Interpreting Injective (INJ): A comprehensive evaluation of DeFi project based on SWOT

Evaluating DeFi projects based on SWOT analysis for injective properties.

Researcher Andrey Didovskiy will conduct a SWOT analysis of Injective (INJ), a blockchain built specifically for DEFI (using Cosmos SDK).

Author: Andrey Didovskiy

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

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The SWOT analysis framework consists of four elements: strengths, weaknesses, opportunities, and threats. It provides an excellent bird’s-eye view perspective for evaluating project health. It can help make decisions about which areas need more attention, set performance goals, and organize a basic understanding of project development direction.

Although SWOT analysis is rarely (if ever) used in the cryptocurrency space, now is the time to apply this time-honored evaluation method to the digital asset space.

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

Strengths (Internal)

Fully on-chain order book infrastructure

While many DEX projects claim to be decentralized, they do not disclose the degree of their decentralization. In fact, most DEXs are only decentralized at the level of asset custody, meaning that while users retain control over their funds, the exchange itself operates in a closed, centralized environment. Injective takes a more aggressive approach by deploying critical application infrastructure (order creation, acceptance, and matching) on-chain.

MEV resistance

MEV is the biggest problem facing on-chain finance. Injective combats on-chain MEV through two features, FBA (Frequent Batch Auction) and the Skip protocol. Injective has long used FBA, which is predicated on three principles to effectively fight against MEV. First, activity is published in batches rather than individual transactions, eliminating the possibility of transaction reordering or sandwiching. Second, there is a unified clearing price, which eliminates priority by forcing trades to occur at the protocol’s hard-coded set price. Third, all activity is sealed-bid auctioned after submission, eliminating frontrunning. The Skip protocol is an open-source solution that combats MEV by allowing for a round of bidding prior to batch/transaction publication and redistributing these profits to users and stakers instead of searchers, sorters, and miners.

Decentralized Insurance Fund

As a permissionless protocol, Injective allows users to develop their own on-chain derivatives markets. However, derivatives markets are often considered highly risky and building them in a decentralized environment is particularly tricky as they can be completely wiped out, leaving profitable traders with nowhere to extract their profits. With this in mind, Injective has implemented a decentralized insurance fund for each individual market deployment. This insurance fund provides settlement guarantees and mitigates the impact of potential liquidations.

Burn Auction Mechanism

Burning is a widely used module in cryptocurrency tokenomics, however, most are very basic forked versions. Injective has designed its own novel “burn auction” mechanism, where 60% of all transaction fees collected are funneled into an insurance pool (a basket of different assets). Once a week, this pool is auctioned off to Injective community members for INJ tokens. The winning bidder receives the assets of the insurance pool and the INJ tokens that were bid are burned.

Comprehensive Diverse Support

Injective has gained huge credibility and financial support from some of the most prominent figures in the industry, including Blockingntera Capital, Binance, Jump, and Mark Cuban.

Order Book Model

Injective doesn’t use the overhyped AMM trading model that the vast majority of DEXs use, instead opting for the traditional order book matching model. While AMMs do have some positives, order books provide users with infinite granularity and more control over their assets. Given the familiarity that traditional finance has with order books, enterprises and institutions are likely to be more comfortable operating in an environment where the model has already been proven effective.

High Fidelity Throughput

Utilizing POS mechanism, able to process ~10,00 TPS and with blocks taking approximately 1.1 seconds to process, provides Injective with excellent operational efficiency and transaction throughput.

Weaknesses (Internal)

10% Inflation Rate

Given that this inflation rate is not permanent and INJ is limited to a maximum supply of 100,000,000 tokens, this is by no means a stumbling block. Currently, circulating supply is approximately 80,000,000 so we can expect the remaining ~20,000,000 INJ tokens to enter the market over the next 2-2.5 years; thereafter, the inflation rate will be paused. This won’t lead to negative developments for the project, but it may pose potential pressure on upward price movements.

15% Staking Reward Rate

Consistent with high inflation rates, a high staking reward rate can potentially impact upward trends as stakers/network participants may potentially engage in large-scale sell-offs. While it appears that the current group of stakers are experienced long-termists who won’t risk the project’s economic wellbeing for short-term gains, unforeseen circumstances must be planned for. If any large stakers coordinate an exit from the Injective network, their overexposure to INJ may lead to adverse price action.

Opportunities (external)

Built with Cosmos SDK

As a part of the Cosmos IBC (Inter-Blockchain Communication) ecosystem, Injective has tremendous future potential to become a highly interoperable network, capable of conducting cross-chain activities seamlessly and fluidly. Additionally, 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 Pyth Integration

Injective is the first protocol in the IBC ecosystem to integrate Wormhole and Pyth. Wormhole is a cross-chain bridge that connects to the Solana network and allows asset transfers to/from the Solana network. Pyth is one of the top oracle networks, providing secure data feeds from some of the world’s largest markets (CBOE, Binance, OKX, Jane Street, etc.). The presence of both technologies on Injective introduces theoretically limitless market potential for introducing Solana-based assets (via Wormhole) and RWA tokenization (via Pyth).

Threats (external)

Low Social Presence

Compared to the strong traditional social media presence of most crypto projects, Injective doesn’t appear to be pursuing the development of a strong Degen community. While they’ve recently begun expanding their social style (introducing NFTs), simple experiential observations can infer that their engagement rates are several orders of magnitude lower than other projects of similar caliber. I expect this to change, but honestly, it’s not that important, as Injective’s main development focus appears to be serving enterprise-level clients.

Conclusion

Injective has been greatly underestimated. In the field of DEFI, only a few innovative leaders provide such a powerful architecture and truly differentiated technology, while being so low-key on social media. This is my first in-depth study of the fundamentals of Injective, and after all the checks and research, I will add INJ to my personal investment. I don’t know yet whether I will use their technology, but I definitely want to get in touch with their network.

Note: Blocking all articles only represents the author’s point of view and does not constitute investment advice

Original link: https://www.bitpush.news/articles/4448173

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