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Linda Xie: If you have composability, you have everything

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Composability will put cryptocurrencies at the forefront of revolutions in finance and other industries, which will fundamentally change the industry just as the Internet has, and will open up a new world of infinite possibilities.

Composability is Innovation

Source: Linda Xie, co-founder of Scalar Capital

Original text: Blcold, Daosquare

Linda Xie, co-founder of cryptocurrency investment firm Scalar Capital, believes that the compostability of smart contracts has led to the emergence of innovation in the crypto world. In this paper, the authors use DEFI, lossless lottery, publishing (Mirror And & have spent Zora The typical cases, such as the combination of smart contract and the lightning loan, show the implementation way of smart contract composability, its superiority and innovation. Composability will put cryptocurrencies at the forefront of revolutions in finance and other industries, which will fundamentally change the industry just as the Internet has, and will open up a new world of infinite possibilities. The following is the original translation:

While many in the tech world have heard of the concepts of Bitcoin, cryptocurrency, and blockchain, smart contracts are less well known and are Ethereum's major innovation. Anyone can write a smart contract and deploy it on the public chain, enabling all kinds of innovation. Hot concepts like NFTS, DEFI, DAO -- which represent, respectively, new ways to determine ownership of something, better financial systems for people, and new ways to collaborate and collaborate -- are all driven by smart contracts.

Smart contracts enable new types of transactions and have significant advantages over traditional systems. Traditionally, it takes weeks and a lot of paperwork for a bank to verify a person's assets before issuing a loan. A smart contract, using a piece of code, automatically grants a loan based on the collateral an individual provides.

But smart contracts don't just allow apps to make instant and verifiable transactions -- they can also be programmed to interact with each other. In other words, they allow cryptocurrency programs to be combined, like building blocks. This composability is a feature that is much noticed by tech enthusiasts and not well understood by the general public, but is one of the most powerful features of cryptocurrencies. Because composability allows existing programs to be leveraged in this network and tweaked or built on top of it, it unlocks whole new use cases that do not yet exist in the world.

In other words: composability is innovation.

Why is composability feasible and what new possibilities will it bring

In a large network of relatively independent distributed participants, anyone has the ability to leverage the work of others to create new applications, but this does not happen spontaneously -- it requires the collaboration of many people. The developers of Ethereum smart contracts have taken steps towards composability by creating a standard protocol by describing how certain types of contracts should work. For example, the ERC-20 Token Standard, first proposed by developer Fabian Vogelsteller in November 2015 and formally finalized in September 2017, describes how Ethereum tokens operate, including basic features such as the transfer of tokens, authorization when consuming tokens, and so on. It makes it easy for third-party developers to support any ERC-20 compliant token.

This standardization is critical to composability, just as the Internet and E-mail and other standardized protocols were critical to the development of the Web. With these token standards, smart contracts can act as building blocks that can be combined into larger systems. Like a software library, smart contracts of different protocols and applications can be combined and plugged in as easily as Lego bricks. In fact, smart contracts in Decentralized Finance (DEFI) -- one of the earliest and most active examples of composability -- are often referred to as "money Lego."

How does composability play an important role in decentralized finance

Financial positions in the DEFI protocol -- which enables users to borrow, borrow, trade, or otherwise interact without the need for a centralized financial institution in the middle -- can be expressed as ERC-20 tokens and the underlying funds can be redeemed. For example, if you deposit your USDC (Tokenized Dollars) in a Lender and Loan Agreement. Compound, you will receive a CUSDC, which stands for a certificate to earn interest in the Compound. Similarly, when you put money into a decentralized exchange agreement. Uniswap, when providing liquidity to a particular market, you will receive ERC-20 tokens representing your share of funds in the liquidity pool of the relevant Uniswap market.

Most importantly, these tokens are not "locked" into one protocol -- they can now be used in other DEFI protocols. For example, you can use your Uniswap Liquidity Provider (LP) token as collateral in the AVE Loan Agreement. Smart contracts allow developers to easily interact with multiple applications on top of other protocols; The decentralised world of finance encompasses everything from lending to derivatives.

While some Defi transactions are not easy for most people to participate in -- either the complexity of certain applications or the technical knowledge required to interact with the protocols is too complex -- availability continues to improve dramatically. Projects such as Furucombo and Defi Saver allow you to build and visualize the chains of transactions involved in making up the different Defi artifacts, simplifying the effort required for developers to compose and interact with different smart contracts. One can simply customize the process activities, or use someone else's composite modules directly.

Linda Xie 新作：可组合性就是创新

Furucombo makes it easy for users to create their own DeFi combinations

Composability inevitably leads to more choices and a better user experience, as people can do things with existing mindsets, the process is greatly simplified, and new use cases are more readily accepted. As more and more of the underlying technology is simplified, the focus will shift to what people want to do with their money, rather than being limited by the inefficiencies of the traditional financial world.

So what does composability mean for builders and developers?

Most of the possibilities that people can successfully unlock only by trying, but it brings some new possibilities for builders, including:

Instead of having to reinvent the wheel, developers can create their own projects and communities with minimal cost,Because smart contract platforms like Ethereum can build systems like giant, open sandboxes. Allowing small teams to quickly start their own projects is a big driver of rapid innovation in the crypto world. For example, a new video game developer could easily increase users' ability to trade items within the game by integrating decentralized exchange protocols, rather than building a new market from scratch.

