#70 - Injective: A Specialized L1 for Onchain Capital Markets

Injective's Deflationary Model, iAssets, and New Products

Stanford Blockchain Review
Volume 7, Article No. 10

📚 Author: Brandon Goss - Injective

🌟 Technical Prerequisite: Intermediate

In the blockchain ecosystem, Injective has emerged as a notable implementation of onchain finance. As a high-performance Layer-1 blockchain optimized specifically for financial applications, Injective distinguishes itself through its token economics, approach to asset tokenization, and long-term technical architecture. This article explores three key elements that define Injective's unique position in the blockchain ecosystem: its deflationary model centered around the burn auction mechanism, the revolutionary iAssets framework, and the chain’s technical roadmap.

Injective's Deflationary Model: An Alternative Approach to Tokenomics

The Mechanics of INJ's Deflationary System

Injective implements a deflationary model through its Burn Auction mechanism. Rather than relying on traditional fee burns — which often create friction between network scalability and deflationary goals — Injective hosts weekly auctions where participants bid with INJ tokens for a basket of assets generated from application revenue across the ecosystem. The winning bid is permanently burned, reducing the supply of INJ.

This design fundamentally reshapes INJ’s tokenomics by introducing a deflationary system that scales horizontally with the growth of the broader ecosystem.

The Burn Auction is enabled by two core native modules on Injective: the exchange module and the auction module. These are available out-of-the-box for anyone building on Injective, forming part of its suite of plug-and-play financial primitives. Auctions are held weekly and can be accessed via the Injective Hub or directly on-chain.

The Burn Auction follows a clear and repeatable cycle:

• Fee Collection: 60% of revenue (typically in stablecoins) from applications using the exchange module is pooled into an Auction Fund.

• Bidding Process: Users bid on the collected assets using INJ in an English auction format.

• Burning Mechanism: The winning bidder receives the full basket of assets, and the winning INJ bid is burned, permanently removing it from the total supply.

This cyclical process creates an economic feedback loop. As ecosystem revenue increases, so does the size and impact of each Burn Auction — amplifying deflationary pressure on INJ and driving greater on-chain economic activity. The mechanism forms a central component of Injective's economic architecture.

Mint Module & Dynamic Supply Mechanics

While the Burn Auction reduces supply through market-based burns, Injective’s mint module offers the counterpart: a dynamic, programmable supply system that adapts in real time. The Supply Rate automatically adjusts on a block-by-block basis, calculated based on the network's targeted bonded-stake ratio (Goal Bonded Percentage), Supply Rate Change parameter, lower/upper bounds on token Supply Rate, and Blocks Per Year.

This Moving Change Rate Mechanism is designed to engineer network activity that is responsive and adaptable. When more INJ is minted per block as the block reward, participants are incentivized to stake more INJ to benefit from increased rewards. Conversely, when the block reward decreases, stakers are incentivized to unbond staked INJ due to decreased rewards.

Programmable Token Economy

What distinguishes INJ from other Layer-1 tokens is its programmable economic model built around two complementary mechanisms:

1. Dynamic Supply Mechanism: A programmatic approach to token issuance through the Moving Change Rate Mechanism, which automatically adjusts supply rates in real-time every block. This mechanism operates within predetermined bounds that decrease quarterly through 2026.

2. Burn Auction Mechanism: An innovative mechanism that decouples deflationary pressure from network usage. Rather than burning transaction fees, which creates tension between scalability and value accrual, participants bid with INJ tokens for a basket of assets generated from ecosystem revenue. This aligns network value accrual with ecosystem growth rather than network congestion.

Evolution of the Burn Auction

Injective's burn mechanism has evolved significantly since its inception:

• INJ 2.0 (2023): Expanded the burn auction by allowing any application to contribute to the Auction Fund, not just those using the exchange module.

