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Onchain Economics
DeFi Primitives

Composability

The ability to combine different DeFi protocols and primitives like building blocks to create new financial products.

In-Depth Explanation

Composability is DeFi's superpower—protocols can plug into each other permissionlessly. Deposit ETH into Lido, use stETH as collateral on Aave, borrow stables, LP those stables on Curve. This 'money legos' property enables rapid innovation but creates systemic risk: when one protocol fails, connected protocols may cascade.

Related Terms

Decentralized Finance

DeFi

Financial services built on blockchain technology that operate without traditional intermediaries.

Smart Contract

Self-executing code deployed on a blockchain that automatically enforces agreement terms when conditions are met.

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Automated Market Maker

AMM

A smart contract that provides liquidity and enables trading using a mathematical formula instead of an order book.

Liquidity Pool

LP

A smart contract holding paired assets that enables trading, lending, or other DeFi activities.

Collateralized Debt Position

CDP

A loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.

Lending Protocol

A DeFi application that matches lenders with borrowers through smart contracts, enabling permissionless borrowing and lending.

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