Composability is what makes #DeFi great, and that's what gave #Ethereum the first mover advantage in #DeFi.

02 Sep 2023, 14:27

Composability is what makes #DeFi great, and that's what gave #Ethereum the first mover advantage in #DeFi and now its all going to get destroyed! Why? Here's what you must understand before swallowing the rollup and sidechain pill👇 What is composability? Composability refers to the ability of different components within a system to interact and combine with one another seamlessly, Composability ensures that the interfaces and APIs across various smart contracts are standardized and compatible, thereby facilitating seamless interaction, much like modular building blocks in a well-designed system. /SoorajKSaju/status/1697560266060243274/photo/1 Composability is what made DeFi on Ethereum great. On the Ethereum L1, you could use a stablecoin from one dApp as collateral in a lending protocol of another dApp, then take the borrowed assets to a decentralized exchange for trading, all in a frictionless way. The ability to "compose" services in this manner accelerates innovation because developers can leverage existing smart contracts and dApps to create new, more complex financial products and services. This results in a more fluid and dynamic ecosystem, allowing developers to build upon existing services without reinventing the wheel. Moreover, composability significantly reduces friction in transactions, enabling atomic swaps, flash loans, and other complex financial mechanisms that are executable within a single transaction block. Why rollups are already destroying composability? Rollups essentially compartmentalize transaction processing into separate layers. /SoorajKSaju/status/1697560266060243274/photo/2 While transactions within a single Rollup can remain composable, interoperability between different Rollups or between Layer 1 and Layer 2 becomes more complicated. This separation impedes the fluid movement of assets and information between different composability domains. For eg: executing a multi-step transaction that spans multiple Rollups or between a Rollup and Ethereum's mainnet would require complex bridging mechanisms, adding friction and latency to processes that would be otherwise atomic on Layer 1. ▪️Rollups on Ethereum are centralized solutions. The reliance on multi-sigs and specialized sequencers introduces additional layers of centralization and trust assumptions into the ecosystem, contrasting sharply with the decentralized ethos of Ethereum's Layer 1. ▪️ Other L1s are taking different approach , but that also destroys composability. Cardano tried to make #DeFi better. But as of now it uses too many off-chain systems, like batchers. This breaks composability and makes you trust the system more than you should /SoorajKSaju/status/1697560266060243274/photo/3 . The recent @MuesliSwapTeam incident is a perfect example of the downsides of these off-chain solutions. /Xerberus_io/status/1694848354763608327?s=20 Cardano has a sidechain roadmap and sidechains are even worse when it comes to composability. They break composability and add more points where you have to trust the system. Sidechains need complex bridging protocols to move assets across different sidechians and the Layer 1. These bridges are often centralized solutions, which means adding more layers of potential failure or attack vectors, departing from the fully decentralized model of an L1. ▪️ The Future of DeFi The future of #DeFi is on a highly scalable L1 that enables atomic composability without compromising decentralization and one that does not add layers and layers of trust assumptions. The #DeFi ecosystem on any L1 that fails to maintain these fundamental attributes is incontrovertibly on the path to obsolescence.