Definition ∞ Composable finance describes a characteristic of financial protocols where individual components can be combined and reused like modular building blocks. This architectural approach, prevalent in decentralized finance (DeFi), allows for the creation of new and complex financial products or services by stacking existing protocols. Each component maintains its independence while interacting seamlessly with others.
Context ∞ The concept of composable finance is central to the innovation within the DeFi ecosystem, enabling rapid development of novel financial applications. While offering great flexibility and efficiency, it also introduces systemic risks, as the failure of one underlying component can affect many dependent protocols. Industry observers are focused on developing robust security and auditing practices to mitigate these interconnected risks.
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