The use of this site and the content contained therein is governed by the Terms of Use. When you use this site you acknowledge that you have read the Terms of Use and that you accept and will be bound by the terms hereof and such terms as may be modified from time to time.
All text, graphics, audio, design and other works on the site are the copyrighted works of nasscom unless otherwise indicated. All rights reserved.
Content on the site is for personal use only and may be downloaded provided the material is kept intact and there is no violation of the copyrights, trademarks, and other proprietary rights. Any alteration of the material or use of the material contained in the site for any other purpose is a violation of the copyright of nasscom and / or its affiliates or associates or of its third-party information providers. This material cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for non-personal use without obtaining the prior permission from nasscom.
The nasscom Members login is for the reference of only registered nasscom Member Companies.
nasscom reserves the right to modify the terms of use of any service without any liability. nasscom reserves the right to take all measures necessary to prevent access to any service or termination of service if the terms of use are not complied with or are contravened or there is any violation of copyright, trademark or other proprietary right.
From time to time nasscom may supplement these terms of use with additional terms pertaining to specific content (additional terms). Such additional terms are hereby incorporated by reference into these Terms of Use.
Disclaimer
The Company information provided on the nasscom web site is as per data collected by companies. nasscom is not liable on the authenticity of such data.
nasscom has exercised due diligence in checking the correctness and authenticity of the information contained in the site, but nasscom or any of its affiliates or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this site. The information from or through this site is provided "as is" and all warranties express or implied of any kind, regarding any matter pertaining to any service or channel, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement are disclaimed. nasscom and its affiliates and associates shall not be liable, at any time, for any failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information contained on the site. No representations, warranties or guarantees whatsoever are made as to the accuracy, adequacy, reliability, completeness, suitability or applicability of the information to a particular situation.
nasscom or its affiliates or associates or its employees do not provide any judgments or warranty in respect of the authenticity or correctness of the content of other services or sites to which links are provided. A link to another service or site is not an endorsement of any products or services on such site or the site.
The content provided is for information purposes alone and does not substitute for specific advice whether investment, legal, taxation or otherwise. nasscom disclaims all liability for damages caused by use of content on the site.
All responsibility and liability for any damages caused by downloading of any data is disclaimed.
nasscom reserves the right to modify, suspend / cancel, or discontinue any or all sections, or service at any time without notice.
For any grievances under the Information Technology Act 2000, please get in touch with Grievance Officer, Mr. Anirban Mandal at data-query@nasscom.in.
You’ll receive a wide range of responses if you ask blockchain-embracing companies & individuals what they find most intriguing and fascinating about DeFi. Some will respond, “Decentralized,” which is obvious. To break free from relying on other companies to own our data and money, we are reinventing the financial system without any middlemen.
Some will say that it is globalized. Since there are no middlemen, we are free to send and receive money from anyone, creating the truly global economy that the Internet foresaw more than 50 years ago. But the constructability of decentralized finance is what’s most intriguing.
DeFi is taking the world by storm. Don’t believe us? Well, it generated a $4.5 billion cumulative revenue in 2022. Composability of smart contracts in DeFi allows this revolutionary financial concept to be more globally accessible, and companies will witness a rapid pace of innovation. Thus, interact, build and improve the existing DeFi ecosystem.
By composability, blockchain-adopting industries will have nothing to build from scratch and have to bring together the missing components. Let’s dig deeper into the composability of Smart Contracts in DeFi and how it plays an important role.
About Composability of Smart Contracts in DeFi
Composability is one of the central features of decentralized finance. It allows for the creation of complex contracts that can be used to create new applications or interact with existing ones. With DeFi, you may interact with protocols in countless ways and arrange your actions as if they were bricks of construction. Composability is what enables you to use Aave’s lending and borrowing protocol to exchange a DAI for an a DAI in Monolith and earn interest on it.
The interoperability of components inside a design system is referred to as “composability.” Different components can function in many combinations in a system that is more composable. We’ll describe the impact of smart contracts’ composability on the DeFi ecosystem in this feature.
Principles of Composability of Smart Contracts in DeFi
As we know, Ethereum smart contracts are public APIs, and anyone can integrate the dapps with them. The three principles of smart contract composability are:
Modularity: One component, one task is what the modularity represents. Every smart contract has its own specific application, and the composability feature improves modularity as well
Autonomy: The composable smart contracts can operate independently without relying on other functions.
Discoverability: Forking the codebase and using smart contracts with external contracts becomes possible with composability.
The Advantages of Composability Features in Smart Contracts
The composability of smart contracts can assist developers and industries in the following ways:
Developers can incorporate smart contracts from a wide array of industries to understand the functioning of different marketplaces. The companies would be able to attract more audiences and strengthen their communities.
Developers can effortlessly bootstrap the projects and communities instead of building anything from scratch. This is possible as smart contract platforms are open sandboxes where innovation can be done quickly.
The user experience in the ecosystem improves as the interoperability between the components enhances with composability.
Enterprises or organizations can plug into open ecosystems and improve their efficiencies. Companies can launch tokens and let users employ them in the existing wallets.
The composability feature acts as a binding element for the DeFi ecosystem and brings together DEX, collateralized protocols, lending and borrowing, leveraged trading, synthetic assets, etc.
Use Cases of Composability in Ethereum
The Ethereum smart contracts are like the public API, meaning anyone can interact with it and further integrate it with dapps. Three major use cases of the smart contract composability for Ethereum are:
Token Swaps
Token swap logic is helpful for the users as it allows users to pay in other ERC-20 tokens and the smart contract code will convert the token to ETH. The decentralized exchanges are non-custodial and rely on the liquidity obtained by liquidity mining.
