Injective Protocol Explained
I would like to explain a new approach to the core of crypto exchange; Injective Protocol. I will try to keep it as simple and informative as I can. I want this article to be worthy of your valuable time. Before starting the article I want to apologise if I make grammar errors, English is not my mother tongue, pardon my language.
Blockchain and crypto enthusiast may find this article a little bit basic but oh well everyone needs to start somewhere to learn right? In this article I will try to explain some concepts of Injective Protocol.
Our Life is Centralized
Everywhere, there needs to be somebody or some group who decide; neighborhoods, cities, countries, companies… etc. We call these people “leaders”. This so called “Leaders” decide for every important matter on our life. You might say “We are in a democracy, we choose them” you are right to an extent but there is always a risk right? Do you trust your government with all of your money? No, you don’t you buy bitcoin and keep it on your private wallet with your keys. This way of leadership management seems familiar right?
This is same for our crypto assets unfortunately, a decentralized exchange can do anything with our crypto assets… That isn’t something you see everyday but let’s say things are going horrible in an exchange and in this scenario, nobody can help you receive your money from Decentralized Exchange cause you don’t have your private keys they do, they can do whatever they want with your money. There is no guarantee!
So, we should have right to NOT HAVING TO TRUST anybody with our money and this point is where decentralized exchanges come on to the stage.
You may ask, “What’s Decentralized Exchange?”
Let me Explain:
What is a Decentralized Exchange?
“DEXs are similar to centralized exchanges in some ways but significantly different in others. Let’s first note that there are a few different types of decentralized exchanges available to users. The common theme among them is that orders are executed on-chain (with smart contracts) and that users do not sacrifice custody of their funds at any point.
Some work has been done on cross-chain DEXs, but the most popular ones revolve around assets on a single blockchain (such as Ethereum).
No KYC
KYC/AML (Know Your Customer and Anti-Money Laundering) compliance is the norm for many exchanges. For regulatory reasons, individuals must often submit identity documentation and proof of address.
This is a privacy concern for some and an accessibility concern for others. What if you don’t have valid documents on hand? What if the information is somehow leaked? Since DEXs are permissionless, no one checks your identity. All you need is a cryptocurrency wallet.
However, there are some legal requirements when DEXs are partially run by a central authority. In some cases, if the order book is centralized, the host must remain compliant.
No counterparty risk
The primary appeal of decentralized cryptocurrency exchanges is that they don’t hold customers’ funds. As such, even catastrophic breaches like the 2014 Mt. Gox hack won’t put users’ funds at risk or expose any sensitive personal information.”
‘Not your keys, Not your coins!’
You may have heard the phrase, this is common saying in crypto scene meaning that if you don’t have the private key to your wallet, do you really own the crypto assets? No you don’t.
As you may know, there are lots of crypto exchange projects around. Almost anyone can create a crypto currency exchange with cash, liquidity and a small team. So what’s making Injective Protocol special? If you are reading this article, I assume you are familiar with crypto exchanges. Binance, Coinbase, FTX are some of them. As you may know all of the listed are Centralized Exchanges (CEX). Injective Protocol is a Decentralized Exchange!
At this point Injective Protocol came to our lives.
Technically it’s still on development phase but the launch is near. Now I will try to explain to you some of the core fundamental parts of Injective Protocol.
- Injective Chain
“The Injective Chain is the core backbone for Injective’s layer-2 derivatives platform and hosts a fully decentralized orderbook, trade execution coordinator, EVM execution environment, and bi-directional token bridge to Ethereum.”
2. Injective Exchange Client
“Injective provides a powerful, full-fledged decentralized exchange open-source front-end implementation allowing anyone to easily participate in our decentralized exchange protocol in a fully permissionless manner.
The Injective Client is a comprehensive yet friendly graphical user interface catered towards the general public as well as more advanced users. Relayers can host the client on a server to allow users to interact with the protocol. Individuals can also run the client from their locally to directly interact with the protocol. The exchange client interface will also be deployed on IPFS.”
Currently Injective-Client repo is private on github but if it goes online in near future you can check the codes here: https://github.com/InjectiveLabs/injective-client
3. Injective API Provider
“Injective’s model rewards relayers in the Injective network for sourcing liquidity. By doing so, exchange providers are incentivized to better serve users, competing amongst each other to provide better user experience, thus broadening access to DeFi for users all around the world.”
4. Injective EVM RPC provider
Ethereum → Injective Chain
“Users can transfer ERC-20 tokens from Ethereum through the bi-directional Injective Token Bridge, which serves as a two-way Ethereum peg-zone for ERC-20 tokens to be transferred to the Injective Chain EVM. The peg-zone is based off Peggy and is secured by the Proof-of-Stake security of the Injective Chain. ERC-20 tokens can be transferred to and from Ethereum to the Injective Chain through the Injective Bridge . The process to do so is inspired by the standard flow as defined by Peggy.”
5. Injective Bridge Contracts on Ethereum
Injective Chain → Ethereum
“The following is the underlying process involved in transferring ETH/ERC-20 tokens from the Injective Chain to Ethereum.
Validators witness transactions on the Injective Chain and sign a data package containing the information. The user’s ETH/ERC-20 on the Injective Chain is burned, resulting in unlocking the ERC-20 on Ethereum. The data package containing the validator’s signature is then relayed to the Injective Bridge contracts deployed on the Ethereum blockchain. Once enough other validators have confirmed that the transaction’s information is valid, the funds are released/minted to the intended recipient’s Ethereum address.”
Closing Thoughts:
Injective Protocol has built the first completely interoperable, decentralized exchange across different blockchain ecosystems. Even though the project is still in production Big Crypto exchanges firstly Binance invested and listed $INJ on their platform. With more listing and announcements demand will increase from public and investors to the platform.
Injective Protocol with these offerings and solutions to scaling, might be the next big DeFi project in comming 2021 year.
“Injective Protocol appears to have pioneered the optimal layer 2, truly decentralized exchange, with protocol fundamentals and token economics ensuring a fully self-sustainable, community DEX for the future.”
I am personally really excited for the mainnet on Q2 of 2021 and the overall future of Injective Protocol!
And If you are confused with this read, check this AMA of Injective Protocol CEO Eric Wang to get rid of your confusion 😉 👇
https://medium.com/injective-labs/injectives-elrond-ama-recap-9ebc6b989e06
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