Injective Protocol AMA with Wolf Crypto
We held an AMA with Injective Protocol in our public Telegram channel on August 14th.
Injective Protocol is the first front-running resistant, layer-2 exchange protocol that unlocks the full potential of borderless finance by supporting margin trading, derivatives, and futures.
Unlike other decentralized exchanges, Injective is truly decentralized and does not have any centralized component…orders are posted and matched on the sidechain in real time.
Injective Protocol features include -
- Decentralized Lending/Margin Trading
- Decentralized Futures & Derivatives Markets
- The ability to create and trade on any derivatives market of your choosing
- Community-oriented governance, users vote on the future of the platform
Injective currently supports Ethereum, TrueUSD, Injective, Dai and MKR as underlying assets/pairs on the platform and is backed by several world renowned funds, led by Pantera Capital and Binance Labs.
You can visit the Injective Protocol Protocol Telegram channel or Injective Protocol Protocol website for further details.
Here’s what Injective Protocol Protocol’s Eric Chen had to say in the AMA.*
*This AMA has been edited for clarity.
WC (Wolf Crypto Telegram Member)
INTRODUCTION
Welcome to yet another AMA in our series of DeFi related AMA’s!
Joining us from the Injective Protocol Protocol team today is Eric Chen.
TEAM & TEAM GOALS
WC
Hey Eric, I’m really excited to chat to you today, as all the DEX and DeFi stuff that is happening on the scene right now is really helping to bring back some of the core ethos of what crypto used to be about, and is helping regain some control back for the everyman when it comes to the centralised entities that, for want of a better term, “control” crypto…
(I’m not going to say anything about YAM’s or gas fees right now though…lol)
Before we get into all of that though…
How about you team me a little about yourself and some of the team members who aren’t joining us today?
EC
Haha!
Hey Everyone! I’m Eric Chen, CEO and Co-founder of Injective Protocol.
Prior to Injective, I was a researcher at Innovating Capital working on trading strategies and protocol research. Before that I was also part of the NYU Blockchain Labs.
Albert couldn’t join us today but he is the CTO and Cofounder as well.
Prior to Injective he was part of OpenZeppelin and Amazon, before that he was part of the Stanford Applied Cryptography Group under Dan Boneh.
WC
Nice, thank you for the backgrounds, impressive!
So in your own words, why don’t you tell us about Injective Protocol Protocol and how you fit in with the new wave of DEX + DeFi that’s powering the scene at the moment?
I’d love to hear your opinion on the dramatic shift towards DEX’s over the past 6 months as well, how you feel this improves the crypto ecosystem as a whole and what you think are the challenges for DEX’s moving forward…
EC
Injective Protocol is a fully decentralized layer-2 derivatives platform. We’re built on top of Cosmos and Ethereum and utilizes VDF as well as optimistic rollup to scale Ethereum transactions in a gasless manner while ensuring trading security.
So we’re one of the more old fashioned orderbook exchanges but it dosen’t mean we can’t support AMMs down the road. What we’re really different from other DEXs you see is that we’re one of the very few orderbook exchanges that is fully decentralized, and certainly the only layer-2 derivatives exchange to do so.
WC
“More old fashioned orderbook exchanges”…
I love that’s even a thing, whoever thought order books would become old fashioned!
I guess real Chads who just market buy 😉
EC
Haha crypto moves really fast!
It honestly came as no surprise to us that DEXs will become prevalent one day.
We knew from early on that DEXs like 0x at the time had a superior user onboarding flow than CeFi for a typical token holder wishing to make a 1-time exchange for their assets. However, DEX growth has always been impeded by liquidity. The constraints of Ethereum create a poor environment for market makers and expose them to unnecessary risk.
The recent dramatic shift is partly due to the prevalence of lending and staking coupled with composability between various on-chain protocols. We start to see liquidity rushing in driven by incentives along with a positive feedback loop of network effects. That being said, the sustainability of this recent rush of liquidity subsidized by yield mining is yet to be proven. But I am personally optimistic that DEX liquidity is here to stay.
