XSY - Trinity: Extreme Capital Efficiency DeFi

[GENERAL] Name and surname of main applicant

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

Trinity is a lending-borrowing protocol on Cardano that can be built into any existing pooled DeFi protocol. Through this, the inactive portion of pooled liquidity can be utilized to earn interest.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

[GENERAL] Please provide here more information on the open source status of your project outputs

The outputs will be fully open source under the Apache 2 license.

The code will be published to the following repository:

xsy-trinity (github.com)

[SOLUTION] Please describe your proposed solution

Trinity is a lending-borrowing protocol on Cardano with unique characteristics designed to address capital inefficiency. As with other traditional decentralized lending protocols, Trinity enables users to earn rewards by providing liquidity and to borrow assets by posting collateral.

Trinity seeks to address one of the most universal problems experienced by pool-based DeFi protocols that is capital inefficiency. Currently, the popularity of pool-based DeFi platforms far exceeds that of any other variant. Pool-based protocols are well-suited for sparse liquidity environments. However, these protocols suffer heavily from capital inefficiency. Only a very small portion of the total value contained in each pool is actually utilized in a given day or even in a given week. The vast majority of the capital remains completely inactive in the pool and simply exists to establish the asset ratio and in case of a bank run or other extremely abnormal edge-cases.

In order to address this problem, Trinity extends the traditional lending borrowing protocol architecture with additional liquidation mechanisms to borrow/lend funds that would otherwise remain inactive (i.e. DEX liquidity). Like other lending-borrowing protocols, liquidations under normal circumstances on Trinity can occur as a result of price fluctuation of the collateral and loaned assets. In Trinity, liquidations can also be triggered by external criteria of the pool state (i.e. a bank run in the case of a synthetics protocol, or an extreme high volume token purchasing period on a DEX). This additional liquidation criterion allows funds, which normally sit dormant and inactive in the pool, to be used productively to generate yield and capital via the lending mechanism without compromising the safety of the pool.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

Importantly, Trinity is not a DEX and has no intention of competing with existing decentralized exchanges within the Cardano ecosystem. Instead, it seeks to enhance the ecosystem by integrating with and extending the functionalities of existing protocols. This approach fosters collaboration and innovation, ensuring that Trinity contributes meaningfully to optimizing capital use and expanding DeFi opportunities.

Trinity's innovative approach to tackling capital inefficiency in pool-based DeFi protocols will significantly enhance the overall utility and performance of the Cardano ecosystem. By enabling the productive use of otherwise dormant capital, Trinity increases the yield potential for liquidity providers and offers more favorable borrowing conditions for users. This optimization not only attracts more participants to the DeFi space but also strengthens the financial stability and resilience of the ecosystem.

Moreover, by integrating with and extending the functionalities of existing protocols rather than competing with them, Trinity fosters a spirit of collaboration and synergy within the Cardano community. This collaborative approach encourages innovation, supports the growth of existing projects, and ensures that the ecosystem evolves in a cohesive and unified manner.

The first protocol we will integrate with is Sundae V3. The Sundae V3 protocol was designed with the flexibility to make this integration frictionless. Users will be able to create pools with liquidity that is being simultaneously utilized in both Sundae and Trinity.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Our team consists of highly skilled developers with experience developing open-source tooling (Convex) in the ecosystem. Our developers are extremely experienced in all stages of DApp development on Cardano from design and architecture all the way to mainnet releases. They are intimately familiar with the requirements of DApp protocols, and the nuances of smart contract development on Cardano. We are uniquely positioned to deliver this critical infrastructure to the Cardano ecosystem.

Historically a number of promising well intentioned tools and libraries in the ecosystem did not see much traction upon release. Often this can be the result of the tooling being developed in a vacuum without feedback from production use-cases.

In order to make sure that the proposed framework is well-equipped for production use, we will develop and revise it with feedback from a live mainnet protocol.

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

Architecture & Specification

A formal specification of the Trinity protocol.

Technical architecture documentation.

Milestone Outputs:

• Formal specification of the Trinity protocol.
• Technical architecture documentation.

Acceptance Criteria:

• Approval of the formal specification and technical architecture by the project lead.

Evidence of Milestone Completion:

• Submission of the formal specification document.
• Submission of technical architecture documentation to GitHub repository.

Trinity Protocol Smart Contracts

The on-chain code component of the Trinity protocol.

Milestone Outputs:

• Development of the on-chain code component of the Trinity protocol.
• Initial testing of smart contracts on a test network.

