Financial Market Composability

Definition ∞ Financial Market Composability describes the ability to combine and interoperate different financial protocols, applications, and assets like modular building blocks. In decentralized finance, this means various DeFi protocols can seamlessly interact and build upon one another, creating complex financial products and services. This characteristic enables a high degree of innovation and capital efficiency within digital asset markets. It allows for the creation of sophisticated financial strategies from simpler components.
Context ∞ The concept of Financial Market Composability is a foundational aspect of the decentralized finance ecosystem, frequently highlighted in discussions about DeFi’s potential. News often covers new protocols that leverage this composability to create novel financial instruments or yield-generating strategies. The key debate centers on the increased systemic risk that can arise from highly interconnected protocols, where a failure in one component could cascade through others.