THE INJECTIVE PROTOCOL ECOSYSTEM
WC
Liquidity incentivisation is a beautiful thing, I can’t wait to talk to you about your plans there…
Nefore we do though, let’s take a slight step back for a second and talk about why Injective Protocol is being developed and what additional benefits it brings to the DEX/DeFi ecosystem described previously?
EC
Injective started off as a research project finding ways to build a fully decentralized orderbook exchange without the common security issues we faced like front running, trade collision, gas auction, and miner extractable value.
Right now due to the constraints of Ethereum, on-chain settlement has proven to slow, probabilistic, and overall trader unfriendly. We aim to build the most trader friendly platform with uncompromising decentralization via layer-2 scalability!
WC
“On-chain settlement has proven to slow, probabilistic, and overall trader unfriendly”
You forgot expensive, ETH gas miners are rejoicing atm…Yield farmers are single handedly supporting the ETH mining economy right now!
EC
Haha! Never would have thought ETH gas is more expensive than real gas!
Our futures protocol is also one of the few out there that supports permissionless and open market creation. Due to our infrastructure, we can also calculate funding rate in a decentralized way without having to sacrifice additional liquidity!
WC
That sounds like a good segue for me to delve into the product stuff before we get to the blockchain and token stuff….
You have several features that make up the Injective Protocol ecosystem and power the platform and abilities performed within…
How about you list them off and we’ll go through them one by one?
EC
Let’s start with Injective Chain!
Like I mentioned before, The Injective Chain is a layer-2 sidechain and Cosmos Zone connected to Ethereum.
We leverage verifiable delay functions (VDFs) to enforce a fair transaction ordering consensus that reflects real-world time via proof-of-elapsed-time, solving critical race conditions and miner extractable value issues present in Ethereum.
Currently, Injective Chain powers our layer-2 derivatives platform, serves as a decentralized Trade Execution Coordinator (TEC), and hosts a decentralized open orderbook.
The chain itself is built on top of Tendermint and allows for transferring and trading Ethereum-based assets on the Injective Chain.
In the future, Injective will be integrated with Cosmos IBC once it’s fully ready, bringing advanced inter-chain decentralized finance capabilities.
For Injective Exchange, Injective makes exchange a decentralized public utility as Injective’s model rewards relayers in the Injective network for sourcing liquidity.
By doing so, exchange providers are incentivized to better serve users, competing among each other to provide better user experience, thus broadening access to DeFi for users all around the world.
Here’s the fun part…As for Injective Futures, in our initial launch, we will focus on the huge derivatives market which will run on the Injective Futures Protocol — our decentralized peer-to-peer futures protocol.
Our protocol currently supports decentralized perpetual swaps, contracts for difference (CFDs), and will be expanded in the future to support many other derivatives! Our protocol allows individuals to create and trade on arbitrary derivative markets with just a price feed.
We believe that this is a huge, untapped market with much demand and opportunity to serve unmet needs that even current centralized exchanges do not (or rather cannot) meet.
We will be announcing more details about our exchange protocol and about our upcoming testnet trading competition soon…Very soon actually!
WC
That’s cool, I’ll ask more about relayers and validators a bit later, I’m interested on how you can run one and what the incentives are for doing so
Firstly though, do you have any visuals as how the exchange will look like and function?
A picture tells a thousand words, as they say…
EC
One sec let me snap one right now…Here’s a sneak peek of our exchange!
WC
Looks clean 😊
EC
We’re testing it internally to get ready for the upcoming trading competition!
Once that’s launched, the price chart will be filled with a lot more candlesticks haha…Also spot the market we’re doing!
WC
Green candles hope!
Before we get into the rest of this, I wanted to tap your brain for a second on the deretitives you plan to have on the platform.
One of the things I really love about FTX, is their derivatives products, they have some really unique and interesting ones on there…
The thing I really hate, is that most of them are illiquid and you end up trading against the exchange itself!
What makes Injective any different to this and how spicy are you going to get with your derivative products?
EC
Let’s just say it’s going to be much more spicy.
Since only a price feed is needed to create a derivatives market, we have a lot of flexibility when it comes to market creation.
I also noticed the liquidity issue on FTX’s unique markets.
