INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

SUMMARY
As DeFi growth took center stage in 2020, community-first DeFi protocols emerged
and became popular exceptionally rapidly. While the yield farming craze has faded,
DeFi protocols still exist, many resist, and only a few will survive in the future.
Currently, there are around 100 DeFi tokens with a market cap above 100 million
USD, and, naturally, only solid projects will survive in the long term.
A company driving the market's attention is Injective Labs, created by a team of
Harvard and Stanford graduates, invested by the billionaire entrepreneur Mark
Cuban and incubated by Binance. They've developed Injective Protocol, a fully-
decentralized exchange that aims to unify the best from Decentralized and
Centralized exchanges into a unique platform.
The project's DEX was launched in November 2021 and has reached $1 million in
volume after 30 days, standing out as one of the largest Decentralized Exchanges in
the industry. Since the DeFi market has considerable growth potential, it is
interesting to have a long position in some of the most promising players of the
sector. Injective seems to combine the best features a company needs to stand out:
a competent team, strong tokenomics, a top-notch product, a growing community,
and well-structured governance.
CONTENTS
1. What is Injective Protocol?
1.1. Project Overview
1.2. Injective's value proposition
2. INJ Token and Tokenomics
3. INJ Token Analysis
3.1. Project's Team
3.2. The Product: Market timing and Suitability
3.3. Community
3.4. Token Mechanics
3.5. Governance
4. A further look into Injective’s governance
5. Injective’s updates after the mainnet launch
6. Conclusions
7. Index

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

1. WHAT IS INJECTIVE PROTOCOL?

1.1. Project Overview
Injective Protocol is a fully-decentralized Layer-2 DEX (Decentralized Exchange)
protocol. It is implemented on top of Tendermint using the Cosmos-SDK, which
hosts Injective's decentralized exchange protocol.
At Injective, users can create any financial market on their fast, cross-chain, zero
gas fee, secure, and fully decentralized exchange protocol.
And what does it mean to be fully decentralized? Most DEX exchanges are
decentralized in custody (without a central authority), but users don't control the
exchange infrastructure. Injective proposes to make their decentralized exchange
infrastructure open to the public, which means investors and traders could define
what is offered, i.e., creating a derivative market as long as there is demand for it.
Additionally, a Decentralized Autonomous Organization (DAO) structure votes for
new listings or network changes.
1.2. Injective’s value proposition
Decentralized exchanges' main cons are high gas fees and do not prevent front
running, which is when bots or miners explore the delay in blockchain transactions,
pay higher gas fees to get their orders to be executed first immediately, and sell
them with profit. On the other hand, there are usually no restrictions, KYC, and they
have the security of the blockchain.
Centralized exchanges' main cons are that they are less secure and have higher
regulatory restrictions (which may lead to some countries' inability to participate)
even though they usually have a much higher volume and liquidity.
Injective Protocol's main proposition — since Eric Chen and Albert Chon's article
published in December
2018 — is to merge all
the benefits of DeFi and
CeFi into a fully
decentralized
environment. Having the
pros of each of them and
fixing their cons, with a
plus of accessing the
most diverse markets
(spot, perpetual, future,
commodities, equities,
forex, and more), makes
the company a strong
candidate for the most
complete exchange in
the world. Figure 1 - Injective Protocol FAQ: Unique features and value proposition.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