• INJ 3.0 (2024): Significantly enhanced the deflationary model by increasing the deflation rate 400%, raising the Supply Rate Change from 10% to 50%, and implementing a schedule for quarterly decreases in Supply Rate bounds. Over two years, the lower bound will decrease by 25% (from 5% to 4%), and the upper bound will decrease by 30% (from 10% to 7%).

• INJ Burn Upgrade (2024): Expanded access to allow individual users to make contributions, enabling any project or user to directly contribute to the Injective Burn Auction.

Comparative Advantage Over Other L1s

Injective's tokenomics model differs from traditional approaches used by most Layer-1 blockchains, particularly in how deflationary pressure is applied and how communities engage with the token economics:

1. Active Community Participation: Unlike most L1s where token burns are automatic and passive (e.g., fee burning on Ethereum), Injective’s Burn Auction requires active participation. Users bid with INJ to acquire protocol-generated assets, making the deflationary mechanism inherently community-driven. This transforms token burning from a background process into a direct form of engagement and value expression.

2. Ecosystem-Wide Contribution: The 2024 INJ Burn Upgrade expanded the mechanism to allow any project or user, not just exchange module-based applications, to contribute revenue to the auction pool. This inclusive design ensures that value from across the entire ecosystem contributes to INJ’s deflationary model, not just a subset of protocol activity.

3. Transparent, Decentralized Design: The Burn Auction is fully on-chain and open to all. Its transparent mechanics and public visibility reinforce Injective’s commitment to decentralization. Participants can track each auction, verify the burn, and witness real-time reduction in circulating supply, a level of clarity rarely offered by other L1s.

4. Scalability Without Congestion: Most L1s rely on burning gas fees, which scale with network congestion — a model that can disincentivize growth. Injective decouples deflation from congestion. Because burn volume is tied to ecosystem revenue, not block space, Injective’s model scales linearly with ecosystem expansion, not transaction load.

Scalability of the Deflationary Model

As more applications are built on Injective and ecosystem revenue increases, the size of each burn auction naturally scales upward. This continuous cycle ensures an ongoing reduction in INJ supply that is not directly tied to network congestion, unlike methods most major L1s employ.

The scalability of this model creates a virtuous economic flywheel:

The introduction of INJ 3.0 in 2024marked a major inflection point, increasing the deflation rate by 400% and tightening supply bounds through a scheduled reduction mechanism that continues through 2026.

In a low inflation or deflationary environment, economic activity tends to increase. This is rooted in basic economic principles: as the value of money or assets appreciates over time, participants are incentivized to engage in trade, investment, and productivity to maximize their benefits within the system.

As economic activity on the network rises, two things occur:

1. Applications generate more revenue.

2. New applications are created to capitalize on the thriving ecosystem, further boosting overall revenue.

This creates compounding growth, strengthening the flywheel with every turn.

The Burn Auction collects a portion of protocol-generated revenue and auctions it in exchange for INJ, which is then burned. As ecosystem revenue increases, the size of the INJ Burn Auction grows, further accelerating INJ's deflation rate.

iAssets: Revolutionizing On-Chain Asset Tokenization

What Are iAssets?

Injective’s iAssets represent a paradigm shift in how real-world assets are integrated into the blockchain. Far beyond static tokenized representations, iAssets are programmable financial primitives that enable dynamic liquidity allocation, position-based exposure, and seamless cross-market composability.

Each iAsset functions as an on-chain instrument with second-order utility and zero pre-funding constraints — enabling any stock, bond, or ETF to be launched not as a synthetic stand-in, but as a fully programmable, capital-efficient financial instrument. This unlocks an entirely new design space for tokenized markets.

Market Performance and Adoption

Since launch, iAssets have rapidly gained traction in both adoption and usage:

• Trading Volume: Over $200 million

• Market Share: 78% weekly market share across all chains (year-to-date)

• First Implementation: TRADFI, an index of 500 U.S. stocks, deployed as the first iAsset

These metrics highlight not only demand for on-chain real-world assets (RWAs), but also the effectiveness of Injective’s infrastructure in delivering institutional-grade performance.

