The Many Positive Feedback Loops That Will Fuel Injective’s Incredible Tokenomics
Injective is far more than just a DEX it will be a thriving ecosystem centred around its exchange protocol and the INJ token, fuelling incredible positive feedback loops. The below article is how I see it playing out:
The Injective Hub will provide a seamless one stop shop for a vast amount of use cases whether it be trading spot, synthetics, NFT marketplace, lending platforms, insurance platforms, gaming elements and more. If they are able to make the UX of the Injective Hub as seamless as possible so that it is similar to depositing funds to a centralised exchange (abstracting the way that they are actually using a bridge to another blockchain) whilst offering CEX like performance with a capital efficient order book, but with the security of DEXs, the ability to list and trade any asset without having to pay extortionate fees / wait years for them to list, no gas fees and an entire ecosystem built around it, then it’s going to see exponential growth.
Injective has the potential for incredible amount of positive feedback loops all resulting in more INJ being burned and benefiting the entire ecosystem. Whilst it provides a DEX that can trade any market, it also enables other exchanges to build on top using a model similar to Binance Cloud, where they can white label the exchange but share the same back end / liquidity. Relayers are incentivised to drive traffic to the exchange through receiving 40% of the trading fees of the traffic they generate, whilst 60% of the trading fees across every exchange is used to buy INJ from the market and burn it through a biweekly auction mechanism.
DAO Relayers — Use 40% of the fees to buy and burn to add incredible utility to your favourite token
You can even have DAOs from different projects launch their own relayers and using the 40% fees to buy back and burn their own token. For example, a Chainlink DAO running a relayer where 40% of the fees that pass through that relayer are used to buy and burn LINK, or an Ethereum DAO running a relayer and the fees used to buy ETH. The more traffic they generate the more of their token is burned, so you could have hundreds of projects advertising their own relayer creating incredible growth for the platform, whilst 60% of the fees across every relayer is used to buy and burn INJ.
More growth > More trading fees used to buy and burn their token > Increased awareness and more projects wanting to participate and run a relayer for their token as well > More growth, and so on as the positive feedback loop continues with more and more INJ being burned, whilst at the same time creating further decentralisation with more relayers.
Possible Algorithmic Stablecoin that burns INJ similar to Terra’s UST
There have been talks about the launch of a possible stablecoin, potentially similar to the algorithmic stablecoin seen on Terra, where the more demand for the stablecoin, then the more INJ is burned whilst being able to swap $1 of INJ for $1 of the stablecoin on the Injective DEX to ensure it retains the peg. The Injective stablecoin could then be the primary stablecoin on the DEX for pairs, used in the creation of synthetic markets like mirror protocol on Injective, used as collateral / lending and borrowing etc all within the Injective ecosystem. Not only creating demand for the stablecoin (which leads to more INJ burned) but also volume on the DEX (which also leads to more INJ burned). The more volume / liquidity available > attracts more users to the ecosystem and more whales > leads to more INJ being burned > more volume and the positive feedback loop continues.
You can see more comparisons with Terra (this was before potential stablecoin on Injective as well) in this article
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Injective Launch Pad
You could have an Injective launch pad which has exclusive listing on the Injective DEX for a short period of time. Their token would not only be able to be used throughout the Injective ecosystem but also be made available through bridges to all the main layer 1 platforms and cross-chain DeFi. This would create even more awareness for the DEX as it being the only place that will list it initially > more users > increasing volume on the DEX > More INJ burned > Even more projects want to launch on the injective launchpad due to the volume / awareness it brings, and the positive feedback loop continues.
Potentially Massive Incentives Program to drive growth and kick start all the positive feedback loops
Massive Incentives program to kick start growth — There’s currently over 10 Million INJ unlocked for the Ecosystem Development fund with over 25 Million INJ to be released in the future. This could be used to create a massive $100 Million incentives program over the course of a couple of years to kick start all of these positive feedback loops into high gear. Whether it be through providing a small amount of INJ whenever someone sends over $100 over the bridge or providing rewards for makers so that they actually earn more in INJ than the value they spend through the 0.1% maker fees. Further incentives through liquidity mining schemes on lending platforms, insurance etc to really drive strong growth for the ecosystem.
