What is Money Lego? Composability Explained

TLDR;

Money Lego is a term used to describe how different DeFi protocols can be combined to create new DeFi possibilities. This concept describes the character that different DeFi protocols are composable with each other and, which drives innovation and usability in the space. In this blog, we'll explore the benefits of Money Lego and how it has enabled DeFi to create more efficient markets.

What is Composability?

Composability in DeFi refers to the ability of different DeFi protocols to work together seamlessly, allowing for the creation of new DeFi products by connecting existing smart contracts in unique ways. This allows for interoperability between different DeFi protocols, making it possible to create complex products that were not possible before.

For example, suppose a user wants to take out a loan in a stablecoin like Dai. They can use a lending protocol like Aave to borrow Dai using their own cryptocurrency as collateral. They can then take that Dai and pair it up with USDC and provide liquidity as an LP on Uniswap. The whole process can be abstracted into one simple click on a yield aggregator app such as Sommelier so that users don’t need to interact with each of the separate dapps. In the Cosmos ecosystem, we are also working towards this goal; once a technology called interchain account is ready to use, composability in the interchain world will be lifted to a new level.

Also Read: Importance of Security in DeFi

Benefits of Money Lego in DeFi

In DeFi, protocols are designed to be modular, meaning that they can be easily integrated with other protocols. This is different from traditional finance, where financial products are typically siloed and not interoperable. 

The beauty of Money Lego is that it allows for a high degree of flexibility and creativity in creating new products. By allowing different protocols to work together, DeFi can create a wide range of products, from leverage strategies to flash loans. Composability also allows for innovation and experiments, as developers can build on top of existing protocols to create new products that were not previously possible.

Also Read: Liquid Staking Tokens Explained

Conclusion

Money lego is an important concept in DeFi that allows different protocols to work together seamlessly, creating new products and driving innovation in the space. By enabling composability and modularity, DeFi protocols have the potential to revolutionize traditional finance and create a more open, accessible, and decentralized system.