*Note, SWOT is an analysis of operational/fundamental elements. This is not a model to be used for technical or trading purposes. (NFA, DYOR)
Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for evaluating the state of a project’s well-being through the lens of a birds-eye view.
It can help formulate decisions on what areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.
Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.
Today, Injective (INJ), a blockchain purpose-built (with the Cosmos SDK) for DEFI will get a SWOT.
Strengths (Internal) (Helpful)
1. Fully On-chain Orderbook Infrastructure
While many DEX projects boast about their decentralization, they do not disclose the degree of it. Truth is, majority of all DEXs are only decentralized at the level of asset custody, meaning that while users retain control of their funds the actual exchange itself processes all activity in closed centralized environments. Injective has actually taken the radical higher road less traveled by a deployed the key application infrastructure of the orderbook (order making, taking, and matching) on-chain.
2. MEV Resistant
MEV is the single greatest problem with on-chain finance. Injective utilizes two functions in order to combat MEV on its chain, FBA (Frequent Batch Auctions) and the Skip Protocol. FBA has been used by Injective for a while and the premise of its effectiveness in combating MEV is based on three principles. First, activity is published on-chain in batches rather than single transactions, negating the potential for transaction reordering or sandwiching. Second, there is a uniform clearing price, which removes prioritization by forcing transactions to go through according to the protocol’s hard-coded set price. Third, there is a sealed bid auction that takes place after all of the activity has been submitted, removing front-running issues. Skip protocol is an open-source solution that front-runs the front-runners by allowing for a round of bidding to take place before batches/transactions are published and redistributing those profits among users and stakeholders instead of searchers, sequencers, and miners.
3. Decentralized Insurance Fund
As a permissionless protocol, Injective allows users to develop their own on-chain derivative markets. However, derivative markets are generally considered to be highly risky, and building them in a decentralized environment is extremely tricky because of the potential for complete wipeouts that leave profitable traders without anywhere to draw their gains from. Realizing this, Injective has implemented Decentralized Insurance funds that are deployed for each individual market. The Insurance fund provides settlement guarantees and softens the impacts of potential liquidation.
4. Burn Auction Mechanism
Burning is widely adopted module for crypto tokenomics, however most are very vanilla copycat version of one another. Injective has designed its own novel “burn Auction” mechanism whereby 60% of all trading fees are collected and deposited into a vault (a basket of different asset). Once per week that vault is auctioned off to the Injective community members for INJ tokens. The winning bid recieves the vaulted assets and the INJ put up to bid is burned.
5. Well Rounded Diverse Backers
Injective has received tremendous credibility and financial support from some of the industry’s most prominent names including, Pantera Capital, Binance, Jump, and Mark Cuban.
6. Orderbook model
Rather than opting for the overhyped AMM trade model found in the vast majority of DEX’s, Injective utilizes the traditional Orderbook matching model. While there are certainly positive things coming from having AMM, Order books provide infinitely higher granularity for users and gives them more control over their assets. Given how familiar order books are to legacy finance, odds are that enterprises and institutions will prefer to operate in environments they have proven effective models built already.
7. High Fidelity Throughput
Leveraging a POS mechanism with the capacity to handle ~>10,00 TPS and processing blocks on the order of 1.1 seconds, gives Injective excellent operational efficiency and transactional throughput.
Weaknesses (Internal) (Harmful)
1. 10% Inflation rate
Given that this inflation rate is not perpetual and caps at the INJ hard maximum supply at 100,000,000 tokens; this is by no means a deal breaker. Currently there are ~80,000,000 circulating so we can anticipate the remaining ~20 million INJ tokens to hit the markets over the course of the next 2–2.5 years; after which the inflation rate will be suspended. This does not dictate negative development of the project, however it does impose a potential drag on the upside price.
2. 15% Staking Rewards Rate
In tune with the high inflation rate, a higher-than-average staking rewards rate can impact upside volatility due to selloffs that can be induced by larger stakers/network participants. While it seems as though the current pool of staking actors are sophisticated long-term thinkers that would not risk the economic well-being of the project for short terms gains, there must be an understanding of unexpected situations arising whereby if any major stakers coordinate to leave the Injective network, their outsized portions of INJ holdings could result in sharp undesirable price action.
Opportunities (External) (Helpful)
1. Built with Cosmos SDK
Being part of the Cosmos IBC (Inter-blockchain-communication) ecosystem gives Injective incredible future potential to be a highly interoperable network that would be able to seamlessly and fluidly conduct cross-chain activity. Moreover, by using the Cosmos SDK, Injective inherits the Tendermint consensus protocol; which results in instant transaction finality. Personally, I believe this is a necessary primitive in order to attract larger institutions that do not want to be exposed to the probabilistic finality in early-generation blockchain networks.
2. SVM Rollup Rollout (Cascade)
Injective is the first project to release an IBC-compatible environment to share data between the Cosmos ecosystem and Solana Sealevel Virtual Machine which in turn will allow for cross-chain computation to take place and potentially increase scalabilities of both chains via shared parallel processing.
3. Wormhole and Pyth Integrations
Injective was the first protocol of the IBC ecosystem to integrate Wormhole and Pyth. Wormhole is a bridge connecting and transferring assets to/from the Solana network. Pyth is one of the most highly regarded Oracle networks that provides secure data feeds from some of the world’s largest marketplaces (CBOE, Binance, OKX, Jane Street, etc). The presence of both of these technologies on Injective introduces a theoretically uncapped market potential for onboarding solana based assets (via wormhole) and the tokenization of RWA (via Pyth).
Threats (External) (Harmful)
1. Soft Social Presence
Compared to the greater traditional social media prowess of the vast majority of crypto projects, Injective definitely does not pursue the development of a strong degen community. While they recently have begun to expand the style of their social activity (with the introduction of NFTs), just through a simple empirical observation one can deduce that the engagement rate is orders of magnitude below other projects of this caliber. I anticipate this will be changing, but in all honesty, this is not too important given that Injective’s primary development focus seems to be on catering to enterprise-level clients.
Injective (INJ) is ridiculously underappreciated. Among the few innovative leaders in the DEFI space that provide such robust architecture and truly differentiated technologies while preserving such a humble social presence is worth watching.
This was my first time diving deeper into the fundamentals of Injective and after all of the inspections and research, I will be adding this jewel to my arsenal. I do know yet if I will be using their technology but I certainly want to have exposure to their network.
I might have missed something and would tremendously appreciate some feedback.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper 🥂
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