2. INJ TOKEN AND TOKENOMICS

As described in Injective Protocol's FAQ, the INJ token is used for (1) Protocol
governance, (2) Exchange fee value capture, (3) Derivative collateralization, (4)
Liquidity mining, and (5) Staking.
• (1) Protocol Governance: the INJ token governs Injective's sidechains, such
as the futures protocol, exchange parameters, and protocol upgrades via a
DAO structure.
• (2) Exchange Fee Value Capture: the exchange fees will undergo an on-
chain buy-back-and-burn event to accrue value for INJ. The company uses a
buy-back and burn mechanism every week, where 60% of the trading fees
are used to buy back and burn INJ, and 40% are used as referral rewards for
exchanges/players related to the protocol.
• (3) Collateral Backing for Derivatives: INJ will be utilized as an alternative
to stablecoins as margin and collateral for Injective's derivatives markets. INJ
can also be used for collateral backing or insurance pool staking in some
futures markets, where stakers can earn interest on their locked tokens.
• (4) Exchange Participation Incentives: in the future, the foundation plans to
incorporate a liquidity mining scheme and distribute a fixed number of INJ
tokens daily weighted by the liquidity each network participant provides.
• (5) Tendermint-based Proof-of-Stake (PoS) Security: To ensure the
security of Injective's sidechain, the company will incentivize nodes to stake
INJ and participate in the sidechain's network consensus with block rewards.
As long as the community keeps growing, the tokenomics behind INJ have a strong
basis, making total sense when analyzing the project's sustainability.
Also, the community constantly suggest new use cases for the token and
applications that would be beneficial to the project's length. About the INJ Token:
• 100,000,000 pre-minted tokens, but no max supply defined;
• 43,000,000 circulating token supply
• More coins get minted through staking (current APY: 5%);
• Weekly $INJ burns for 60% of the fees accrued in the DEX.

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3. INJ TOKEN ANALYSIS

Traditional valuation methods do not work when analyzing crypto assets
since there aren't much data applicable when evaluating companies in this sector.
The most important criteria to consider when evaluating crypto assets
are:
(1) the project's team,
(2) product: market timing and suitability,
(3) community,
(4) token mechanics, and
(5) governance.

3.1. Project’s Team

There are dozens of thousands of cryptocurrencies around the globe. Naturally,
many of these are probably scams or have a weak, effortless team whose only goal
is to capitalize the token then dump on the project to get their load of money. First
of all, investors should answer the probing questions below:
1. Who is the team behind the cryptocurrency? Are they working full-time on
the project?
2. Do they have their social media accounts linked to the project's website?
3. What is their experience? Do they have a crypto-related background?
4. Do they have a split of team members in various areas, such as engineering,
programming, legal, marketing?
5. Do they have experience members from traditional markets as advisors?
6. Are they actively posting and providing content and updates to the
community?
The project on Injective Labs started back in December 2018, and three years later,
the team already has a solid base. There are around 40 members, most of them
with their social media linked on the website, from different backgrounds and area
expertise, especially engineering, and many of them with previous blockchain
experience.
It is a green flag when it comes to the team behind INJ.

3.2. The Product: Market timing and Suitability

As discussed before in this article, especially on "1.1. Injective's value
proposition" and "2. INJ Token and Tokenomics", Injective Labs has done a great
job so far, creating a project that solves a problem and is up-to-date with the actual
level of technology development.

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Many projects started as possible solutions for existing problems but eventually got
stuck in time and were outdated by more recent and rapidly evolving technologies.
Injective's major challenge will be achieving the solutions it has initially proposed to
solve while keeping an eye on market moves:
1. What are their competitors doing?
2. How are they evolving?
3. Are there new competitors with updated technologies on the way?
The product solves a problem that is still around — in fact, its competitors with
thousands of millions of market volume still experience it — so the market timing
couldn't be better. Injective has recently launched its mainnet, although it is still
developing some elements and fixing minor bugs that will naturally exist. It is soon
to derive conclusions, so if the launch is successful and accepted by the users and
the community grows at a wholesome pace, the perceived value of Injective will
probably increase over time.