The Technical Innovation Behind iAssets

Traditional financial markets remain defined by rigid contracts, intermediary dependence, and exclusionary practices. While DeFi introduced programmability and permissionless access, its early models, most notably overcollateralized synthetic assets, were capital-inefficient and failed to deliver true composability.

iAssets address these shortcomings through a modular framework powered by Injective’s specialized financial infrastructure:

• No Pre-Funding or Over-Collateralization: Unlike synthetic assets requiring 150%+ collateral, iAssets do not require user capital lock-ups, immediately freeing liquidity and improving capital efficiency.

• Oracle-Based Price Sourcing: iAssets derive real-time value from off-chain assets (e.g., stocks, commodities) via Injective’s Oracle Module, enabling accurate, tamper-resistant pricing.

• Permissionless Market Creation: The Exchange Module allows any iAsset to launch as a tradable market using Injective’s on-chain CLOB, ensuring deep liquidity and fast execution.

• Dynamic Liquidity Management: Market makers and institutions supply liquidity to iAsset markets without needing pre-funded collateral pools. Liquidity dynamically adjusts to market demand, creating efficient price discovery and execution.

This architecture ensures that iAssets are not only more flexible than traditional tokenization methods, but also more usable from day one.

Comparison with Other Tokenization Approaches

iAssets represent a significant advancement over existing tokenization methods across both traditional finance and other blockchain platforms:

Legacy Finance Limitations

• Settlement delays (T+1 or T+2) restrict capital mobility

• Clearinghouses (e.g., DTCC, LCH) introduce bottlenecks and lock-ups

• Legal agreements (e.g., ISDAs) limit derivatives access to large institutions

• Fixed trading hours exclude global retail participation

Early DeFi Synthetic Assets

• Required excessive collateral (150%+), reducing capital efficiency

• Collateral drawdowns led to liquidation cascades and systemic fragility

• Isolated liquidity pools limited flexibility and composability

By contrast, iAssets are designed to maximize usability, efficiency, and programmability from launch — with no barriers to global participation or protocol composability.

Key Advantages of iAssets

• Capital Efficiency: No collateral requirements for users

• Programmability: iAssets can power lending, hedging, and complex strategies

• Liquidity: Benefit from Injective’s shared liquidity layer and on-chain order book

• Accessibility: 24/7 trading with global access and instant settlement

Multipurpose Utility and Composability

iAssets integrate directly into Injective’s financial infrastructure, making them deployable across spot markets, derivatives, lending platforms, and structured products, without needing separate liquidity pools or asset silos.

Because of Injective’s architecture, iAssets can also support native rehypothecation with full transparency, enabling advanced capital efficiency without sacrificing security.

For example, a theoretical iAsset like iAAPL (Apple Inc.) could:

• Be traded 24/7 globally

• Serve as margin for leveraged trades

• Be used in algorithmic yield strategies

• Remain auditable and traceable across all rehypothecated uses

This opens up a new category of dynamic financial instruments, where assets aren’t just held — they actively contribute to composable, multi-purpose financial activity.

How Injective's Infrastructure Enables iAssets Without Collateral

Injective’s approach to iAssets is powered by its specialized financial infrastructure, highlighted by its modular liquidity architecture and Exchange Module, which features an on-chain order book for efficient price discovery and trade execution.

Unlike traditional synthetic assets that rely on pre-funded collateral pools, iAssets tap into Injective’s shared liquidity environment. A decentralized network of institutions supplies liquidity to each newly created market, treating iAssets like any other trading pair and dynamically adjusting liquidity provisioning in response to market demand.

This infrastructure allows iAssets to operate as fully tradable, composable instruments from day one, eliminating the need for user collateral and enabling a more open, programmable, and capital-efficient financial system.

