A Fresh Perspective: Exploring Value Creation with Injective
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TL;DR
- Injective leverages Cosmos technology for high scalability, introduces plug-and-play modules for developers, and offers low fees and instant transaction finality, setting a new standard for blockchain efficiency and developer friendliness.
- With a focus on deflationary tokenomics through INJ 2.0, strategic airdrops to engage the community, and the $150M Injective Venture Group to support new projects, Injective emphasizes ecosystem growth and value creation.
- As a blockchain built specifically for finance, Injective combines the speed of Solana, the accessibility of Ethereum, and the interoperability of Cosmos to serve developers, users, and financial institutions effectively.
1. Introduction
Injective is continuing to surge in momentum, becoming the best performing asset of the past year. Uniquely, Injective’s growth only seems to be accelerating with a large number of dApps launching on the chain and active user numbers rapidly rising as well. In fact, Injective is now processing more transactions daily than many other leading chains with major releases occurring nearly every other day.
However despite all this, Injective remains highly underrated and overlooked. With constant innovation in the blockchain sector, I wonder if people are appraising Injective through a fresh lens, beyond its current status. Let’s delve into the recent surge of the Injective and explore new areas that can continue to create massive value.
2. A Deep-Dive into the Blockchain
1. Tech
In 2018, Injective embarked on a journey into DeFi years before DeFi projects began to take the world by storm. Over the years, Injective has grown with a clear focus on building a blockchain for finance. Several crucial factors come into play when employing blockchain as a financial infrastructure, with key considerations including 1) fast transaction processing speed (TPS), 2) instant finality, 3) low gas fees, and 4) interoperability.
Lightning Fast Transaction Speed
In the pursuit of scalability, blockchains have dedicated significant efforts over the past decade. Many claim to have achieved rapid scalability within their self-defined decentralization frameworks.
Injective has uniquely optimized the core Cosmos tech stack to rapidly scale beyond existing L1 networks today. By making core performance upgrades to allow validators to establish direct peering with one another, Injective has managed to achieve subsecond block times with instant finality. The foundation asserts the capability to surpass 25,000 TPS, more than sufficient to meet their finance infrastructure objectives.
Plug-and-Play Modules
A major value proposition of Injective is the creation of plug-and-play Web3 modules designed to simplify and improve the dApp development process.
In essence, plug-and-play modules are pre-configured components that builders can integrate into their applications to expedite the development process. This includes the world’s first fully on-chain orderbook, binary options, oracle and automated smart contracts.
For instance, if a developer wishes to launch a derivatives exchange they can do so by combining these modules together in mere hours. On another chain, the dApp creation process would take months and at times years since developers do not have access to such modules as on Injective.
Unified Liquidity
Injective offers a shared liquidity environment for all on-chain applications to utilize with ease.
Over the past few years, Injective has directly integrated some of the largest institutions directly onto its on-chain orderbook. This means that new dApps released on Injective can directly tap into one unified liquidity layer, further accelerating capital efficiency. In this model, a transaction on dApp A can seamlessly be matched to one sent by a user on dApp B. This not only minimizes liquidity fragmentation but allows new projects to launch on Injective with high liquidity from day one.
Instant Finality
Personally, I believe that instant finality is a fundamental requirement for a financial system. Consider Bitcoin, which operates on the Longest-Chain Consensus algorithm, necessitating users to wait a few more blocks to ensure that no forks occur before transaction finality can be guaranteed. This delay can result in prolonged processing times, especially evident during deposit or withdrawal transactions on exchanges. From these examples, it can be assumed that the conditions for the completion of a transaction are closely related to finality. Recognizing the criticality of transaction finality, many chains have turned to Byzantine Fault Tolerance (BFT) consensus algorithms. Injective adopts the Tendermint Core BFT Consensus framework precisely to ensure instantaneous finality.
