Forbes: How Spotting Market Inefficiencies Can Spur Successful Startups: A Case Study With Eric Chen

The Web3, or blockchain, industry, is currently in the midst of a digital transformation.

We’re seeing a major push for open-source and fully decentralized products that are governed by the users themselves. While many companies claim to be truly open-source, the reality is that creating a fully frictionless and independent organization is a complex undertaking that requires a high degree of technical knowledge.

For Eric Chen, founder of Injective Protocol, the desire to build a truly decentralized derivatives exchange led him on a journey from hedge funds to eventually being incubated by Binance, the world’s leading digital assets exchange. During this process, Chen learned valuable lessons about how a pragmatic approach to innovation can help companies gain a competitive advantage and succeed in the fast-paced world of tech.

I recently spoke to Chen to learn more about his journey and what other entrepreneurs can learn from his experiences.

Shama Hyder: What was the inspiration behind Injective?

Eric Chen: Injective started as a few passionate researchers and traders trying to solve one single problem that was plaguing decentralized exchanges and decentralized finance as a whole. Back in 2018, we had a simple, primordial focus to find a decentralized and trustless solution to front running, which we believe to be one of the biggest threats to decentralized exchange security.

As it is evident today, front-running, gas auction, and miner extractable value have been pushing Ethereum transactions to be prohibitively costly when it comes to fulfilling its core value propositions of true financial freedom. We devised a solution that utilizes a newly developed cryptographic function called verifiable delay functions (VDFs) to create a fair, trustless, and most importantly inexpensive transaction ordering mechanism for decentralized exchanges.

Hyder: What did true decentralization mean to you when building the company?

Chen: We envision that in the not so distant future, exchanges will be a public utility with end-to-end decentralization throughout the lifecycle of a trade. To us, true decentralization means that the entire process of order discovery, matching, settlement, and position management is fully peer-to-peer with no reliance on one single party.

Hyder: What advice do you have for entrepreneurs who spot market inefficiencies?

Chen: One of the fundamental lessons I’ve learned over the years is that every great startup helps to solve a major problem. Market inefficiencies present unique opportunities to build companies around, since solving these inefficiencies can lead to tremendous market potential moving forward.

I would recommend aspiring founders to first determine how best to alleviate the inefficiencies that they spot. After they have built some form of conviction around a potential solution, I would suggest that they focus on executing methodically but also rapidly and creatively. Injective started in much the same way.

Hyder: What were your key steps to getting noticed and incubated by Binance?

Chen: From day one, our team was focused on building a product that helps solve major issues that traders face daily when using exchanges. Whether it was slow transaction speeds, high fees or poor UX, there were a number of issues that needed to be addressed.

Investors usually make decisions based on thesis alignment or the company's technical and execution prowess. When we were in conversation with the Binance Labs team, they were looking to back an innovative DEX that would help unlock the next frontier in DeFi, and Injective resonated with the investment team on multiple levels. After some due diligence conversations, the Binance team aligned with our vision and we aligned with theirs to create a mutually beneficial partnership.

Hyder: What general resources would you recommend to young entrepreneurs?

Chen: There are a number of amazing resources out there for aspiring entrepreneurs. When starting out, I would recommend learning the basics through books about startups and business, like Chaos Monkeys and The Hard Things About Hard Things.

However, nothing beats experiential learning. When you are passionate about solving a problem, the best way to learn is by working on individual projects and contributing to open source repositories. I sought out help from experts and spoke to potential users. This helped me pinpoint exactly what issues were present, and in turn equipped me with the knowledge I needed to build a product that truly addressed their concerns.

As Chen makes clear, innovating in a highly technical field requires top-notch knowledge of your industry, as well as plenty of creativity. Web3 is just getting started, yet it’s evolved at lightning speed. There’s no telling where the industry will be in a few years, but it will be fascinating to watch it grow.

About Injective

Injective is a lightning fast interoperable layer one blockchain optimized for building the premier Web3 finance applications. Injective provides developers with powerful plug-and-play modules for creating unmatched dApps. INJ is the native asset that powers Injective and its rapidly growing ecosystem. Injective is incubated by Binance and is backed by prominent investors such as Jump Crypto, Pantera and Mark Cuban.