Acceptance Criteria:

• Successful deployment and testing of smart contracts on a test network.
• Approval of smart contracts by the project lead.

Evidence of Milestone Completion:

• Submission of smart contract code to GitHub repository.
• Report detailing the results of initial testing.

Trinity SDK

An off-chain SDK for constructing transactions to interact with the protocol.

Milestone Outputs:

• Development of an off-chain SDK for constructing transactions to interact with the protocol.
• Comprehensive documentation for using the SDK.

Acceptance Criteria:

• Successful implementation and testing of the SDK.
• Approval of SDK and documentation by the project lead.

Evidence of Milestone Completion:

• Submission of SDK code to GitHub repository.
• Submission of comprehensive SDK documentation.

Front-end & Testnet Release

A front-end and web-app through which users can interact with the Trinity protocol on the Preprod network.

Milestone Outputs:

• Development of a front-end and web-app for interacting with the Trinity protocol.
• Deployment of the front-end on the Preprod network.
• User guide for interacting with the protocol via the web-app.

Acceptance Criteria:

• Successful deployment and testing of the front-end on the Preprod network.
• Approval of front-end functionality and user guide by the project lead.

Evidence of Milestone Completion:

• Submission of front-end code to GitHub repository.
• Submission of user guide.
• Report detailing the results of the Preprod network deployment.

Close-out report & video

A video demonstration of the lending protocol in action along with a closeout report detailing the development process and the future roadmap.

[RESOURCES] Who is in the project team and what are their roles?

Jean-Frédéric Etienne has more than 15 years of experience in safety and threat analysis and is an expert in several formal verification techniques. He is currently the architecture and technical lead for the Djed implementation on Cardano and has put in place a property-based testing methodology to extensively assess the correctness and robustness of Plutus smart contracts against all potential attacks. He has also specified and proved the adaptation of the Djed protocol on the EUTxO model and has developed a set of Plutus libraries to produce optimized on-chain code.

Jann Müller is a Haskell programmer with years of experience in writing scalable, mission-critical systems. He has been working with Plutus since its inception and is the maintainer of the sc-tools library for Cardano apps. He is the lead developer of Djed and will be working on the off-chain parts of the framework. 

Philip DiSarro is an expert in the field of Compiler Development & Programming Language Theory. He has made significant open-source contributions to the Cardano developer ecosystem. As a co-chair of the IOHK developer experience working group he worked to identify and resolve pain points that DApp developers experience in Cardano. He has a vast wealth of professional experience in smart contract security and auditing on Cardano; and was responsible for the identification and resolution of a large number of critical exploits in production open-source smart contracts. Recently, Philip has concentrated his efforts on designing and deploying effective zero-knowledge proof applications within the Cardano ecosystem. Philip is a senior Haskell developer on the XSY team, a consultant and lecturer for Emurgo, and the CEO and co-founder of Anastasia Labs.

Amir H. Meyssami Rad is a Haskell developer and a member of the XSY development team with over two years of experience in developing on Cardano. His expertise spans wallet integration tools, off-chain transaction library development, DApp and on-chain development using Plutus across various projects.

Konstantinos Lambrou-Latreille is a Haskell programmer with more than 5 years of relevant experience. He worked for 3 years in IOG on Plutus off-chain tooling such as a node emulator for testing Plutus applications, a transaction building library, and a chain-indexer. He will also be working on the off-chain part of the framework.

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

Total cost: 295,000 Ada

• 2 x Smart Contract Engineer ( 8 weeks) - 115,000 Ada
• Update spec
• Improve smart contracts
• 2 x Off-chain engineer (14 weeks) - 115,000 Ada
• Implement off-chain SDK
• 1 x Front-end engineer (2 weeks) - 45,000 Ada
• Implement UI
• 1 x Project manager ( 14 weeks)  - 20,000 Ada

The schedule accounts for delays such that if the timeline exceeds the above, the work will be continued until the proposal is feature complete.

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

There is a huge amount of capital tied up in pooled protocols. For the vast majority of the time, the capital is not utilized as its purpose is to only establish the pool ratios. In practice, users are only transacting with a small portion of the pools in any given period. Of course, in certain drastic circumstances, the utilization of pooled liquidity in a given period can become much higher (i.e., during a flash crash, users might dump some asset causing a large portion of the paired asset to leave the pool). Trinity hence offers a mechanism to address capital inefficiency of pooled assets while ensuring that the pool always has access to these funds when necessary.