3.3. Community
There are many cases where the community supporting the project/coin is way
more relevant than what the team is accomplishing data-related (i.e., Dogecoin,
Shiba INU).
As of December 2021, Injective had the following data:
• Twitter: 97,500 followers
• Telegram: 15,500 members, 1,500 online
• Discord: 9,400 members, around 950 online
• Reddit: 4,460 members
The company is in constant touch with the community, especially on Discord (where
users can directly contact the devs), Telegram (same, but less technical issues), and
Twitter (with constant updates related to the project).
Some tools to analyze the community growth over time might bring some insights
and are also quick and easy to use:
• Reddit: Injective’s Subreddit Stats: since July 2020, the amount of
Subreddit members has grown almost at a constant rate. The overall analysis
shows that the project constantly attracts newcomers and has not yet been
widely spread.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

Figure 2 - Reddit: Injective's subscribers over time

• Twitter: Injective’s Socialblade: only one year of data could be tracked by

performing quick research (without using APIs). Since October 2020, the
community has grown more than eight times.

Figure 3 - Socialblade: Injective's followers over time

Injective has a strong, healthy, growing community and does a great job providing
content and delivering what is expected from its members.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

Injective's Reddit Subscribers Injective's Twitter Followers

April 2021 3,190 - April 2021 62,861 -

May 2021 3,579 12% May 2021 71,124 13%

June 2021 3,714 4% June 2021 74,841 5%

July 2021 3,803 2% July 2021 77,999 4%

August 2021 3,957 4% August 2021 82,824 6%

September 2021 4,117 4% September 2021 85,864 4%

October 2021 4,219 2% October 2021 88,060 3%

November 2021 4,387 4% November 2021 92,279 5%

December 2021 4,460 2% December 2021 97,530 6%

Weighted monthly average growth = 3,31% Weighted monthly average growth = 4,82%

December 2022 6,592 48% December 2022 171,580 76%

December 2023 9,743 48% December 2023 301,853 76%

December 2024 14,401 48% December 2024 531,037 76%

December 2025 21,286 48% December 2025 934,231 76%

December 2026 31,463 48% December 2026 1,643,554 76%

Considering a 3,3% to 4,8% user growth on Reddit and Twitter, respectively, in the
long term is likely that both of Injective's social media will have 31,000 and 1.6
million users. Since the DeFi market currently represents only 0.1% of its maximum
potential, its significant growth is almost inevitable, which would mean a much
higher awareness of DEXes.
This 5-year forecast does not represent an unreachable goal since decentralized
exchanges like Uniswap and PancakeSwap already have a considerably high user
base on both platforms.
Also, Injective DEX has been active only for two months, so the community is
expected to grow as long as the project keeps evolving and following the roadmap
designed. The company already has a higher user base on Reddit than 5 of its
competitors and more than 4 on Twitter.
The UX/UI presented by Injective is excellent, better than other DEXes already in the
industry for years, and as long as more trading pairs are added, which is the
project's primary goal, the platform will likely attract more users.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

DEX Reddit INJ/DEX Reddit Twitter INJ/DEX Twitter

Aave 14,900 30% 405,500 24%

Uniswap 74,500 6% 806,000 12%

PancakeSwap 60,100 7% 1,400,000 7%

Spookyswap 1,300 343% 70,800 138%

Sushiswap 10,100 44% 191,300 51%

Trader Joe 117,000 4% 117,500 83%

Serum DEX 725 615% 185,000 53%

Defi Kingdoms 8,900 50% 89,800 109%

Curve Finance 787 567% 250,200 39%

SpiritSwap 373 1196% 66,500 147%

Osmosis 5,400 83% 57,300 170%

Compound Finance 8,800 51% 213,200 46%

Dodo (BSC) 1,300 343% 126,900 77%

Injective 4,460 - 97,530 -

3.4. Token Mechanics

Anything that makes the token appealing to the investors should be an essential
factor that might soar the project's perceived value by the market. If a company has
a decent idea, but the token usage doesn't fit within the project, why would
investors be incentivized to hold it?
The token mechanics were previously discussed on "2. INJ Token and
Tokenomics". The currency is used for various functions such as staking, exchange
fee, collateral, and protocol governance. Since the project aims to solve a problem
and the token has practical applications in daily use (such as Binance's BNB), the
model being followed by Injective is reasonable. As the project is developed and
more partnerships are set, the token will have even more functions, and the market
will naturally provide more liquidity.
In addition, the community perceives the market moves and timely suggests
improvements related to the token mechanics, which is vital to surviving in the long
term.
3.5. Governance
Injective was made to be fully decentralized, which means the community decides
the project's directions and new launches through a DAO structure.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

