A Beginner’s Guide to Composable Finance
Disclaimer: Information as of Feb 4, 2022. For the most recent updates, dive into our comprehensive documentation here
Composable Foundation is a decentralized finance (DeFi) infrastructure platform designed for developers and end-users who share a common vision for DeFi interoperability. The Composable technology stack is lego-like. Thus, it is modular in nature and allows for new logic to be added to craft novel solutions that can be deployed across multiple blockchain infrastructures. We are exploring the ability to fragment applications across different layers so that different aspects of a protocol can live on the layer that provides the specific desired benefit, while the overall application utilizes Composable’s infrastructure to natively communicate.
Composable Finance is designed to solve the problems that DeFi solutions face in their currently siloed environments. This guide helps non-DeFi natives easily grasp the concepts underlying Composable Finance, and its value proposition, to drive excitement and further adoption towards our growing ecosystem.
The problem in today’s siloed blockchain ecosystem
The DeFi ecosystem continues to move towards widespread adoption by building out decentralized equivalents of the products and services that exist in traditional finance (TradFi) today. The problem today is the lack of interoperability within the broader ecosystem. Developers that produce decentralized applications (dApps) have to choose the ideal blockchain infrastructure for the specific use cases of their products. While this provides a competitive blockchain market for builders, it also creates a zero-sum competition between blockchains and layers. This is non-optimal, as different blockchains and different layers are ideal for different use-cases. In addition, it is not always a question of which platform is better in an absolute sense, but simply a contextual choice of platform selection based on tradeoffs. As such, an interoperable environment provides a superior environment for developers. In addition, this prevents end-users from participating in opportunities that span beyond a single chain or layer. It is important to note that without interoperability, blockchains and their applications are siloed not only across chains but even have difficulty communicating across layers of the same protocol. In an ideal world, there is open communication across all of these chains and layers so that the end-users can tap into all the benefits of the DeFi ecosystem. We refer to this as blockchain agnosticism.
For instance, DeFi users that utilizing a dApp on a specific blockchain to farm yield and provide liquidity are siloed to that layer. Such users cannot easily move their yield position to another layer, or chain, to optimize their returns. Thus, users may want to move tokens between different dApps based on new yield opportunities, or some other novel mechanism. Currently, this process is timely and expensive because interoperability is not standardized and most blockchains are incapable of allowing their products and services to communicate amongst different chains or layers. As such a user’s digital assets cannot be seamlessly transferred, swapped, or utilized to their full potential.
When users are prevented from using multiple platforms that cannot easily communicate with each other, this adds a layer of complexity to decentralized financial services. Additionally, the intricacy behind different layers within blockchains built to overcome certain scalability and liquidity issues are accompanied by further restrictions in interoperability that need to be addressed. Interoperability, amongst other issues, have been one of the challenges to DeFi growing and capturing a larger part of market share from TradFi.
Composable Finance: Enabling the next stage of DeFi
Composable Finance aims to be the face of DeFi by setting its sights on true DeFi interoperability. Composable is built by DeFi natives for DeFi enthusiasts, developers, investors, and newcomers. Consolidating on its successes with cutting edge protocols like Mosaic, Picasso, Centauri etc., Composable continues to develop its technology stack to provide the base infrastructure for developers to build solutions that are interoperable across chains and layers.
Composable is focused on several key features that are worth highlighting:
- Cross-Chain Interoperability: the ability to seamlessly communicate and execute features across two or more independent blockchains.
- Cross-Layer Interoperability: the ability to seamlessly communicate and execute features across multiple layers within the same or different blockchains.
- dApps: decentralized applications that run on top of blockchains designed to provide services such as DeFi services.
- Parachains: blockchains configured for scalability that run on the Polkadot/Kusama network.
- Pallets: similar to smart contracts but built to support and enhance parachains in the Polkadot / Kusama networks. They act as vital building blocks to create DeFi dApps and services.
How is blockchain interoperability made possible with Composable’s technology?
Composable is focused on an interconnected ecosystem. It adopts and utilizes the vision and technology of the Polkadot and Kusama Networks to connect other Layer 1 and Layer 2 blockchains. With great support from its community, Composable as of November 2021 officially secured Picasso as a Kusama parachain and by January 2022, it realized the Composable Parachain as a Polkadot Parachain.
Composable Finance has developed and leverages several key components to actualize its vision of true interoperability:
Composable’s SDK / Technology Stack:
- Picasso: Composable’s Kusama parachain focused on enabling interoperability and customizability to pioneer financial primitives.
- Mosaic: Composable’s cross-chain liquidity layer, enabling free movement of assets between layers and chains.
- Composable Cross-Chain Virtual Machine (XCVM): Composable’s trustless virtual machine that enables full integration and interaction within the broader DeFi ecosystem.
Additional components driving progress in our ecosystem:
- Composable Labs: resource arm dedicated to driving innovation within our ecosystem. Technical resources, as well as funding through grants and networks, are made available to our community of developers and thought leaders.
- Composable’s Composers: Our Ambassador program dedicated to finding and supporting our community champions and Composable enthusiasts to grow and educate our ecosystem to lead us to new frontiers.
How can newcomers get involved and continue to learn about Composable Finance?
This article serves as a refresher and high-level introduction to Composable Finance for some of our efforts as we pursue blockchain agnosticism. Composable is excited to continue its stride in developing meaningful solutions. Say up to date and get involved keep abreast of the latest ecosystem info through our social media channels.
For more information about Composable and how it is architecting the unified DeFi landscape of the future, check out our socials:
