Layer by Layer Issue 35: Celsius and More

Composability has long been one of the core features of decentralized finance (DeFi) protocols as a whole. This ability for protocols to interact with one another underlies many of the most prevalent activities seen in the DeFi landscape today. For example, It is the reason users can provide liquidity on a DEX like Uniswap and then use a tokenized representation of that same liquidity to earn incentives in another protocol. Liquidity positions can even be used as collateral in some lending protocols like Aave, which mints tokens representing yield-bearing deposits that can then be locked in a yield aggregator to get the best interest rates between various lending protocols. 

The concept of composability in DeFi has unlocked a new level of capital efficiency that has been difficult to achieve in the traditional finance world with its centralized, opaque, and often proprietary systems designed to capture fees for intermediary institutions at every point of capital movement. Fundamentally, DeFi has been made possible by the existence of L1 smart contract platforms that enable users and developers to build and transact on a common platform with shared token standards. Over the past two years, the emergence of cross-chain bridges and wrapped assets has pushed the idea of composability even further by facilitating the flow of liquidity across previously incompatible and siloed chains.