Composable DeFi: Building Flexible Financial Systems

Composable DeFi is the interoperability between different DeFi protocols.

What is Composable DeFi?

After Ethereum launched programmable smart contracts, the blockchain ecosystem witnessed the emergence of a new vertical: decentralized finance (DeFi). The DeFi ecosystem has evolved into a permissionless and borderless marketplace, redefining the structure of traditional finance (TradFi) and giving anyone access to a wide range of financial products. Much of the credit for the development of DeFi goes to smart contracts, but there is rarely any discussion of their main characteristics.

Compatibility is a feature of smart contracts that ties together the entire DeFi ecosystem - decentralized exchanges (DEX), lending protocols, collateralized loans, synthetic assets, futures markets, payment networks and more

Interoperability allows all products to work in tandem, creating a parallel financial system. In technical terms, compatibility is defined as a technical characteristic that allows different components of a system to be combined to support new usage scenarios. With Composable DeFi, developers use different combinations of existing protocols and dApps without special permissions.

How does compatibility work in DeFi?

DeFi dApps and protocols, also called “money legos,” are open source, allowing them to interoperate with each other. DeFi’s open source code also allows these dApps and protocols to leverage each other’s code and utility, fostering synergies.

For example, the Ethereum blockchain is home to many DeFi products. Anyone can create dApps and integrate any element from any existing protocol into the Ethereum chain by paying a transaction fee.

Comparability gives developers and users the ability to implement complex strategies - for example, borrowing ERC-20 tokens on one platform, converting them to another ERC-20 token on another platform, using the converted token to exchange for another ERC-20 token, etc.

Hubble Protocol Project Manager Marius George Chubotariu explains the concept of composite DeFi this way: all dApps and DeFi protocols are lego money, because everything lives on an open global platform, without barriers, which means that you can pick any lego piece, connect it to another piece and build your own masterpiece. There is no limit to what you can create. And all to satisfy any financial appetite on the risk/return spectrum.

Marius George Chubotariou has more than a decade of experience in programming, data analysis and project management. A blockchain enthusiast and DeFi supporter, Marius has held a variety of roles throughout his career, including web development, financial analysis and research, asset management, software development, and more. Prior to joining Hubble Protocol, Marius worked with leading brands such as Morgan Stanley and Bloomberg LP.

Related terms