Non-cryptocurrency companies can improve efficiency and expand more functionality by introducing an open ecosystem like Ethereum,Like the API economy, it enables all kinds of companies, including mom-and-baby stores and small businesses, to have access to data and capabilities that they otherwise wouldn't have. In the tech world, a typical example is Reddit's experiment with community credits, where tokens are used to reward users for Posting high-quality content that can be exchanged for unique items within the community. Reddit plans to roll out community points in the form of ERC-20 tokens, which will allow them to be used in existing Ethereum wallets and apps. This adds more functionality to community credits, but Reddit doesn't have to rebuild itself. Even if it's not a cryptocurrency company, it can reap the benefits of cryptocurrency applications for its users, such as Reddit users who can use a decentralized exchange on Ethereum to exchange their points for other tokens. This will make their points fluid from the start. At the same time, once the Ethereum ecosystem is introduced, everyone can incorporate community points into their projects to create more use cases on top of that.

Developers can learn and apply concepts in all walks of life,Including technology, finance, games and art, so as to generate a deeper understanding of various industries, form new ways of thinking, and provide people with new application scenarios. For example, by adding a Defi component to the game, you can better understand incentives and markets; By adding game components to Defi, the understanding of finance for the general public can be made easier and more interesting. Communities that are relatively isolated -- because they spend their time on different platforms or don't have access to each other -- can also exchange ideas and share ideas in this way, sparking innovation. Even if everyone is a stranger, smart contracts could lead to more open, efficient information sharing and more reliable communication.

In addition to the Defi case I just shared, there are many interesting composability use cases currently in the crypto world; These include:

Earn revenue through "lossless" lottery tickets

Pooltogether is a project that uses decentralised financial protocols to create a "lossless" lottery. Lottery tickets can be purchased by users, and all funds collected from the sale of the tickets are entered into the prize pool and earned through the decentralized financial protocol Compound and yEarn Vaults. Everyone gets their own money back, but one person wins all the accumulated interest earned from the pool. No one loses their principal, so it is a "lossless" lottery. Anyone in the world with an Ethereum address can participate in a lossless lottery, and anyone can create lossless sweepstakes for any token, making it easier and safer to participate in such systems.

NFTs as collateral

Non-homogeneous tokens (NFT) have been getting a lot of attention recently. Unlike the interchangeable, "fungible" tokens of the ERC-20 token standard, NFT is a unique digital asset whose ownership can be traced on the blockchain. But even if the tokens themselves are not interchangeable, they still exist in composable ecosystems. This means that when they are issued on a smart contract platform, anyone can own the NFT or trade it for any other asset that exists on the same platform.

When "combining" decentralized financial modules, NFT activities are not limited to trading, but can include using NFT as collateral for loans (e.g., NFTFI), leasing or earning interest on NFT (e.g., Renft, Charged Particles), etc.

Let's say you own a valuable piece of real estate in a virtual world such as Decanaland or Cryptovoxels. You can actually use that asset to borrow USDC to make a down payment on a real-life house. Or let's say you have an ideal skin in a video game -- you can rent it out to other players for temporary use, much like renting out a room on Airbnb.

Linda Xie 新作：可组合性就是创新

NFTFI allows users to lend money to NFT, which can refer to anything from the name of a wallet to virtual land

Content distribution

Another typical example of bringing two applications together due to the composability of smart contracts is the collaboration between Mirror (a decentralized publishing platform) and Zora (a protocol for creating and trading NFTs). The composition allows Mirror authors to convert their posts to NFT and to embed NFT auction links in their posts. In turn, it allows creators to crowdfund works such as novels and blog posts, or even research papers or other artefacts, where the purchase of NFT will help provide funding to creators.

In some cases, the NFT allows contributors to earn a portion of the proceeds when the NFT is resold. Imagine how much fun it would be to benefit when Oculus is sold to Facebook, thanks to the faith and support of Oculus's early Kickstarter backers. Recently, John Palmer's $Essay became the first community-owned article to crowdfund on Ethereum. This article posted through the Mirror is cast as an NFT on Zora, with supporters forever embedded in the article. People are crowdfunding donations to support the author and make a piece of history -- the first community-owned article. But in other cases, early contributors (along with creators) can share this secondary value as well.

Linda Xie 新作：可组合性就是创新

Lightning is borrowed

Flash lending is one of the most unique features that cryptocurrencies can achieve -- there is nothing quite like flash lending in the traditional financial system. Flash lending allows someone to borrow money in the same transaction and repay the loan; If repayment is not made in the same transaction, the transaction will fail.

This allows loans to be unsecured, meaning anyone in the world can access these flash loans, no matter how many assets they have. Lightning loans are a very deep use of cryptocurrencies, but arbitrage is a frequent occurrence in the DEFI space.

As cryptocurrencies mature, we can expect that these composable smart contracts will gradually apply to the wider world beyond the cryptocurrency community. Eventually, developers will be able to add a whole decentralized marketplace to video games with just one line of code; Or through another line of code, let merchants in their e-commerce store earn interest on the balance. For institutions, composability puts cryptocurrencies at the forefront of revolutions in finance and other industries -- which will change industries as fundamentally as the Internet has. And for consumers, it will open up a whole new world of possibilities.

Here I have only scratched the surface of what might happen in the future. The next step is more experiments. This article has already talked about the technology, and the future will be a new chapter of human ingenuity.

Thanks to Will Warren for reviewing this article.