When a decentralized protocol gains an industry monopoly and captures a large amount of profits, can its founding team still adhere to the spirit of open and shared Web3? The recent performance of the Opensea team can be said to have taught us all a vivid lesson.
It has to be said that for the founding team of Opensea, after the agreement created by itself captures a lot of profits, choosing to go public on Wall Street is indeed an excellent way to protect the fruits of victory. But for the crypto community that supports the entire transaction volume of Opensea and the early users of Opensea, the listing means that the future of Opensea will inevitably begin to pursue profit maximization, instead of better empowering the NFT community and building an encryption ecosystem. . This is a complete betrayal of the open and shared spirit of Web3.
For many NFT users who have experienced the pain of Web2.0 monopoly, a new real estate developer sitting on the ground to collect rent seems to have faintly emerged in front of them.
However, what really makes practitioners feel anxious is that this phenomenon does not seem to be unique to the field of NFT trading. In the on-chain derivatives trading track that is also in the explosive period, similar stories are being staged simultaneously.
Are you using a real DEX?
In the current derivatives track, the platform with the largest transaction volume is undoubtedly dYdX. Before using dYdX, users only need to deposit a deposit through the wallet on the chain, and subsequent transactions and settlement processes no longer need to interact with the wallet and pay gas fees. In addition, dYdX is almost exactly the same as the experience of centralized platforms in terms of settlement speed and transaction matching efficiency. It is precisely by virtue of its good experience comparable to the use of centralized trading platforms that dYdX is regarded by many as the absolute leader in derivatives DEX.
But the problem is that this kind of user experience comparable to that of a centralized platform will definitely sacrifice the most important decentralized attribute for Web3 applications. So, how centralized is dYdX’s infrastructure?
Let’s put it this way, it is centralized to the extent that it can directly target the Amazon cloud service, the specific computer room in northern Virginia, USA (official link). Not long ago, on December 7, a large-scale failure of Amazon’s cloud services caused many trading platforms, including dYdX and Coinbase, to interrupt their services for several hours. In this cloud computing service accident, the degree of centralization of dYdX is undoubtedly revealed.
It can be seen that pseudo-decentralized trading platforms such as dYdX do not meet the real Web3 application standards. So, what specific requirements must be met to be called a real DEX? In my opinion, at least the following conditions need to be met:
1. Real on-chain transactions: Only by storing the core transaction data on the chain can the user’s asset security be truly protected;
2. Efficient order book system: Yes, the current mainstream AMM transaction mechanism can barely support spot transactions on the chain. In the derivatives trading market with higher requirements for high-frequency trading, I am afraid that only the order book matching mechanism can truly meet the needs of users;
3. Fair transaction sequencing mechanism: It is necessary to avoid various attack methods such as transaction preemption and robot arbitrage from the mechanism, so that ordinary users can truly have equal trading opportunities with robots, scientists, etc.;
These characteristics are the product values that the Injective project has adhered to from the first day of its creation. So, what specific technologies does Injective use to turn these product ideas into reality?
Injective’s technical architecture
Compared with the vast majority of decentralized trading platforms currently on the market, Injective has chosen a completely different technological path. Therefore, to better understand the various technical functions of Injective, we need to understand from the lower-level technical architecture.
(1) Application chain
First, Injective chose to directly develop an independent public chain to carry the upper-layer applications. You should know that most of the current trading platforms are based on smart contracts. This is mainly because smart contracts are easier to develop than public chains. However, when transaction demand erupts, smart contract applications are often restricted by the limited performance of the underlying public chain, causing users’ transaction costs to rise sharply.
From the very beginning, Injective chose a difficult and correct path to directly develop a public chain dedicated to transactions. This not only allows Injective users to exclusively enjoy the transaction performance of the entire chain, but also enables the project team to flexibly adjust the gas cost and monetary policy according to the needs of the application. Only in this way can Injective have the confidence to directly support the order book transaction matching mechanism that users urgently need.
