Money Legos

Note: Data in this section last updated March 13th, 2022

One of the most exciting applications of DeFi is a phenomenon known as composability, or in Web3 parlance, “money legos”.

DeFi protocols run using open-sourced software, which means that any of the apps listed above can be easily programmed to interact with others. As such, you can think of each individual app as a “lego brick” that can be combined with others in an infinite number of ways to create more complex and innovative financial products.

One example of the benefits of composability can be seen in the creation of Yearn Finance.

Yearn began as a passion project. The original program was designed by Andre Cronje to automate the process of identifying the lenders (e.g. Aave, Compound) with the highest returns and moving his tokens to them.

Other users noticed his success and began to contribute funds and join him, and the project soon expanded to liquidity mining on AMMs such as Curve and Balancer.

Eventually, this developed into more complicated, actively managed strategies known as vaults. One of the more popular vaults – known as Yearn ETH – uses Ethereum to create Dai, then uses the Dai to invest in Curve’s Y pool, which provides interest and rewards in the form of the CRV token, which are then staked to Curve Gauge to earn even more interest and rewards.

While the strategy eventually petered out and shut down, at one point it was earning users a 60% annual yield on ETH!

Oh, along the way Yearn also issued a token which increased to over $3B in market cap within its first year…

So Andre basically created a multi-billion dollar crypto-hedge fund without needing to register with any authorities all because he could freely access and move tokens between other protocols.

And that’s the great thing about DeFi and about composability in particular – innovation is practically unlimited as it’s no longer constrained by the imagination of a few select individuals locked deep within the bowels of the banking system.