They have developed a solid 4-phase governance structure (depositing, voting,

tallying, implementing) where the INJ token is used as a medium for voting itself. As
described in their Governance Proposal Procedure:
Governance can be used to propose new markets for listing on the Injective
exchange, change the staking APY or any other parameter of the protocol as
a whole. By doing so, Injective is able to pioneer a new economic system that
is free, fair, and entirely governed by the global Injective community.
Injective’s Governance Proposal Procedure

Figure 4 - Injective's Governance Proposal Procedure

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

4. A FURTHER LOOK INTO INJECTIVE’S GOVERNANCE

Injective's DAO structure allows token owners who intend to have an active voice in
the project to present their proposals voted by the community. Users engage in
discussions in the governance forum on improvements or trade-offs and then
proceed with formal on-chain suggestions in the Injective Hub platform.

Figure 5 - Proposals on Injective Hub

Weekly proposals start on GitHub and go into the Hub to be voted by the
community, which signals a high engagement level by users, especially those
related to the project development.
Some proposals, especially the recently passed IIP-93, directly impact token
economics. This specific one, for example, carried out a significant upgrade to the
canonical Injective Chain, aiming to streamline the INJ burn process and backend
exchange logic, providing the loyal users and underdogs to be rewarded, instead of
the incentive hunters.
This structure shows the power of what a Decentralized Exchange has to offer: the
community is aware of the improvements needed to make the project continue to
grow, the development team is constantly in touch with the users and can rapidly
provide the solutions suggested and approved by users.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

5. INJECTIVE’S UPDATES AFTER THE MAINNET LAUNCH

The first steps for Injective were creating a solid dev team aligned with an engaging
community to develop the unique product the company intended to. Those two
pillars created the network effects designed to bring the attention of institutional
investors, such as Mark Cuban's Pantera Capital and Binance.
In November 2021, the company announced the mainnet launch of its derivatives
exchange. Eric Chen, Injective's co-founder and CEO said in a press release:

“Our mission at Injective has always been to build the most powerful cross-
chain protocol for completely decentralized derivatives trading. As Injective
interconnects new chains, the ecosystem will continue to serve as a DeFi
gateway for trading across the multi-chain universe. Injective’s Ethereum-
native tooling allows users to simply create and trade new cross-chain
markets without the typical roadblocks associated with making transactions
across distinct blockchain networks.”
Eric Chen, CEO at Injective Labs

To promote liquidity provisioning and trading on the protocol after the mainnet
launch, the company announced the launch of a $120 million protocol incentive
program called Astro, which will allocate the funds to traders and market makers
who utilize the protocol based on the volume of their activity.
Thirty days after the mainnet launch, Injective reached $1 billion in trading volume,
and when compared to similar projects, most of them took around one year to
achieve the same value. Of course, this proxy can't be analyzed alone since the
main factor in this case is time. Kraken, for example, had started its operations back
in 2013 when the crypto market itself was small, and DeFi's concept was beginning
to be developed, so it would naturally take time for the $1 billion milestones to be
achieved.

Figure 6 - Time to $ 1 billion (Source: Coin98)

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

Injective's achievement, a billion-dollar trading volume is hugely relevant for

investors and platform users. Whether this volume is composed chiefly of wash
trading or not (which is a risk that shouldn't be left out in the analysis), any volume
is good for the project, and token holders since they represent more fees and,
therefore, more INJ burnt. In addition, this volume was composed of over 15 million
transactions processed.
Not only has it reached $1 billion, but it's moving at a fast pace towards the $ 3
billion trading volume close to 2 months after the mainnet launch.