WC
It annoys me as it seems it becomes more of a prediction market of you vs the exchange as opposed to an open tradable market. If you’re going to do prediction style trades, may as well use Augur or something instead…
I’d rather lose my money to someone else who’s not named Sam…
Re your previous answer, is the price fed you refer to there, internal to your platform or something that is pulled using external data (I’m angling for a LINK connect here, if it’s not transparent enough) 😉
EC
The way we structure our market is to ensure that we have liquidity focused on a few markets. This way when we launch, the markets will not be all over the place. But we won’t be putting too much focus on main pairs like ETH/USDT or BTC/USDT, afte rall Binance and other CEXs probably do a better job.
So expect our markets to be very interesting and highly relevant to the current farmer’s market as well…and that’s why we’re also conducting the derivatives market design competition, it’s to make sure that we gather a lot of cool ideas. We’re open for any oracle solution long as you implement the oracle interface.
As a matter of fact, we partnered with Kava recently to partly tap into the Chainlink price feed without having to spoon it on our own chain.
WC
Nice, two very solid tech partners there…
You kinda set me up there with the farmers market thing there, as I wanted to get a bit more detail on the Decentralized Lending side of things, as this is obviously a hot topic in crypto right now…
Why would I use Injective over all the other lending platforms out there and what sort of access to lending platforms/pools will a user have on Injective?
EC
So we actually don’t do lending. Our futures protocol can be switched around to support margin trading, but it’s not our focus right now (we’re working on updating our website haha).
But what we can do, is to generate a yield index to track farmer gains, this way the common folks can gain exposure to the crazy farmer yields without having to get their hands dirty in the fields
WC
Hmm, that sounds interesting, so you run a basket of DeFi coins and your users can buy exposure to the yield from it?
EC
It’s a bit more comprehensive than that, the index will track your yields as if you staked into a basket of pools.
WC
So does that mean you end up being something like yearn, where it’s your strategy working to produce the best yield where it can be found?
EC
Yes you got the idea!
WC
Nice, that’s cool…I’m really holding off on asking about token stuff til the end, but since you said that, I have to ask in that context, does INJ have any governance over that and the strategies in place?
EC
It depends on who ends up launching the market.
We’re open and permissionless so if a 0xc4ad deployed the market before us and gained a lot of popularity, we likely cannot integrate governance. But if we do, we will open up a periodic voting to readjust the basket.
It’s quite simple to do so because it ties to the oracle contracts not the core futures protocol.
WC
I like the sounds of that, sounds very gamified 😊
And as @ivangbi says, we are all 0xc4ad 😉
EC
Haha!
WC
Where is the market that you are particularly interested in ?
How bout you give a bit more details on who can list markets, pairs etc on Injective, how that works and how it makes you different to other platforms?
EC
We have a small burn mechanism (Probably less than the cost of actually deploying the contract on ETH these days….) to make sure you’re not spamming.
But other than that, it’s completely open.
For our official client, we will only display a selected few markets (will add governance on it later!) with the most liquidity, but nothing stops someone from forking our client to display all the markets.
It’s even encouraged to mess around with our official client…
WC
So if someone does fork the front end, similar to 0x, TOMO etc solutions, they can host their own DEX, however everything goes over your protocol and thus uses and increases the utility for the INJ token right?
EC
Correct, they can also get some nice fees from it…
WC
I am going to to setup a Wolf DEX on 0x, TOMO and now Injective soon…so I can dump all my bags on there 😉
So speaking of fees, that’s a good segue into validators and other incentivisted users of the network
Can you please explain the various roles, how they’re incentivised and who gets to be a validator?
EC
As long as you our your validator pool accumulated enough stake, you can join the consensus!
You can also join in on validator pools to capture the PoS yields as well
WC
I don’t suppose you have some hard numbers on these requirements just yet?
EC
Not yet ;)
Beyond validators, there are also several roles that we will package them into one client. For simplicity, we will just call them nodes…
The role of a node is very interesting, for starters, anyone who “routes” their order through you by having them add your address in their order message, you capture 40% of the fees.