Long-Term Vision

Network-Level Liquidity Architectures in Financial Blockchains

One of Injective’s innovations designed to solve the problem of application-specific liquidity is called Liquidity Availability. Rather than requiring each application to silo its own liquidity, Injective transforms liquidity into a shared, network-level resource. This decouples liquidity provisioning from individual dApps, enabling the network to dynamically allocate capital wherever it’s needed most, at any given moment.

Core components of Liquidity Availability include:

• Just-in-Time (JIT) Actions: Autonomous actions triggered by specific on-chain conditions to reallocate resources and fulfill liquidity demands in real time.

• Liquidity Proving: A verification layer that allows dApps to cryptographically prove they possess the liquidity necessary to meet transaction obligations.

• Solver & Routing Layer: A decision-making engine that intelligently routes liquidity across the network, optimizing for execution efficiency and capital utilization.

While iAssets eliminate liquidity fragmentation at the asset level, Liquidity Availability removes it at the intra-application and network level. Together, they create a fully composable financial layer where capital is constantly in motion: adaptive, efficient, and accessible to all.

Expanding the iAssets Ecosystem

The long-term vision for iAssets is to build a comprehensive, programmable financial system that unites real-world assets with blockchain-native functionality. This vision includes:

• Deeper Market Coverage: Expansion into new asset classes such as global equities, ETFs, commodities, and forex pairs, each represented as capital-efficient iAssets.

• Plug-and-Play Financial Products: Structured products, index strategies, and algorithmic portfolios built natively on iAssets, offering institutional-grade tooling for DeFi and TradFi participants alike.

• Scaling Global Market Access: Building on Injective’s existing 24/7, permissionless trading framework, future iterations of iAssets will expand support for additional regions, asset types, and fiat onramps — removing the final frictions that still exist between global TradFi participants and real-time decentralized markets.

Each new iAsset adds composability to the ecosystem, enabling developers and protocols to build higher-order financial primitives without needing to re-engineer core infrastructure.

Network Effects and Market Potential

As the iAssets ecosystem expands, it reinforces Injective’s role as the base layer for capital-efficient finance. By removing collateral constraints and liquidity silos, Injective attracts liquidity providers and developers looking to build in a system where assets can be deployed multifunctionally and reused intelligently.

According to market estimates, the tokenized asset market could reach $30 trillion by 2030. iAssets are uniquely positioned to capture this momentum, offering a live, performant, and composable framework that meets the needs of both retail and institutional players.

Injective is not just building new financial instruments. It is building a new financial system, with iAssets and Liquidity Availability as foundational primitives. This system is decentralized, scalable, and architected for global adoption.

Conclusion

Injective offers a specialized approach to financial blockchain infrastructure. Through its programmable tokenomics, asset frameworks, and modular infrastructure built for financial applications, Injective represents a distinct implementation in onchain finance.

Where most Layer-1s offer general-purpose platforms, Injective delivers a specialized financial operating system: one designed to scale capital markets on-chain with efficiency, composability, and transparency. Its novel auction-based supply reduction mechanism aligns protocol-level activity with supply dynamics, creating a deflationary architecture that evolves in tandem with ecosystem growth. Meanwhile, iAssets break from legacy tokenization models, enabling real-world financial instruments to function as natively digital, composable building blocks across trading, lending, and structured products.

With innovations like Liquidity Availability, Injective is transforming liquidity into a network-wide resource, dissolving the silos that have long fragmented both DeFi and traditional finance. The result is more than a blockchain; it’s a high-performance financial infrastructure layer capable of supporting everything from global equities to algorithmic structured products. All composable, all on-chain.

As the industry accelerates toward mass adoption of tokenized assets and blockchain-native finance, Injective is positioned not just to participate — but to lead.

About the Author

Brandon Goss is the Head of Research at Injective Labs, leading research and market intelligence across decentralized finance and blockchain technologies. Before joining Injective, he was a researcher at Messari and an enginner in the defense industry.