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The Power of Blockchain Composability

Updated: Oct 18, 2023

By Jaya Bijoor

One of the ways blockchain technology works differently than technology today is by offering composability, but what is composability?


Composability combines code, components, and different applications in software development to create new software products.


And while Web2 is somewhat composable, the Web3 world allows for much more composability.


Why?


When developers build composable applications, they relinquish control over their creations’ use. Other developers can build on the original developer’s code without asking permission.


You're already familiar with composability, but you just don't realize it.


Every building comprises dozens or hundreds of products from different manufacturers (bricks, cement, screws, sheetrock) — none of the makers have a say in how somebody will use their products.


This is why many physical products try to create some semblance of standardization. For example, in the auto industry, there is standardization of parts. Just think of tires–there is a standard set of tires available that vary by width, diameter, and aspect ratio.


Web development is trickier. For example, Twitter tries to impose standards on the number of characters per tweet, but recently, they are expanding the offering to creators.


Most blockchains and protocols are permissionless and open-source. Because of that, smart contracts and dApps (decentralized applications) act like building blocks that work together seamlessly, allowing devs to create more complex applications with existing code.


Composability allows devs to build and innovate faster and cheaper, solving new problems instead of reinventing the wheel. This unique attribute compounds the speed of innovation.


Any smart contracts and dApps created on Ethereum are inherently compatible and composable. For example, imagine that someone decides to participate as a liquidity provider on a decentralized exchange (such as Uniswap), so they deposit $5,000 in assets.


When that happens, they get a token (think of it as a receipt) that represents that deposit. The token does not have the owner’s name on it. They could send it to someone else.


Later, imagine the owner needs a little money short term. Another product might let them deposit that token as collateral to take out a loan (the money market C.R.E.A.M. does it, for example).


Developers can stack functions. So, for example, there are many places to trade different tokens, and they can have slightly different prices at other times.


Products like 1inch, ParaSwap, and Matcha allow users to check a trade on multiple exchanges simultaneously and execute the trade for them.


Morpho Lending is a peer-to-peer marketplace for lenders and borrowers that grows on top of existing lending platforms, like Compound and Aave. Funds ready to be lent out wait in those markets until Morpho finds them a willing borrower.


Developers can break out functions. Imagine someone is holding a governance token (basically, a vote on how a protocol changes) worth a lot of money. They might want to deposit it with a custodian but also want to vote.


Composability enables both — they can custody it someplace secure and designate another wallet or entity to cast votes for those tokens.


The metaphor crypto types prefer for composability activity is "Lego blocks."


Composability is a significant factor for innovation and growth in blockchain, allowing devs to build together and support the entire ecosystem. Going forward, the crypto community must find applications that make public blockchains usefully serve the broader economy.


Are there any drawbacks to composability?


Yes, composability can introduce new risks. For instance, vulnerabilities in one smart contract can affect other smart contracts built on it. It’s essential for devs to carefully audit and test smart contracts before integrating them into their dApps.


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