Composable Yield Strategies

Composable Yield Strategies, often referred to as money legos, involve stacking multiple decentralized finance protocols together to create a more efficient or higher-yielding investment product. A user might deposit assets into a lending protocol to earn interest, take the receipt tokens from that deposit, and then use them as collateral in another protocol to farm rewards or earn additional yield.

This layering process allows for the creation of complex financial instruments that are built entirely on the open, permissionless nature of blockchain protocols. While this offers the potential for significantly higher returns, it also introduces systemic risk, as the failure of one protocol in the stack can trigger a cascading failure across the entire chain.

Successful composition requires a deep understanding of the interactions between different protocols and the risks associated with each component. It is a defining feature of the innovation occurring within the decentralized finance space.