Composability (money legos)

Composability, also called money legos, works because contracts live publicly on a shared blockchain, expose standardized interfaces such as ERC-20 or ERC-4626, and need no permission for one contract to call another. There are two main forms. Atomic composability chains several actions across different protocols within a single transaction that executes in full or reverts entirely, the basis of arbitrage and flash loans. Product composability reuses one protocol's receipt token inside another. A typical stack deposits ETH in Lido, receives stETH, uses it as collateral in Aave, borrows USDC and moves it to Curve: four protocols chained together.

It is at once the source of DeFi's power and its risk. On the power side, it enables fast innovation, products built on products and greater capital efficiency. On the risk side, it creates tight coupling: a failure, a manipulated oracle or an exploit in one link propagates to everything that depends on it. Understanding it is key to assessing contagion risk in any strategy.

The flash loans of Aave or dYdX exist only thanks to intra-transaction atomic composability. Yearn builds strategies on Curve, Convex, Aave and Compound at once, and Lido's stETH is reused as collateral across dozens of protocols, an example of product composability at scale. Rehypothecation is composability applied to collateral.