Figure 7 - Cumulative Trading Volume - Injective Exchange

Injective's most recent daily volume is around $90 million, with a mean of $45
million since the mainnet launch.

Compared to other DEXes, Injective should be in the Top 15 Decentralized

Exchanges, but the current data are not reflected in the price.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

While the major players in the DEX industry can be resumed to five (Aave, Uniswap,
PancakeSwap, SpookySwap, and Sushiswap), there is still much space for other
Decentralized Exchanges to grow, especially if they solve problems that other
exchanges weren't yet able to do.
Injective's numbers one month after the DEX launch are impressive, and the
constant growth rate indicates that there is much space for the protocol to grow.
According to data from January 12, 2021, Injective is in the top 15 DEXes with the
highest 24h volume, having 0,90% of the current market share ($9.6 trillion).

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

% Market Share
# Exchange 24h Volume INJ/DEX 24h Market Cap
By Volume INJ/Dex INJ/DEX
volume Market Share Market Cap

1 Aave 4,068,584,434 2% 42.40% 2% 2,948,829,987 11%

2 Uniswap (v3) 1,436,055,044 6% 15.00% 6% 7,365,971,494 4%

3 PancakeSwap 636,523,119 14% 6.60% 14% 2,923,169,292 11%

4 Spookyswap 510,623,181 18% 5.30% 17% 222,359,833 142%

5 Uniswap (v2) 416,802,486 22% 4.30% 21% 7,365,971,494 4%

6 Sushiswap 326,040,423 28% 3.40% 26% 1,374,128,400 23%

7 Trader Joe 238,216,271 38% 2.50% 36% 248,449,567 127%

8 Serum DEX 129,890,861 69% 1.40% 64% 425,359,972 74%

9 Defi Kingdoms 108,697,891 83% 1.10% 82% 1,217,238,042 26%

10 Curve Finance 108,187,246 83% 1.10% 82% 1,920,400,244 16%

11 SpiritSwap 107,870,698 83% 1.10% 82% 87,625,095 361%

12 Osmosis 104,355,177 86% 1.10% 82% 2,497,087,148 13%

13 Compound 101,956,742 88% 1.10% 82% 1,244,963,498 25%

Finance
14 Dodo (BSC) 87,947,571 102% 0.90% 100% 223,398,167 142%

- Injective 89,900,000 100% 0.90% 100% 316,284,696 100%

With a 0.9% market share of a $9.6 trillion market volume, Injective Protocol's
market cap is already higher than 4 of its 15 main competitors. Even though it is still
nine times lower than PancakeSwap, the market share ratio between both
exchanges is around seven times.
Market Share Market Cap
DEX Ratio Ratio

Aave 47x 9x

Uniswap (v3) 17x 23x

PancakeSwap 7x 9x

Considering INJ's weekly burn, it is estimated that at least 3 million tokens will be
burnt per year. With more volume traded in the exchange, more fees will be
charged, and more INJ will be burnt. With the current token supply (~43 million) and
the current staking APY (5%), INJ is a deflationary token, which tends to bring
prices up. The higher the volume gets, the more deflationary the token will be,
opening space for a higher staking APY and attracting more investors to the project.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

Burn List INJ burnt

1st burn 40,000.00

2nd burn 21,101.01

3rd burn 21,272.10

4th burn 33,100.00

5th burn 58,600.00

Considering a stable volume on 5th burn

Current token supply 43,655,554

One-year INJ burnt (52 weeks) 3,047,200

INJ minted (APY=5%) 2,182,778

ΔINJ per year -864,422

Deflation rate 1.98%

In addition to that, the Injective ecosystem managed to be one of the fastest-

growing in the sector, containing dozens of partners, apps, and protocols of various
matters: Layer One protocols, exchanges, validators, oracles, NFTs, incubators,
DeFi apps, DApps, wallets, stablecoins and exchange relayers.
Injective listed Terra UST pairs and the first-ever decentralized LUNA perpetuals,
which reached $50M in volume in a week. The INJ token also got available on the
Solana blockchain through a treasury management partnership with Katana, which
marks one of the first times a Cosmos SDK-based chain has transferred tokens to
Solana.
There is still a long path for Injective to go, and it already shows signals of a solid
project.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