Why use Ethereum DEXs when you can trade on Injective and back to Ethereum for less?
Currently on Ethereum you have to pay extortionate fees, wait long confirmation times, whilst also getting front run / sandwich attacks through MEV costing you even more and is capital inefficient. With Injective there are no gas fees, offers far higher performance with up to 10,000 tps, 2 second finality, front running resistant, uses an order-book model for optimal capital efficiency and where you can trade any market, not just crypto spot but synthetics, derivatives, NFTs and more.
Rewards and Liquidity Mining
Not only is it cheaper to trade on Injective instead, but you can actually earn money through the incentives program where makers are rewarded in INJ to more than compensate for their 0.1% maker fees. This would not add to inflation of INJ as it using the existing unlocked tokens allocated for the ecosystem development, increasing decentralisation through wider token distribution whilst also giving an incentive for everyone to then advertise the DEX so that the INJ they receive is worth even more.
This creates more volume for the DEX / ecosystem > More INJ burned and higher INJ price. As the price per INJ increases then that initial $100 Million announcement actually needs far fewer INJ leaving even more for future growth incentives.
Who is going to want to use the likes of Uniswap when its far cheaper to bridge to Injective, use the high performance DEX with no gas fees and then move back if required (with the Injective Hub UX abstracting away the Injective Chain and make it appear like sending to Binance to trade)?
Avoid the ridiculous 1–2 week withdrawal times with DEXs on Layer 2 Optimistic Rollups
Layer 2 platforms using optimistic rollups are still going to more expensive, have slower performance and have to wait a ridiculous 1–2 weeks before you can withdraw back to Ethereum. Injective will draw liquidity not just from Ethereum but from all the layer 1 blockchains, capturing the majority of volume like seen with the likes of Binance today, particularly as the volume from existing CEX move to DEXs with increased regulation.
Additional incentives to increase growth further could be through trading competitions where certain weeks, 40% of the fees earned through the main injective relayer site are used to buy and burn a particular token. For example, you could have a competition between 4–10 projects and on the DEX interface each wallet selects one of the projects that it wants the 40% trading fees to buy and burn by writing the token name as metadata on the chain or something. Then the volume for wallets that have the metadata for a certain project is calculated and the one with the most volume is used to buy and burn their token. This not only creates awareness for the exchange, may encourage others to do this permanently through DAO relayers but also creating volume for the exchange, resulting in more INJ being burned > larger the 40% relayer fees will be to buy and burn a token > further awareness and so on as the positive feedback loop continues.
Potential Lottery System
You could also have something like a lottery system where 10% of the relayer fees goes into a lottery every week and for every $100 of volume you do on the exchange you can create a lottery ticket where you pick numbers. (could be some basic interface where you can pick the numbers and writes hash of the ticket as metadata on chain). Then use something like an oracle and a televised national lottery event where you have to get either all or a certain amount of the numbers drawn to win the funds, if nobody wins then it rolls over, creating even further awareness for the exchange > more volume > more INJ burned > higher fees that goes into the lottery each way and the positive feedback loop continues. You could convert the 10% fees to INJ before and use that as the prize, locking up more INJ as well as due to the positive feedback loops the prize pool will significantly increase due to the price appreciation as well whilst having a vesting period for any winner to ensure a gradual release.
Potential NFT rewards for trading on the DEX
Further incentives could be offered through minting randomized NFTs with a probability to earn one based on the volume you do on the exchange, you could use these as avatars on the Injective Hub and sell them on the NFT marketplace, again all creating awareness, incentives to use the platform which leads to more INJ being burned.
Even greater scalability
With these positive feedback loops the value of INJ staked will exponentially increase enabling for further scalability through additional shards. You could have one chain dedicated to a certain type of DEX for example and the stake split among them. The Injective Hub UX could abstract away the added complexity of moving between different shards.
There’s so many possibilities and positive feedback loops all feeding into one another for the potential for exponential growth. It’s far more than just another DEX and the tokenomics are incredible.
For more details on why Injective is an incredible investment opportunity see this article
Why Injective Protocol (INJ) Is an Incredible Investment Opportunity.
In this article I will outline why I believe INJ could be an incredible investment with insane amounts of INJ being…
and for more information on how the Buy back and Burn mechanism will work, see this article