At the same time, Injective also chose to directly integrate the EVM environment of Ethereum for the public chain. For users, the most intuitive benefit of this is that users no longer need to download and install new wallets and save new private keys like other new public chains. People only need to use Metamask’s existing Ethereum address to directly generate an Injective trading account. Subsequent transaction signatures can also be completed directly through the infrastructure of Ethereum, which greatly reduces the threshold for using Injective’s new public chain.
In addition, choosing a reliable public chain development framework is also an important technical route choice. Here, Injective directly uses the Cosmos SDK launched for cross-chain requirements for development. Today, when cross-chain has become a rigid demand, this choice is especially prescient.
(2) Injective Bridge cross-chain bridge
Due to the selection of the technical path of the application chain, it has become a difficult problem for Injective to be compatible with more tradable assets. Unlike the smart contract trading platform on Ethereum, which can directly trade assets in Ethereum, almost all of Injective’s transaction assets need to go through a cross-chain to reach the Injective chain.
Therefore, it is necessary to build a good enough bridge to bring more users and usage scenarios to the ecology. Fortunately, the Injective developed based on the Cosmos SDK is naturally compatible with the most mainstream cross-chain protocol IBC. At present, the official Injective Bridge has successfully connected to the Cosmos Hub and Terra ecosystem through the IBC protocol. In addition, Injective Bridge also combines the technology of Peggy Bridge to support asset cross-chain with the Ethereum ecosystem.
With the cross-chain infrastructure represented by Injective Bridge, the trading pairs that Injective can support in the future will become more and more abundant.
(3) Injective Hub
As mentioned above, as an independent public chain. The various components in the Injective ecosystem are complicated, not only the pledge and governance modules necessary in the public chain, but also transaction components such as cross-chain, web wallet, and transaction interface. If, like other public chains, a domain name and web front end are set separately for each function, the user experience will definitely be greatly reduced.
To this end, Injective has developed a comprehensive platform that aggregates all the above-mentioned functions, and aggregates the functions that all users need to use in a unified interface, which is the Injective Hub.
As can be seen from the screenshot above, users can obtain all the user service portals interacting with the Injective ecosystem in one stop in the Injective Hub, making the interaction with the public chain as simple and intuitive as the smart contract application.
(4) FBA (Frequent Batch Auctions) Model
The term Frequent Batch Auctions Model seems far away from ordinary users, but it is still necessary to focus on it. Because the FBA transaction matching mechanism attempts to solve one of the biggest problems that plague cryptocurrency traders, that is, preemptive transactions.
I don’t talk about complicated technical concepts here, but simply enumerate a few basic rules of FBA:
1. Split the continuous transaction process into different intervals, and execute transactions in batches within a unit time;
2. The transaction price of all orders within a unit time is the same;
3. Hide the order bid amount to protect the privacy of traders;
It can be seen that Injective does not directly use the price-priority and time-priority order matching mechanism in the traditional trading platform, but hopes to solve the core problem in the transaction process through a series of technical means, which is fairness.
Under the FBA trading mode, strategies such as preemptive trading and high-frequency trading arbitrage in traditional trading platforms will no longer take effect. For ordinary traders, this means that the profits once taken by various arbitrageurs are redistributed to ordinary users, and users will be able to obtain better trading prices on the Injective platform.
Of course, the specific implementation principle is more complicated than the above description. Due to space limitations, we will not analyze it in detail for readers. Interested readers can directly read this article for in-depth understanding.
(5) Insurance Fund
For any derivatives trading platform, how to better control risks is the key to the long-term sustainability of the platform. In order to prevent the loss-making party in the transaction from being unable to pay the profit to the profit-making party during the period of severe price fluctuations, Injective puts the proceeds earned during the collateral liquidation into the insurance fund to ensure the normal operation of the agreement under extreme market conditions.