6. CONCLUSIONS
Injective Labs has created a strong team, a strong value proposition, and has the
potential to keep showing its usefulness to the market. The team consistently
delivers the items on the pipeline on time or earlier than the planned date.
Suppose the mainnet is widely accepted by users around the globe. In that case, it
is possible that the volume transaction on it substantially multiplies, which
theoretically would increase awareness of the project and likely drive prices up.
Although Binance is a centralized exchange, its success case is a model to be
mirrored. Binance is a Chinese exchange responsible for a trillion crypto volume
that expanded to many other countries, including the US and already consolidated
teams in many countries. Since 2017, there have been Binance and other
exchanges such as Bit-Z, OKEx, Livecoin, CoinFalcon, IDEX. None of them had the
exponential growth Binance did, and some don’t even exist anymore. Why would
people use other exchanges when Binance provides a better service? Binance has
its flaws and limitations, and that’s exactly what Injective Protocol intends to solve.
Furthermore, the idea of
being a “One Stop Shop”
where you can find not only
crypto and futures, but
commodities, equities, forex,
and more, makes me inclined
to have all my assets and
trades into one platform
eventually.
Injective was accepted in
Binance Labs incubation
program in 2018, has a
$12.6m funding, a growing
team, several launches on
the roadmap, and
commercial partnerships in
progress.
Even after the token value
skyrocketed around 900% in
approximately one year,
there are way too many
upsides. The risks within the
project are that it does not
keep being developed as the
market does and that people
do not actively use the
platform that has just been
released.
Figure 8 - Injective Protocol Funding & Investors (Dealroom.co)
Investors have strong
confidence in the team. Their

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

growth strategies align with what they’re developing and what the market
constantly demands. The price spike in 2021 was before the mainnet launch. After
that, the price has plunged from around $10 to $6, so as the crypto market in
general, despite Injective’s first released data being impressive for a decentralized
exchange at its early stage.

Figure 9 - INJ Chart

Injective has all the ingredients a company needs to stand out: a competent team,
strong tokenomics, a top-notch product, a growing community, and well-structured
governance. Having the platform acceptance by the market, the project tends to
grow along with the sector it is in.

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 INJECTIVE PROTOCOL: A FUNDAMENTAL THESIS

7. INDEX
If you are not familiar with some terms in this article, don’t worry. I’ve been there
before too. I’ve created a quick Index, so you don’t get confused or bored. If there
are other terms you don’t know, please leave them in the comments.
Cosmos-SDK: the world’s most popular blockchain framework. Over $6 billion in
assets are managed by public blockchains built with the Cosmos SDK. An SDK, by
the way, is a software development kit (hardware, OS, programming language). So
basically, Cosmos is a framework for building blockchains.
DAO: Decentralized autonomous organizations (DAOs) are member-owned
communities without centralized leadership. Decisions are governed by proposals
and voting to ensure everyone in the organization has a voice and all activity is
transparent and fully public.
DEX: a decentralized exchange (DEX) is a cryptocurrency exchange that operates in
a decentralized way, without a central authority. They are run by self-executing
agreements written in code called smart contracts. Some examples are Pancake
Swap, Uniswap and Sushiswap.
Gas fees: payments made by users to compensate for the computing energy
required to process and validate transactions on the Ethereum blockchain. These
fees go directly to miners who provide the necessary computer power to verify
transactions and keep the network running.
Tendermint: the main contributor to Cosmos’ network. They are the software used
in Cosmos, which is the blockchain. More about it in the article
“Cosmos/Tendermint explained for real idiots” by Patrick Wieth

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