Near Zero Fees
Injective currently offers the lowest gas fees compared to general purpose blockchains. Notably, in January of this year, Injective introduced gas compression through the collaborative consensus of Injective’s validators — a feature aimed at reducing gas fees further. This initiative is expected to culminate in near-zero gas costs for blockchain transactions, thereby lowering the entry barrier for on-chain experiences. These advantages underscore the benefits of launching a proprietary blockchain over a general-purpose chain.
Interoperability
Interoperability, though a broad term, primarily refers to the seamless interaction between different blockchain networks through multichain bridges. This capability hinges on a chain’s ability to support multiple protocols, facilitating complex services within a single chain. Injective stands out for its unique approach; while being highly interoperable, it concurrently supports Wasm, inEVM, and inSVM. This support for multiple virtual machines enables the utilization of various VM-based protocols on a single chain, enhancing interoperability even without the necessity of multichain bridges. Moreover, Injective facilitates asset transfers to other Layer 1 networks through bridges like Wormhole, further augmenting its interoperability features.
Other Differentiators
Injective implements measures to prevent MEV within its blockchain. Different Layer 1 chains adopt varied stances towards Miner Extractable Value (MEVs); for instance, Ethereum is rampant with MEV at the infrastructure level, leading to major downstream issues for both protocols and users alike. The advantage of deploying a service on a proprietary chain, as exemplified by Injective, lies in the ability to make such critical decisions at the infrastructure layer. Contrastingly, deploying on a general-purpose chain like Ethereum would necessitate increased structural complexity to address similar concerns.
Injective eliminates MEV with its unique implementation of a frequent batch auction model on chain. This effectively, randomizes transaction ordering rather than prioritizing transactions based on fees paid as is the case on other major chains. This in turn allows Injective to offer an environment suited for sophisticated transactions or larger financial institutions to integrate without common issues found on other blockchains today.
The table above provides a summary of a few of Injective’s highlights. It indicates a meticulous approach in aligning with Injective’s tagline, “the blockchain built for finance.” The chain is fully decentralized with the emphasis remaining on delivering a better experience for developers and users alike.
2. Tokenomics
In 2021, the Ethereum Merge (the network transition to PoS) and EIP-1559 upgrade successfully shifted Ethereum’s tokenomics towards a deflationary model. Given Ethereum’s robust market position in the three years following these updates, it becomes evident that fostering a sustainable ecosystem requires regulating the ratio of minting to burning.
Similarly, Injective introduced INJ 2.0 tokenomics in August 2023, under the tagline “True ultrasound money.” This overhaul redefined its tokenomics, wherein a pool comprising 60% of the accumulated transaction fees on the protocol is auctioned off every week, with the bids subsequently burned to regulate the circulating supply. Notably, the INJ burn auction has consistently incinerated tokens every week, with the most recent instance burning $210,000 worth of INJ tokens.
Injective’s tokenomics overhaul indicates the foundation’s belief in motivating developers and individuals through value creation via tokens. It draws parallels with Ethereum’s deflationary tokenomics, suggesting effectiveness in fostering sustainable growth. The notable surge in token price during October and November further underscores the significant impact of this overhaul on Injective’s market capitalization.
As more dApps and protocols continue to launch on Injective, the token burns would follow as well. In this manner, the growth of the chain directly ties in with the growth of Injective’s token burn via the launch of INJ 2.0.
3. Ecosystem Airdrops & Injective Venture Group
Airdrop to token stakers is a marketing strategy that is consistently used since 1) the target audience is a group of users who are actually active on-chain, 2) stakers are more loyal to the service, and 3) the lock-up effect of staking can reduce selling pressure to some extent. Of course, it’s unusual that protocols launched back-to-back airdrop events as in the recent bull run.
For INJ 2.0 tokenomics to effectively function, a virtuous cycle must ensue wherein numerous transactions occur on the chain, thereby augmenting value for users and subsequently driving further transactions. In pursuit of this, a strategic bootstrapping strategy was undoubtedly imperative. The recent succession of airdrops has successfully executed this strategy, serving as an effective marketing tactic.
