Interpretation of Injective's advantages, disadvantages and opportunities based on SWOT model

Comprehensively evaluate the DeFi project Injective (INJ) from the fundamentals.

Original title: "Interpreting Injective (INJ): Comprehensive Evaluation of DeFi Projects Based on SWOT" (Injective (INJ) SWOT Analysis: uating the Defi-Facing Blockchain)

Written by: Andrey Didovskiy

Compilation: Deep Tide TechFlow

Note: SWOT analysis is an analysis of operations/fundamentals, not a model for technical or trading purposes. (NFA, DYOR)

The SWOT analysis framework consists of four elements: Strengths, Weaknesses, Opportunities, and Threats. It provides a great insight into project health from a bird's eye view. It can help make decisions about which areas need more attention, set performance goals, and organize a basic understanding of where the project is headed.

While SWOT analysis is rarely, if ever, used in the cryptocurrency space, now is the time to apply this time-honored valuation method to the digital asset space.

Today, researcher Andrey Didovskiy will conduct a SWOT analysis of Injective (INJ), a blockchain purpose-built for DEFI (using the Cosmos SDK).

advantage (internal)

Fully on-chain order book infrastructure

Although many DEX projects boast about their decentralization, they do not disclose the extent of their decentralization. In fact, most DEXs are only decentralized at the asset custody level, meaning that while users retain control of their funds, the exchange itself handles all activity in a closed, centralized environment. Injective takes a more aggressive route, deploying the key application infrastructure of the order book (order making, accepting, and matching) on-chain.

MEV Resistance

MEV is the biggest problem faced in the field of on-chain finance. Injective utilizes two features to combat MEV on its chain, FBA (Frequent Batch Auction) and Skip protocol. Injective has long used FBA, and its premise to be effective against MEV is based on three principles. First, events are published in batches rather than individual transactions, thereby eliminating the possibility of transaction reordering or dissection. Second, there is a uniform liquidation price, which removes priority by enforcing transactions at the protocol's hard-coded set price. Third, a sealed bid auction will be conducted after all activities are submitted to eliminate the problem of front swing. The Skip protocol is an open-source solution that works by allowing a round of bidding before batches/transactions are released and redistributes those profits to users and stakers instead of searchers, orderers and miners.

Decentralized Insurance Fund

As a permissionless protocol, Injective allows users to develop their own on-chain derivatives markets. However, derivatives markets are generally considered to be highly risky, and structuring them in a decentralized environment is tricky because of the possibility of completely zeroing out, leaving profitable traders with nowhere to withdraw their profits. In recognition of this, Injective has implemented a decentralized insurance fund deployed for each individual market. The insurance fund provides settlement guarantees and cushions the impact of potential liquidation.

Burning Auction Mechanism

Burning is a widely adopted module in cryptocurrency tokenomics, however, most are very basic forked versions. Injective has devised its own novel "burn auction" mechanism where 60% of all transaction fees will be collected and deposited into a vault (basket of different assets). Once a week, the library runs an auction to Injective community members for INJ tokens. The winning bidder will receive the assets of the vault and the INJ tokens placed in the auction will be burned.

Full diversity of supporters

Injective has received significant credibility and financial backing from some of the biggest names in the industry, including Pantera Capital, Binance, Jump, and Mark Cuban.

Order Book Model

Instead of the over-hyped AMM trading model of most DEXs, Injective uses a traditional order book matching model. While AMMs do have some positive aspects, order books provide users with infinitely high granularity and give them more control over their assets. Given traditional finance's familiarity with order books, businesses and institutions will likely prefer to operate in environments where they have proven effective model building.

High Fidelity Throughput

Capable of processing ~>10,00 TPS and processing blocks of approximately 1.1 seconds utilizing a POS mechanism, provides Injective with excellent operational efficiency and transaction throughput.

Weaknesses (internal)

10% inflation rate

Given that this rate of inflation is not permanent, and that INJ caps the maximum supply at 100,000,000 tokens, this is by no means a stumbling block. Currently, the circulating supply is about 80,000,000, so we can expect the remaining ~20,000,000 INJ tokens to enter the market in the next 2-2.5 years; after that, the inflation rate will be suspended. This does not lead to a negative development of the project, but it could potentially put pressure on the upward price.

15% staking reward rate

Consistent with high inflation rates, higher staking reward rates may affect the upward trend due to potential mass sell-offs by stakers/network participants. While it appears that the current pool of stakers are seasoned long-termists who will not risk the economic well-being of the project for short-term gain, contingencies must be planned for if any large stakers coordinate their withdrawal from the Injective network. Excessive INJ positions can lead to undesirable price action.

opportunities (external)

Build with Cosmos SDK

As part of the Cosmos IBC (Inter-Blockchain Communication) ecosystem, Injective has great future potential to become a highly interoperable network, enabling seamless and fluid cross-chain activities. Furthermore, by using the Cosmos SDK, Injective inherits the Tendermint consensus protocol; this results in instant transaction finality.

SVM Rollup Rollout (Cascade)

Injective is the first project to release an IBC-compatible environment to share data between the Cosmos ecosystem and the Solana Sealevel virtual machine, which in turn will allow for cross-chain computation and potentially improve the scalability of both chains through shared parallel processing .

Wormhole and Python integration

Injective is the first protocol in the IBC ecosystem to integrate Wormhole and Pyth. Wormhole is a cross-chain bridge connecting the Solana network and transferring assets to/from the Solana network. Pyth is one of the top oracle networks, providing secure data feeds from some of the world's largest marketplaces (CBOE, Binance, OKX, Jane Street, etc.). The presence of these two technologies on Injective introduces a theoretically uncapped market potential for the introduction of Solana-based assets (via Wormhole) and RWA tokenization (via Pyth).

threats (external)

Social presence is too low

Compared with the strong traditional social media strength of most encryption projects, Injective does not pursue the development of a strong Degen community. Although they have recently begun to expand the style of social (introducing NFT), but only through simple empirical observation, it can be inferred that its participation rate is several orders of magnitude lower than other projects of the same level. I expect this to change, but to be honest, it doesn't matter too much since Injective's main focus seems to be serving enterprise customers.

in conclusion

Injective is seriously underestimated. In the DEFI field, only a few innovative leaders provide such a powerful architecture and truly differentiated technology, while being so low-key socially. This is the first time I've delved into the fundamentals of Injective and after all the checks and research I'm going to add INJ to my personal portfolio. I don't know yet if I will use their technology, but I would definitely like to touch their network.