Composable DeFi Stacks

Composable DeFi stacks, often referred to as money legos, are the practice of building complex financial applications by layering different decentralized protocols on top of one another. For example, a user might deposit assets into a lending protocol, receive a receipt token, and then use that token as collateral in another protocol to earn additional yield.

This composability allows for rapid innovation and the creation of sophisticated financial instruments that would be impossible in a siloed system. However, it also creates significant systemic risk, as a failure in one protocol can cascade through the entire stack, leading to contagion.

Managing this risk requires a deep understanding of the interdependencies between protocols and the potential for failure propagation. It is the defining feature of the modern, interconnected DeFi ecosystem.