rewards for staking or delegating.

Cosmos Tendermint is BFT-based Proof-of-Stake. Image via Cosmos Blog.

The underlying software for the Injective Exchange is fully open-source, which allows for complete audits to eliminate potential bugs and vulnerabilities. The highly performant exchange infrastructure has eliminated the usual technical barriers to entry.

Because users of the exchange are able to create and trade any market with a price feed they can easily gain access to markets that might not be available on other exchanges.

The core products being offered on the Injective Protocol testnet have all been tested and validated by some of blockchain’s largest institutional traders, market makers, and funds. This means the launch of the mainnet, which could come as early as the second quarter of 2021, should go off without the issues that have plagued the launch of some other DEXs.

Innovation in the Injective Protocol

The exchange structure of the Injective Protocol makes it a public utility where the network of users are able to create customized and personalized derivatives markets. In addition it brings ownership to the users since holders of INJ tokens will have voting rights and governance over future protocol changes and updates.

The Injective Protocol is built on the Cosmos SDK, with a token bridge between Cosmos and Ethereum and a set of features for inter-blockchain communication. The exchange gives users the opportunity, for the first time ever, to trade in a fully decentralized manner.

This is the next generation of DEX and is a move forward towards a fully interoperable and decentralized web. Because it is built on a layer-2 infrastructure the Injective Protocol promises lower costs and faster transaction speeds when compared with existing DEXs.

The protocol consists of several key innovations that distinguish it from the set of existing DEXs. These are split into four domains – the client, service, Cosmos, and Ethereum. Together these four are the backbone of the Injective Protocol platform.

Injective Architecture
All the complexitied of the four layers of the Injective technical architecture. Image via Injective Docs

The Client Domain

The primary feature in the client domain is the Injective Exchange Client. This is the user interface that traders will be presented with when using the exchange.

There’s been a heavy focus on this aspect of the platform, with the development team striving to give users a front-end interface that’s both user-friendly and comprehensive. It’s a balancing act that all exchanges face, creating a user-interface that’s suitable for traders of all experience levels and expectations.

The Exchange Client provides everyone with the means to access the decentralized exchange in a simple manner.

The Service Domain

The services layer is critical to the performance of the Injective Protocol as this is where the API and EVM live. The services layer also provides the nodes which are responsible for connection to the EVM, data layer processes, and transaction relay.

The API nodes work to simplify transaction relay and allow for direct interaction. In addition to all this the nodes provide analytic and data services to the Exchange Client.

The Cosmos Domain

This is where the Injective Chain lives and is thus considered the backbone of the protocol. The Injective Chain provides the Client Exchange with the innovative decentralized order book, the Trade Execution Coordinator (TEC) that combats front-running, and the EVM execution environment.

All of this is accomplished through a token bridge to Ethereum. The Injective Chain has a number of smart contracts that allow users to take advantage of the benefits of fully decentralized derivatives trading with the Injective Protocol.

The Ethereum Domain

By incorporating an EVM with the Cosmos SDK smart contract that are interoperable and scalable are made possible on top of the Ethereum Proof-of-Work consensus model.

The EVM Bridge Contracts are smart contracts that contribute to the price stability in the two-way peg between the Injective Chain and the Ethereum Network. These smart contracts help create the token bridge that exists between the INJ and ETH native tokens.‍

How the Injective Protocol Works

We’ve looked under the hood to see the technology behind the Injective Protocol, but how does it all come together and work in practice? The Injective Chain creates the backbone for the platform, and it has an important role in ensuring the functionality of these four key components of the Injective Protocol.

Bridging the Gap
Fixing the problems of CeFi and keeping the advantages. Image via Injective Protocol Blog

Order Books

The order books used on the Client Exchange are 0x based, providing full decentralization and helping with transaction efficiency. This comes about because the orders are capable of enabling side-chain relays with the settlement being completed on-chain. Adding to the decentralized nature of the order books is the fact that they are hosted by censorship-resistant INJ nodes.

Trade Execution Coordinator (TEC)

The Trade Execution Coordinator ensures that front-running the order book is not a possibility.

Front running is the use of bots to monitor the order book, with these bots jumping the order queue by copying the exact bids of real users. These bots are capable of copying trades in under a second, and their use often results in actual exchange users not having their orders filled. That can create frustration and the exodus of traders from an exchange.

The Injective Protocol uses a verifiable delay function which ensures new orders are not being placed ahead of prior orders.

Bi-directional Token Bridge

The Token Bridge is required to allow for the transfer of ERC-20 tokens to and from the INJ chain. This bridge has been created in the Cosmos network within what is known as a “peg zone”. These peg zones are account-based blockchains bridging between zones within the Cosmos ecosystem and outside blockchains (in this case Ethereum).

Peg Zone Injective
Bridging the zone in Cosmos. Image via Cosmos Network 

In practice, when using the Injective Protocol, the bi-directional token bridge route travels through the following stages from an Ethereum address:

  1. through the INJ Peg zone smart contract;
  2. through the relay service to the ETH bridge module;
  3. via an oracle to the Bank Module (COSMOS address).

When Cosmos to Ethereum trades are conducted this route is reversed.

EVM Execution Environment

The EVM Execution Environment function is how Ethereum smart contracts can execute while using the Injective Chain. This gives developers the opportunity to create dApps based on the Ethereum network, but in a much more scalable environment that uses Proof of Stake as consensus.

