What Is Composable DeFi? Ever since Ethereum launched its programmable smart contracts, the blockchain ecosystem witnessed the rise of a new vertical called decentralized finance (DeFi). Over the years, the DeFi ecosystem has evolved into a permissionless and borderless marketplace, reinventing the traditional finance (TradFi) structure by enabling anyone with an internet connection to access a wide range of financial products. While most of the credit for this burgeoning DeFi ecosystem is given to smart contracts, we often don’t discuss the underlying features. Composability is a feature of smart contracts that binds the entire DeFi ecosystem together, whether decentralized exchanges (DEXs), lending and borrowing protocols, collateralized loans, synthetic assets, leveraged trading, futures markets, payment networks, and more. Composability allows all these products to work in tandem, thus creating a parallel financial system that is globally accessible without any centralized authorities. Technically, composability is defined as a technical feature that allows different components within a system to be combined to support new use cases. Through composable DeFi, developers can leverage different combinations of existing protocols and dApps without any special permissions. How Does Composability Work in DeFi? DeFi dApps and protocols also referred to as “Money Legos,” are open-source, which allows them to communicate with each other. This open-source nature of DeFi also enables these dApps and protocols to leverage each other’s code and utility, facilitating a synergistic effect. For instance, the Ethereum blockchain is home to many DeFi products. Since it is permissionless, anyone can build dApps and integrate any element from any existing protocol on the Ethereum chain by paying the gas fee for transactions. This is possible due to the composability feature embedded in smart contracts. Composability enables developers (and users) to carry complex strategies like borrowing ERC-20 tokens from one platform, converting them into another ERC-20 token on another platform, using the converted token to swap it with another ERC-20 token, and so forth. Marius George Ciubotariu, Project Head at Hubble Protocol, explains the concept of composable DeFi, “All DeFi dApps and protocols are Money Legos, because everything lives on an open global platform, without barriers, which means that you can pick whichever Lego piece you want, combine it with another piece, and build your own masterpiece. There is no limit to what you can create. All of this to serve every kind of financial appetite on the entire risk/return spectrum. We, at Hubble Protocol, are also using the composability feature of smart contracts to build our yield-bearing stablecoin that can be collateralized with a basket of assets on the Solana blockchain, enabling capital efficiency with yield accumulation.” Author: Marius George Ciubotariu is the Project Lead of Hubble Protocol, the DeFi hub of Solana. He has more than a decade of experience in programming, data analysis, and project management. A blockchain enthusiast and a massive proponent of DeFi, Marius has held diverse positions throughout his career, spanning web development, financial analysis and research, wealth management, and software engineering to name a few. Before joining Hubble Protocol, Marius has worked with leading mainstream brands like Bucharest Stock Exchange, Morgan Stanley, and Bloomberg LP. Connect with Marius on LinkedIn.
March 17, 2023