If they don’t add any message, they still pay the full fees, so while traders are at it, they’re incentivized to not deal with the cost of running a node and just help out a friend;
Now this model becomes very robust once you get creative with it
1. It’s a referral model for nodes to drive users. Someone can create a referral link to have new users download/access the client with default connection to the referrer node
2. When VDF hardware gets more and more sophisticated, traders can just submit their order to multiple nodes and have the nodes compete amongst them to compute VDF as fast as possible and get the fee
3. Someone can launch a specialized exchange (there are already partners digging into it) that offers a unique set of market or competes in user experience. It’s quite simple to enforce the users to connect to a particular node to access the interface or markets
WC
I think you’d best tell us what VDF is at this point!
EC
Haha sure!
So I’m not sure how deep you want me to go here.
Basically the ordering of our transaction in our consensus is enforced by VDF proofs.
After you submit your transaction, you continuously compute VDF and update the time proof on your existing transaction
At the end of the consensus round, you will obtain the most up to date VDF time proof
So Solana is actually using this model for their consensus. Abeit in a very different context…needless to say they copied us…jokes jokes!
We kind of came up with the idea at around the same time independently
But Solana incorporates a hash chain as VDF candidate, which shouldn’t be counted as a VDF but they understandably did so because the cryptography circle moves very slowly.
Let me shoot over some links for you guys to read up on.
A good starting point is our whitepaper —
We didn’t write a whitepaper to talk about the whole project with token and whatnot, this whitepaper dives into what we consider as our critical point of innovation.
WC
This is some big brain stuff!
From my pleb understanding of things, VDF on Injective ties into frontrunning and some of the protections you have built into the network to stop that from occurring?
EC
Correct, once the transaction ordering is done through VDF which computes close to wall clock time, you can’t frontrun by pumping gas…
WC
So I have a couple more questions on the exchange side of things, before we get into the token and the token sale…
One of the things thats come up with the MANY MANY exchanges I have spoken to over the years, no matter what their other value propositions are, is liquidity…you could have the best exchange in the world, yet if no-one trades on it, it’s like a tree in the forrest…
So tell me, what’s your approach to solving this age old problem?
EC
There are 3 ways (i might be bad at counting so lets see) we tackle this by —
1. We partnered up with a lot of market makers and almost all of our investors are market makers or traders turned VC’s.
We recently raised a round from Pantera Capital with participation from QCP Soteria, Axia8 Ventures, K42, Boxone Ventures, Bitlink Capital, Smile research, and few more.
You might be wondering why the names look so unfamiliar, that’s because most of them are market makers haha!
Boxone Ventures might be unfamiliar to everyone but it’s one that I’m quite excited about. Josh Felker is behind this, he used to be an HFT OG who founded Vigilant trading (acq DRW) and then later joined DRW as a partner.
2. We have a strong incentive system like I touched on with the role of “nodes”. market creators are also highly incentivized to market make on the markets they create because they get a cut of fees for their own market
3. The fun part…during the initial stages, we will be performing distributions weighted by PnL. So if you have an open interest or closed position that day, your performance will be counted towards the daily distribution
Sound familiar?
WC
Haha…very interesting.
When you say “distributions”, this is INJ as rewards right?
EC
🧑🌾 🧑🌾 Correct!
WC
Haha…This will be fun!
Liquidity incentivisation is a bit of a fav topic of mine atm, can I ask, have you looked into tech like Hummingbot.io and any plans to allow pleb market makers like myself to participate on the platform using such tech?
EC
Actually yes. It’s been a while since I checked up on Hummingbot but in general we will build an out of the box market maker for everyone to market make.
BTW we have maker rebate, so you earn our tokens by placing filled make orders…and I guess I’m bad at counting after all haha!
WC
Lets talk fee structure, as when it comes to MM, that’s a massive consideration.
What is your structure and how does it compete with other DEX’s and CEX’s?
EC
The fee structure is not public yet but we are going to set a low base fee and adjust later on through governance.
For MMs the fee is actually net positive haha so it’s not a problem…
WC
Ok so lastly on liquidity incentivisation, we’ve spoken about it for the exchange itself, but how about for trading pools of your own token…
Uniswap for example…
EC
It certainly is part of our plan to create pools but the timeline depends on what token issuance/launch platform we’re going with..