Since November 2023, numerous protocols have undertaken airdrops for $INJ stakers, with notable examples including Wormhole, Hydro Protocol, Stride, Pyth, Tails, Celestia, Nois, and Kinetix Finance. These initiatives have catalyzed a rapid surge in active accounts and subsequently contributed to a significant increase in market capitalization. With a large number of dApps on Injective who have yet to launch their tokens, we can only expect that the number of ecosystem airdrops will continue to grow in the coming months.
In addition to airdrops, Injective also initiated an ecosystem initiative during last year’s bear market with a $150M Venture Group. This was created with some of the largest venture cpaital firms in Web3 including Pantera, Binance Labs and many more to support projects on Injective. Considering the typical timeline of 6 months to a year for protocol launches, it is reasonable to infer that the Injective Venture Group, launched on January 23rd in 2023, serves as the cornerstone of the current Injective’s services.
3. New Value Creation
As highlighted in the introduction, blockchains operate in an open-source ecosystem. Within such ecosystems, the need for recognition, as well as the uniqueness of the problem and the number of people who acknowledge it, are crucial. Blockchains like Ethereum and Cosmos Hub have successfully cultivated ecosystems where individuals willingly participate and contribute their skills. This success stems from their open-source nature, unique problem domains, and a sufficient number of like-minded individuals.
However, as blockchain transitions from being solely a technology to also functioning as a service, new avenues of value creation become essential. Here’s what we’ve gleaned from Injective:
Technological Edge as a L1 for Finance
Injective has built the world’s first sector specific blockchain.
The network has customized the infrastructure layer while introducing novel components such as Web3 plug-and-play modules, lightning fast transaction times, the lowest gas fees and the elimination of MEV. In addition, the chain includes Ethereum native tooling invented by core Injective developers with the ability to sign on-chain transactions with Ethereum based wallets such as MetaMask.
The inclusion of a multi virtual machine platform allows Injective to host a wide range of developers from all ecosystems in one integrated universe.
With these technological advancements, Injective has created a highly performant chain that combines the execution speed of Solana with the developer access of Ethereum and the interoperability of Cosmos.
Recognizing the Uniqueness of the Ecosystem Members
While many blockchains claim to prioritize service orientation and aim to build organic open-source communities, they often overlook the fundamental motivation behind developers’ contributions to open-source ecosystems. To truly provide a service, it’s essential for blockchains to integrate the users of that service into the ecosystem. This means understanding users’ needs comprehensively, particularly when leveraging the blockchain for financial infrastructure.
Injective uniquely caters to this exact audience with systems in place to onboard both everyday users, developers and institutions alike. Users can benefit from Injective lightning fast speeds and low costs. Developers can seamlessly build new applications using Injective’s plug-and-play modules, multi VM infrastructure, automated smart contracts and more. Financial organizations can leverage Injective’s unified liquidity and institutional gateways.
Token Utility
In many L1 chains and Layer 2 solutions, tokens often lack clear utility and primarily serve governance functions within the protocol. However, Injective’s market value growth exemplifies the potential for tokens to generate returns through tokenomics, high token burn auctions and holding incentives such as airdrops. As more protocols consider strategies to return value to token holders, investors are likely to mature in their token valuation methodologies, evaluating ecosystem sustainability based on the balance between value creation and associated costs, including inflation and network maintenance costs.
4. Conclusion
As numerous blockchains have emerged and vanished, it becomes imperative to assess the value of blockchain as a service, rather than solely gauging the worth of the open-source ecosystem as a technology.
As described in this article, Injectivehas endeavored to establish clear objectives and distinguished itself through technological innovation, in contrast to general-purpose chains. This approach is rooted in a deep understanding of service users, a reconsideration of tokenomics, the development of high performance infrastructure and the successful execution of marketing strategies aimed at delivering value to token holders. I anticipate that such a strategy will become increasingly prevalent as blockchain-based services continue to evolve and become more sophisticated. My aspiration is that this article will aid investors in evaluating the value of blockchain and assist builders in formulating effective strategies.
