Composability
The ability of DeFi protocols and smart contracts to seamlessly interact with and build upon each other, often called 'money legos.' Composability allows developers to combine existing protocols to create more complex financial products without needing permission, because all smart contracts on the same blockchain can call each other.
“A yield optimizer can combine Uniswap for swaps, Aave for lending, and Curve for stablecoin liquidity — all in a single transaction — because Ethereum smart contracts are composable.”
DeFi (Decentralized Finance)
An ecosystem of financial services built on blockchain networks that operate without traditional intermediaries like banks, brokerages, or insurance companies. DeFi uses smart contracts to provide lending, borrowing, trading, insurance, derivatives, and yield generation in a permissionless, transparent, and composable manner. Anyone with a wallet can participate.
Smart Contract
Self-executing programs stored on a blockchain that automatically enforce the terms of an agreement when predetermined conditions are met. Smart contracts enable trustless transactions without intermediaries because the code, once deployed, executes exactly as written and cannot be altered (unless specifically designed to be upgradeable). They form the foundation of DeFi, NFTs, DAOs, and virtually all dApps.
Protocol
A set of rules, standards, and smart contracts that define how a blockchain network or decentralized application operates. In DeFi, 'protocol' typically refers to the suite of smart contracts that provide a specific financial service. Protocols are usually governed by DAOs and can be forked (copied and modified) because their code is open-source.