Composable DeFi
In short: Composable DeFi refers to interoperability between different DeFi protocols: because their smart contracts are public and follow shared token standards…
Composable DeFi refers to interoperability between different DeFi protocols: because their smart contracts are public and follow shared token standards, one protocol can plug into another and build on it without asking permission. People often describe this as "money legos".
Why it matters
Composability lets developers combine existing building blocks, such as a lending market, a decentralized exchange and a stablecoin, into new products quickly, and lets users move assets between them in a single transaction. It is a big part of why DeFi changes so fast. The same links also create shared risk: a bug, a faulty price oracle or a failing token in one protocol can spread to every protocol that depends on it, and attackers have used complex chains of interactions in flash loan attacks.
Example
A user deposits a stablecoin into a lending protocol and receives an interest-bearing receipt token. Because that receipt token follows a standard format, they can deposit it as collateral in a second protocol, borrow another token there, and add the borrowed token to a liquidity pool on a decentralized exchange. Each step relies on the contract before it, so a failure at any link can affect the whole position.