What is the DeFi Trinity?
The “DeFi Trinity” framework, pioneered by Sam Kazemian and successfully implemented by Frax Finance, offers builders a blueprint for creating a scalable and vertically integrated DeFi ecosystem through three core primitives: stablecoins, decentralized exchanges, and lending protocols. This framework can also be extended horizontally to emerging blockchains, such as Ethereum layer-2s (L2s), enhancing interoperability while enabling the support of new digital assets on these networks.
“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.
Stablecoins
Stablecoins serve as a vital liquidity layer, enabling non-volatile transactions and yield opportunities on-chain. As of Q3 2024, the US Dollar (USD) remains the world’s dominant reserve currency and stablecoin denomination, with over $150 billion in USD-pegged stablecoin market capitalization. Incorporating USD stablecoins is therefore critical for protocols aiming to attract users and TVL (total value locked).
Decentralized Exchanges (DEX)
DEXs enable the trading of digital assets 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 price discovery. DEXs also play an importnant role in the DeFi ecosystem by supporting collateral liquidators from lending protocols, enabling composability and liquidity for advanced market operations.
Lending Protocols
Lending protocols (or money markets) are decentralized marketplaces where borrowers can obtain loans, typically in stablecoins, against on-chain collateral. These protocols connect lenders seeking to earn interest on their capital with borrowers in need of liquidity or leverage. This creates a dynamic, trustless credit market secured by digital assets, offering accessibility and security while fostering efficient capital utilization within the DeFi ecosystem.
Learn more about Frax’s DeFi Trinity framework.