What Is Composability?
DeFi's superpower is composability: protocols are permissionless building blocks that can interact freely. Unlike TradFi where systems are siloed, DeFi lets you combine protocols in novel ways.
Simple Composability Example
Result: Earn staking yield on ETH + borrow stablecoins + earn on borrowed funds = multiple yield sources from one ETH position.
Building DeFi Stacks
Stack Building Principles
Start with Base Layer
Choose a solid foundation: ETH, stablecoins, or BTC. The base determines your overall risk profile.
Add Yield Layers
Each layer should add meaningful yield. If a layer adds 0.5% but doubles your risk, skip it.
Understand Dependencies
Know what happens if any layer fails. Can you unwind? What's the cascade effect?
Popular Strategies
LST Leverage Loop
Stake ETH → Get stETH → Deposit as collateral → Borrow ETH → Stake again → Repeat
Stablecoin Yield Stack
USDC → sDAI (MakerDAO) → Lend on Morpho → Earn DSR + lending yield
Points Maximizer
ETH → eETH (Ether.fi) → Pendle YT → Leveraged points exposure + staking yield
Risk Management
Composability Risks
- • Cascading failures: One layer failing can collapse the stack
- • Oracle dependencies: Price feeds affect multiple layers
- • Liquidity risk: May not be able to unwind quickly
- • Compounded smart contract risk: More protocols = more bugs possible
Tools & Monitoring
Essential Monitoring
Interactive Stack Builder
Explore composable DeFi strategies and their yields:
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Frequently Asked Questions
Composability means DeFi protocols can interact and build on each other like Lego blocks. You can take output from one protocol (e.g., stETH from Lido) and use it in another (e.g., as collateral in Aave). This creates 'money legos' that stack yields.
Money legos are composable financial primitives. Stake ETH → get stETH → deposit in Aave → borrow USDC → deposit in Ethena → earn multiple yields. Each layer adds yield (and risk). The metaphor is building complex structures from simple blocks.
Yes, composability compounds risk. If any protocol in your stack fails, the whole strategy can unwind. A bug in layer 1 affects layer 2, 3, etc. More layers = more potential failure points. Understand each protocol's risks before stacking.
Popular stacks: LST leverage (stake → collateral → borrow → stake more), stablecoin yield (deposit → lend → LP), points farming (stake → restake → LP in Pendle). Complexity ranges from 2-layer simple to 5+ layer advanced.
Monitor health factors across all layers. Set alerts for liquidation risk. Understand unwind procedures—can you exit quickly? Track dependencies: if Chainlink goes down, does your whole stack break? Start simple and add layers as you learn.