How Injective Protocol Uses Layer 2 to Scale Decentralized Finance

Prateek Tripathi
4 min readAug 24, 2023

Decentralized finance (DeFi) has been gaining popularity in recent years, but it has been facing scalability issues. Ethereum, the most popular blockchain for DeFi, can only process a few transactions per second, which is not enough to support mainstream adoption. Injective has come up with an innovative solution using Layer 2 technology to scale DeFi applications to support millions of users. In this article, we will explore how Injective taps into Layer 2 to enable decentralized finance to go mainstream.

The Scalability Issues With Ethereum and DeFi

Ethereum and DeFi have a scalability problem. As more people adopt crypto and DeFi, the Ethereum network gets congested, transactions slow down, and gas fees skyrocket. This makes the network less useful and accessible for many.

How does Injective blockchain solve the scalability problem?

Injective uses Layer 2 to solve the scalability problem. Injective is a decentralized exchange protocol built on top of Layer 2 solutions to enable fast, low-cost trading without compromising security or decentralization. Rather than processing all trades on the main Ethereum blockchain, Injective handles trades “off-chain” and then records an aggregated result on the main chain. This allows for significantly higher throughput.

The Injective Chain

Injective has developed the Injective Chain, a layer 2 blockchain tailored for decentralized finance applications. The Injective Chain handles all on-chain settlement, order matching, and account management. This allows Injective to scale to thousands of transactions per second while still being backed by the security of Ethereum.

How Injective Leverages Optimistic Rollups

Injective leverages optimistic rollups, a layer 2 scaling solution, to provide scalability to decentralized finance (DeFi) applications. Optimistic rollups bundle or “roll up” hundreds of transactions off-chain and generate a cryptographic proof. This proof is published on the main Ethereum chain, allowing anyone to verify the rollup. The rollup is assumed to be valid, hence “optimistic.” If there are any invalid transactions, users can challenge them within a dispute period. After the dispute period, the rollup’s state becomes final on the main chain. This allows Injective to achieve significant scalability gains over a pure on-chain solution.

The Benefits of Injective blockchain Layer 2 Approach

Injective’s layer 2 solution provides several key benefits for scaling decentralized finance. By operating on layer 2, Injective reduces fees for users by batching many transactions together into a single layer 1 transaction. This means you’ll pay just a fraction of the cost of conducting transactions directly on layer 1 chains like Ethereum.

Injective’s layer 2 architecture allows for near instant transaction finality since transactions are first processed on layer 2 before being batched and settled on layer 1. This results in a seamless user experience without the long wait times often seen with layer 1 settlement. Layer 2 solutions can handle many more transactions per second than layer 1 alone. Injective leverages layer 2 to significantly boost throughput, enabling the decentralized exchange to handle high volume periods without slowing down or becoming congested.

Injective’s layer 2 platform is built to be blockchain agnostic, meaning it can settle transactions across multiple layer 1 chains. This interoperability opens up more possibilities for cross-chain decentralized finance applications and products. The Injective layer 2 protocol is designed to be compatible with the Ethereum Virtual Machine (EVM), allowing developers to easily port existing dApps and DeFi projects over to Injective’s high-performance environment.

Injective supports cross-chain swaps between any two assets on different blockchains. This means you can trade an ERC-20 token for a BEP-20 token, or a Cosmos token for a Polkadot-based token, and so on.

The INJ Token and Its Role in the Injective Ecosystem

The INJ token is the lifeblood of the Injective Protocol. As a holder of INJ, you have the power to shape the future of the protocol. INJ tokens serve several key purposes in the Injective ecosystem. INJ token holders have voting rights to determine the direction of the Injective Protocol. By staking your INJ tokens, you earn a share of the fees generated on Injective Exchange as staking rewards. All trading fees on Injective Exchange are paid in INJ tokens. Projects that want to list their tokens on Injective Exchange must pay a listing fee in INJ. These listing fees provide another source of buy demand for INJ and make the token more valuable.

Conclusion

Injective is using layer 2 solutions to solve scalability issues in DeFi. By moving transactions off-chain and only recording finalized transactions on the main chain, Injective is able to process thousands of transactions per second at a fraction of the cost. This means faster, cheaper decentralized trading and lending for users without compromising on security. The future is bright for layer 2 and the possibilities for DeFi are endless.

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Prateek Tripathi

Introducing Prateek Tripathi, a tech-savvy individual with a passion for all things crypto, blockchain, and coding.