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Composability Meaning

Apr 26, 2024 | Updated Apr 26, 2024
DeFi composability is the capacity to integrate existing blockchain components in various ways to build new applications and services.

What Is Composability in DeFi?

In decentralized finance (DeFi), composability refers to the capacity of different protocols and applications to seamlessly interact with each other. This interoperability allows developers to freely mix and match various components or source codes of existing protocols, smart contracts, and application programming interfaces (APIs) to create new DeFi applications and services. These modular components within DeFi protocols are often analogously compared to building blocks, earning them the nickname ‘Money Legos’. 

In a composable ecosystem, one protocol’s output becomes another protocol’s input, thereby stacking together to form a network of interlinked protocols that seamlessly integrate and work together. 

For example, one DeFi lending platform enables users to borrow funds. The borrowed funds can act as collateral on another DeFi platform for trading crypto assets. The profits from that trading platform could then be used to settle the loan acquired from the lending platform. A DeFi platform is composable if all these can be done without leaving the  ecosystem.

What Are the Different Types of DeFi Composability?

A blockchain is composable if it allows developers to easily build innovative decentralized applications (dApps) and cross-chain protocols. In other words, a composable blockchain’s open-source nature allows developers to create new financial products or improve existing ones. 

The most common types of composability include:

Morphological composability

A morphologically composable blockchain is one whose components, smart contracts, tokens, and functions adhere to the same standards, such as the ERC-20 token standard. This makes its dApps and DeFi platforms interoperable and compatible with each other.

Syntactic composability 

This is the ability of existing decentralized autonomous organizations (DAOs) and dApps to seamlessly integrate and communicate with each other to create brand-new applications. Syntactic composability is best suited for systems that are also morphologically composable. Generally speaking, a morphologically composable system focuses on the ability of the same component to be reused in different systems. In contrast, syntactically composable ones refer to the capacity to combine a blockchain’s building blocks to create newer systems.

Atomic composability

Rather than integrate existing parts to create new functionalities and applications, atomic composability primarily focuses on executing smart contracts. That is, it enables users or developers to bundle different types of transactions into a single transaction. It’s important to note that this single transaction only finalizes if each transaction is successfully processed.

Entropy

The entropy of a variable is the measure of the ‘unpredictability’ of that variable. In hardware wallets, entropy refers to the large random number that ensures your crypto wallet is secure.

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Programmable NFTs (pNFTs)

pNFT is a new programmable asset class in the Solana ecosystem that allows creators and artists to define how their NFTs are used.

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Decentralized Exchange (DEX)

A decentralized exchange (DEX) is a peer-to-peer marketplace that allows users to directly trade with each other. It doesn’t need a custodian or intermediary to hold the users’ funds or facilitate transactions.

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