At the same time, users can also choose to directly invest funds into specific markets for underwriting in order to obtain more pledge rewards. A variety of measures will make Injective’s operation more robust and protect the interests of ordinary users to the greatest extent.
Although Injective is not a smart contract public chain focused on ecological construction, Injective does not adopt a closed development strategy to allow official products to monopolize the infrastructure of the entire application chain. On the contrary, Injective chose a more decentralized ecological open strategy that is more in line with the spirit of Web3.0, and the ecology built on it is also called Relay Ecosystem.
The so-called Relayer is an independent node that can relay user orders. Of course, it can also be more simply understood as a different front-end transaction interface.
Specifically, Injective chose to open the front end. In addition to using the official transaction front end Injective Pro, users can also choose other transaction front ends developed by other developers to get a more customized trading experience. At present, in the Trade column of Injective Hub, a total of 5 transaction front ends including Injective Pro have been provided to users for users to choose freely.
Although users may use different front-ends, all front-ends will share the liquidity of a unified order book. In addition, different front-ends will be able to adapt to different regulatory policies and take into account the usage habits of different users.
(1) Profit distribution mechanism
Like the tokens issued by many trading platforms, Injective also adopts the mode of repurchasing platform tokens with fee income. Specifically, 60% of all transaction fees will be used to repurchase and destroy the platform Token, which is INJ. (The remaining 40% is allocated to nodes in Relayer Ecosystem)
This model similar to stock repurchase has been discussed in detail in traditional financial theories. That is, the effect achieved by a listed company through cash repurchase of the company’s stock is no different from direct cash dividends to shareholders. In other words, Injective, which adopts the profit repurchase model, has a clear profit support for its Token price compared to other trading platforms such as dYdX’s pure governance Token.
Therefore, investors can also use traditional models such as the future cash flow discount model to reasonably estimate the value of their Tokens. All in all, this model of supporting Token prices through profits is a mature value capture model with a lower limit but no upper limit.
On the other hand, dYdX chose to transfer the transaction fees completely to a centralized company called dYdX Trading Inc. The holder of DYDX Token can only have the protocol governance right of dYdX. Note that it is the governance right of the agreement, not the governance right of dYdX Trading Inc., a centralized company. In other words, the profits generated by the dYdX agreement have nothing to do with the holders of DYDX.
After the precedent for Opensea’s listing, one day dYdX will re-sell dYdX Trading Inc., which may not surprise too many people.
A special reminder here is that although the UNI issued by Uniswap is also a governance token that does not distribute profits, the main reason is that the transaction fee generated by the agreement needs to be compensated to the liquidity provider to compensate for its impermanence. Risk of loss. This is completely different in nature from dYdX’s transfer to a small vault controlled by a centralized company.
(2) Astro plan
After the Injective mainnet went live, the official team also launched a corresponding liquidity incentive plan, also known as the Astro plan. The government provided a total of 10% of the total number of tokens as incentives for distribution to ecological contributors. Among them, 30% will be allocated to professional market makers, and the remaining 70% will be allocated to ordinary traders. The liquidity incentive plan will be maintained for 5 years.
At the same time, the platform will also upgrade to the corresponding VIP level based on the user’s nearly 30-day transaction fees and the number of pledged INJs, while enjoying more favorable transaction rates.
Of course, for the same reasons of limited space, more detailed incentive rules cannot be explained one by one. Users who are willing to participate are advised to read the official event documents directly.
After years of arduous development and testing, we finally ushered in the successful launch of the Injective mainnet. From a small demo on the initial hackathon to a mature trading platform public chain today, Injective has always adhered to the concept of openness and decentralization.
At a time when various protocols are compromising with the centralized technology stack for better transaction experience and efficiency, Injective’s insistence on building products based on blockchain and insisting on the spirit of open sharing of Web3 seems commendable. As the industry matures, it is believed that the market will eventually reward agreements that truly have values.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/we-need-a-truly-decentralized-derivatives-trading-platform/
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