What is the DeFi Trinity?
The “DeFi Trinity” framework, pioneered by Sam Kazemian and successfully implemented by Frax Finance, offers Web3 builders a blueprint for creating a scalable and vertically integrated ecosystem through three key DeFi primitives:
- Stablecoins
- Decentralized exchanges (DEXs)
- Lending & borrowing protocols
This framework can also be expanded horizontally to multiple blockchains like Ethereum layer-2 (L2) networks, enhancing interoperability with native dApps and assets in these ecosystems.
“There’s no difference between currency, liquidity, and lending. They’re all different parts of the same thing. That’s what the DeFi Trinity ultimately is” ~Sam Kazemian, Frax’s Co-founder.
1. Stablecoins
Stablecoins have become a foundational cornerstone of DeFi. They provide a non-volatile medium of liquidity, value storage, instant settlement, and on-chain yields. As of Q1 2025, the US Dollar (USD) is both the world’s dominant reserve currency and stablecoin denomination, with nearly $200 billion in USD-pegged stablecoin market capitalization (or 95% of the total stablecoin market). Integrating USD stablecoins is, therefore, critical for DeFi and Web3 projects to attract users and TVL (total value locked).
2. Decentralized Exchanges
DEXs enable digital asset trading through on-chain mechanisms, such as permissionless liquidity pools powered by AMMs (automated market makers). These pools can pair various tokens with stablecoins to facilitate low-slippage swaps and efficient price discovery. LPs (liquidity providers) who supply tokens/stablecoins to liquidity pools can earn swap fees and other incentives in return. DEXs also play an important role in any DeFi ecosystem by supporting collateral liquidators from lending protocols, enabling composability and liquidity for advanced market operations.
3. Lending & Borrowing Protocols
Lending protocols are decentralized money markets where borrowers can obtain loans, often in stablecoins, against digital assets. These protocols connect lenders who seek interest earnings on their capital with borrowers seeking liquidity or leverage. This creates a dynamic and trustless credit market secured by on-chain collateral, enabling efficient capital utilization in DeFi. Similar to traditional finance (TradFi), lending protocols also produce a money multiplier effect within a DeFi ecosystem through recursive lending, or “re-lending,” boosting its overall economic activities and growth.
Learn more about Frax’s DeFi Trinity framework.