Governance
The governance framework is difficult to form and is expensive as well. An open-source governance toolkit will bootstrap the DAO and create the framework in less time.
Identity Management
The identity management, due to the composability of the smart contracts, improves as instead of creating a custom authentication the developers can integrate the decentralized identity tools for identity management. An open-source toolkit with “Sign in with Ethereum” helps the users authenticate identities.
How composability of Smart Contracts in DeFi affects
The dapps function by the smart contracts and are there to facilitate the exchange of services. The decentralized finance applications leverage smart contracts for trading, borrowing, lending, stablecoins, derivatives, etc.
Defi is built on the principle of composability. This means that different smart contracts can be combined to create new financial instruments and applications. This allows for a huge amount of flexibility and creativity in the development of new services and products.
Composability is what allows Defi to offer such a wide range of services and to continue to grow at such a rapid pace. It is one of the key features that make Defi so unique and powerful.
With the help of smart contract composability, Decentralized finance has opened up new possibilities unlike anything in the traditional world. DeFi allows you to do a lot of different things, such as exchange value, borrow assets, take out loans, earn income, join liquidity pools, mint stablecoins and other synthetic assets, and much more.
The new form of financial service
DeFi apps are similar to Legos. You can choose which DeFi apps to mix and match to create a whole unique financial product. You can interact with them in many ways, obtaining a degree of capital efficiency which is far superior to the established system. Due to the modularity of DeFi programs, Ethereum is frequently referred to as the Infinite Machine since it is a platform with limitless potential.
Examples of Defi’s money legos:
Yearn.Finance:– Yearn is an auto investment product. The optimal returns for the user across each integrated protocol are determined via smart contracts. It uses composability and enables the user to utilize their assets, saving on gas costs as opposed to moving their money between each protocol.
Synthetix:- A liquidity protocol for synthetic assets is called Synthetix. Users can mint “Synths” of assets like stocks, gold, precious metals, cryptocurrency tokens (BTC, ETH), and even fiat currencies (USD, AUD) by depositing SNX. It makes use of the DeFi protocol’s modularity by using the decentralized oracle Chainlink for price feeds.
Risk of Composability of Smart Contracts in DeFi
Despite being a core of DeFi, there are a number of threats to the ecosystem’s composability. Any blockchain like Ethereum carries a protocol risk; if the base chain were to be attacked, every application created for the network would also be at risk.
DeFi also carries smart contract vulnerabilities. Any flaw in a contract’s code might ruin a protocol and possibly have an impact on other connected applications. Attackers have used flaws to steal money from protocols, frequently using flash loans to increase their profits. Users may suffer significant losses as a result of this.
Additionally, incorporating smart contracts poses a risk. Up until they are joined with contracts for another application, contracts for one application might be secure.
Another significant risk is the user. Due to DeFi’s complexity, the danger can increase when a user uses the network’s ability to be composed to connect with several protocols.
Final Thoughts
In conclusion, DeFi’s functionality depends heavily on composability. With the help of Ethereum’s permissionless network, anyone can utilize protocols in different combinations, taking advantage of the ecosystem’s interoperability. Additionally, developers can use their own contracts, strengthening Ethereum’s already strong network effects.
DeFi poses numerous hazards, yet a more composable Ethereum is essential for the ecosystem’s survival. As additional networks create their own financial apps, it’s possible that DeFi will experience greater cross-chain applications in the future with the smart contract composability feature.
It is distinct that the decentralized finance sector will surely succeed as developers are working diligently to make it better.
About The Author
Dr. Ravi Chamria is co-founder CEO of Zeeve Inc, an Enterprise Blockchain company. He has an experience of 18+ years in IT consulting spanning across Fintech, InsureTech, Supply Chain and eCommerce. He is an executive MBA from IIM, Lucknow and a prolific speaker on emerging technologies like Blockchain, IoT and AI/ML.
Passionate About: Blockchain, Supply Chain Management, Digital Lending, Digital Payments, AI/ML, IoT
That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.
Zeeve is an enterprise-grade Blockchain Infrastructure Automation Platform. Join the growing list of clients that trust us with their Blockchain initiatives
Cryptocurrency MLM Software Development is revolutionizing the MLM sector by leveraging blockchain technology to offer more secure, transparent, and decentralized solutions for businesses. The emergence of blockchain has created a transformative…
have become the backbone of the digital asset industry, allowing users to trade cryptocurrencies like Bitcoin, Ethereum, and thousands of other tokens. As the demand for digital currencies has surged, so too has the number of exchanges that…
Understanding of Decentralized Exchange
A Decentralized Exchange (DEX) is a digital marketplace that enables peer-to-peer cryptocurrency trading without a central authority. Unlike centralized exchanges (CEXs), DEXs leverage blockchain and smart…
The world of cryptocurrency trading has evolved rapidly over the last decade, from a niche investment option to a mainstream financial asset. As we look ahead to 2025, the landscape of crypto trading is set to change even further. The evolution…
In the rapidly evolving crypto industry, identity verification has become a crucial component for the secure and compliant operation of cryptocurrency exchanges. As regulatory demands tighten, adopting strong identity verification solutions is…
The cryptocurrency market has rapidly evolved, bringing new opportunities and technologies that shape how users trade digital assets. One of the most innovative developments is hybrid crypto exchanges—platforms that blend the features of…