INJ TOKEN UTILITY
WC
On the subject of token…
Why token and what utility?
EC
The core utility of the token is for Proof of Stake consensus, can’t do one without it haha!
But we went on to reflect the exchange value directly back to the token itself, all of the exchange fees after incentive distribution (re: node part) is collected into a pool and auctioned off periodically.
The smart contract can just select the bid with the most INJ offered and then burn it, so we have both an inflationary mechanism through PoS as well as a deflationary mechanism through burning
The better the exchange does, the more we burn…and the more deflationary it gets…
WC
Ok so can you explain to me a bit more the dynamics behind both an inflationary and deflationary token model?
Injective isn’t like AMPL is it?
You’re not going to rebase me down to zero and rekt me are you?
EC
No haha…AMPL and YAM was fun and all…
But for Injective, the proof of stake generates approximately 7% and then gradually decrease to 2% every year.
Whereas the buyback and burn model is completely dependent on the exchange fees the protocol generate
WC
Gotcha, so they’re more independent yet complementary?
EC
Correct!
WC
Is you burn model a rip off of the BNB model?
(not the worst one to rip off if you going to do one)
EC
It’s a rip off of most exchange models haha, but we burn all of them and it’s fully on-chain and transparent.
This section in our docs is a generalization of what I discussed on tokeneconomics —
WC
Haha, as they say, if it ain’t broke, don’t fix it!
Before we get to the token sale part, we spoke briefly on gov before…
Can you give me a bullet point breakdown on what it could be used for?
EC
We have a pretty generalized governance model —
- Smart contracts can be updated/upgraded through the governance contract. Initially it will be a v1 without governance to make sure that we have all the data required to make the right threshold (no yam 2.0!), and then we can quickly migrate to v2 with governance after.
2. As for the chain, it’s done through proof of stake with 2/3 voting, we try to keep it simple on that front.
There are a few of key parameters on the futures protocol that can be updated without swapping the entire contract, we’ll release more detail on that soon!
INJ TOKEN SALE
WC
Ok nice, so the token sale…
When, where, how?
EC
TBA, TBA, TBA haha!
But I can guarantee you that it will be done over the next 3 months.
WC
Do you have public token metrics yet then?
EC
We’re still making the decision on that one and for some plans out there we have to keep a tight lip.
The total supply will be 1 billion and initial circulating supply will be approximately 10–15% of that.
WC
No token price yet so I can work out the day one marketcap?
EC
Haha no unfortunately, but we’re not crazy like Serum.
WC
No 7 year locks please…need to feed my family…
EC
It’s actually 8 for Serum. Haha!
DUE DILIGENCE CHECKS
WC
So I usually end my part with a few DD questions before we take community ones…
Does Injective Protocol have a Github?
EC
Yes…more repos will be open sourced over the coming month.
WC
Where are you based and where are you incorporated?
EC
We’re fairly global but I’m in NYC and we’re incorporated in a few places including US, Panama, Caymans.
Each entity has their own purpose.
WC
Do you have a legal opinion that your token isn’t a security?
EC
Yes.
WC
Have your smart contract’s been audited and can we see the results?
Or are you a chad who tests in production?
EC
I like to walk on the edge and fall but in this case we will be audited for the coming testnet.
CLOSING THOUGHTS
WC
Guys I believe Eric has a call on the hour he has to jump on, and we’ve been at it for two…
If you want to leave questions here, maybe Eric can drop back in later, or you can take it to their Telegram, group…
And Eric, I’m keen to have you back when you can talk more about the sale Eric 😉
EC
Sorry guys wish I answer more questions but I lost track of time with this super fun AMA!
Stay tuned for the trading competition end of this month, that’s when we open up the testnet to the general public!
Injective Protocol Resources
Website: https://injectiveprotocol.com
Telegram: https://t.me/joininjective
Medium: https://medium.com/injective-labs
Twitter: https://twitter.com/injectivelabs
Whitepaper: https://docsend.com/view/zdj4n2d
Wolf Crypto Resources
Public Group: https://t.me/WolfCryptoPub
News Channel: https://t.me/WolfCryptoAnnounce
Twitter: https://twitter.com/WolfCryptoGroup