For developers the experience of creating dApps is exactly the same when using Injective EVM. It also has added benefits such as an increased contract byte code size limit.

The Smart Contracts performed in EVM environment in the Injective Protocol include:

  • Trade Execution Coordinator
  • Bi-directional token bridge
  • Staking
  • Futures contracts
  • ERC20 Token contracts

The Team

The Injective Protocol website shows a team of 15 individuals, all of whom have strong connections and experience in blockchain and related technologies.

Injective Protocol Team
The founders and some team members. Image via Publish0x. 

Eric Chen is the CEO and a co-founder of the project. He has a Bachelor’s degree in Finance from New York University and is also a Venture Partner at Innovating Capital, which was one of the early investors in the Injective Protocol.

Albert Chon is the CTO and a second co-founder of the project. Prior to founding the Injective Protocol he was a Software Development Engineer at Amazon following the completion of a Master’s Degree in Computer Science, with a specialization in Systems from Stanford University.

Other members of the team include full stack developers, Solidity developers, Golang developers, as well as specialists in financial markets and marketing research.

The team is also supported by a number of venture capital firms such as Pantera and Binance, as well as seasoned blockchain advisors like Sandeep Nailwal, the founder of Matic, and Andreas Weigend, a former Chief Scientist at Amazon.

INJ Tokenomics

The INJ token serves a number of utility functions, but it’s primary purpose is as the governance token for the Injective Protocol. It gives holders the right to propose protocol changes, and to vote on whether or not to adopt those changes.

INJ Tokenomics
Tokenomics for INJ. Image via 

A second use case for the token will be as collateral for lending platforms. In the same way that stablecoins are used as collateral in DeFi platforms users will be able to lend INJ tokens for use as margin in the derivative markets created on the platform.

Plus the INJ tokens could also be used for such things as insurance pool staking or collateral backing to generate passive interest income.

In addition the token will also be used as an incentive for relay node operators and market makers. In the system being created makers pay a 0.1% exchange fees, but takers pay a 0.2% fee.

This will actually allow makers to receive a net positive payment in rebates, which will help incentivize the provisioning of liquidity. Once liquidity is create the markets will enjoy tight spreads and considerable market depth.

On top of all that the nodes and validators will be able to improve their API or interface to cater directly to trades and be rewarded for doing so.

Remaining exchange fees can be used to buy back tokens and burn them in a deflationary manner, adding value to the remaining tokens by the decreased supply.

And finally a portion of the INJ available will be distributed to users based on their notional profits. Users with the greatest notional profits will also receive the greatest INJ rewards, which should reward those who use the platform the most. These rewards will be calculated based on a daily snapshot.

INJ Token Performance

A good portion of the excitement surrounding Injective Protocol has come from the performance of the INJ token. Back in November 2020 the token was trading around the $0.75 level, which was pretty good already considering the token debuted on the Binance Launchpad a month early at $0.40, giving Launchpad buyers a near 100% return in a month.

Then the price started climbing further and by December was around $1.50. Taking profits then may have been tempting, but those who did are probably kicking themselves today. From the $1.50 price in December the INJ token soared to reach $16.87 on February 19, 2021.

Many people may have sold at that level and in the following month, and price pulled back, but never dipped below $10. Instead it’s resumed its rally, reaching an all-time high of $21.45 on April 21, 2021.

INJ Price
The price history for the INJ token. Image via 

Whether the rally will continue or not is something we can’t answer. In the two days following the all-time high the price has already dropped nearly 25%, putting it at $15.65 as we write this review.

Will it continue lower and test the recent lows around $10, or recover to set a new all-time high? That’s up in the air, but speculation of the mainnet launching soon seems to be keeping the price elevated.

The Injective Protocol Roadmap

As you can see from the roadmap below the team is going to be quite busy in the coming months, and those who are excited about the project should be even more excited to see that V1 of the mainnet is due to launch in the second quarter of 2021.

Also exciting is the launch of governance in the third quarter of 2021. Taken all together 2021 is a very exciting year for this project.

Injectus Roadmap
2021 will be a busy year, and impressive if the team completes the roadmap. Image via Injectus Protocol Blog. 


In its current form the Injective Protocol is likely to take decentralized derivatives trading into the next generation. Unlike the currently available DEX platforms the Injective Protocol will get rid of front running, while improving liquidity and order execution. And thanks to the level-2 scaling INJ will have plenty of throughput to facilitate trade transactions.

We note that the exchange looks to solve the problems plaguing the current CEXs while preserving the features that make them novel. Plus fees should be far lower than traditional platforms, and insider trading should be kept to a minimum, if not eliminated.

As far as the hype surrounding the project, traders seem very interested and very excited if the run-up in the token price is any gauge of interest. The question is whether or not INJ can remain at elevated levels once the mainnet is launched, or if it will retreat as we’ve seen happen in so many other projects.

Perhaps it will remain elevated as INJ provides a strong use case, and holders are incentivized not to sell through the staking mechanism.

If you’re reading this and you’re a trader you may want to check out the testnet and see if it’s worth your time to keep an eye out for the launch of the mainnet.

Steve Walters

Steve has been writing for the financial markets for the past 7 years and during that time has developed a growing passion for cryptocurrencies.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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