Composable Finance: Building a cross-chain infrastructure on Polkadot

There’s a new player in the blockchain space, and it goes by the name of Composable Finance. This ambitious project looks to build the infrastructure for a cross-chain composable DeFi ecosystem on Polkadot. What is Composable Finance? And why is it so important? Let’s take a closer look.

Composable has a vision of connecting the fragmented DeFi landscape via its Cross-Chain Virtual Machine (XCVM). The ultimate objective is to make DeFi more popular by removing the interoperability technical details for a smooth user experience, which is an important step if DeFi is to progress.

What is Composable Finance?

Composable Finance aims to address the problem of siloed and disjointed liquidity caused by a lack of interoperability in the blockchain industry.

DeFi has now spread to cover a variety of chains. These chains have their own unique value propositions, as well as distinct use-cases and features. They aren’t motivated by speculation; rather, they’re valuable. As a result, the DeFi ecosystem has expanded into multiple chains.

The problem with multiple chains is that assets and liquidity are fragmented across them as a result of the nature of blockchain technology.

The problem of fragmented liquidity affects all blockchains, blockchain layers (such as Ethereum Layer 2 solutions like Polygon), and cross-chain protocols. It inhibits the effective functioning of DeFi services while forcing DeFi ecosystems into a zero-sum competition.

The current level of interoperability solutions is insufficient. Cross-chain bridges, a simple interoperability solution, are hackable and sfrequently unable to guarantee transfers, and they might be prohibitively costly.

Composable’s approach to interoperability is to build an ecosystem of natively interoperable primitive services that are linked between and integrated with major blockchain ecosystems. As a result, Composable enables the free flow of money across the Cosmos network of blockchains, Ethereum Layer 1s and 2s, and parachains in the DotSama eco-system. It also overcomes the problem of fragmented liquidity.

What is Picasso Network?

Picasso Network is to Composable Finance what Kusama is to Polkadot or what Moonriver is to Moonbeam.

Picasso is the Application layer of the cross-chain infrastructure created by Composable Finance on Picasso. New ideas are tested first to Picasso Network under real economic conditions before they graduate to Composable Finance.

Composable Finance Vision

Composable Finance - Composable Polkadot - Composable Crypto - composable token
Composable Finance / Picasso cross-chain vision (source: Composable Finance)

Composable’s aim is to create a DeFi environment that is blockchain and ecosystem agnostic. This implies that users and developers can thrive in the most efficient and effective way possible, regardless of the underlying chain.

Blockchain agnosticism is the viewpoint that blockchain interoperability will develop along a continuum and is regarded as the ultimate conclusion of that spectrum. In such an environment, DeFi assets are not limited by the chain or layer they are created on. Instead, cross-chain and cross-layer asset transfers, as well as active communication between them, are readily possible.

Composable’s aim for blockchain agnosticism is evident in its desire for apps to be able to operate across chains and layers. In the future, applications will exist on many chains and communicate seamlessly.

In the long run, Composable Finance aims to establish a cross-chain futumre that overcomes siloed liquidity issues while still providing better returns to users. The Picasso network and the Composable Parachain are both working to achieve this goal.

A Brief History of Composable Finance

Composable Finance is a blockchain-based financial product created by the German incubator Advanced Blockchain AG. It assisted Composable with both technological and intellectual property issues. Cosmin Grigore, who was in charge of the project while it was still in incubation, has since taken over as CEO after its standalone launch. Advanced Blockchain holds shares in Composable Finance.

Composable Finance ecosystem is composed of two tokens and two chains. Picasso Network with the token Picasso on the Kusama Network and Composable Finance with the token LAYR on Polkadot and Ethereum networks.

The 13th parachain was won by the Picasso Network on Kusama, while Composable Finance won the seventh parachain on Polkadot. The seventh parachain auction on Polkadot took place between January 6 and January 13, 2022, with the name that won the most DOT support from the community, Composable Finance (LAYR), raising more than $163 million in over 15,600 contributions.

To realize its goal, Composable Finance announced in March 2022 that it had raised over $32 million in Series A financing. The round was notable, with several well-known investors taking part. GSR, Ignite (formerly Tendermint Ventures), Fundamental Labs, Coinbase Ventures, LongHash Ventures, Figment VC, New Form Capital, DFG, Blockchain Capital Foundation 0xVentures Yunt Capital Jump Capital Polytope Capital NGC Ventures SOSV were among those who invested.

Composable Finance Core Components

Composable Finance Layers (source: Composable Finance)

Transfer availability layer – Mosaic

Composable does not include a conventional bridge. Instead, it uses the Mosaic transfer availability layer. Mosaic analyzes liquidity needs and adaptively re-balances liquidity throughout ecosystems to ensure that assets are transferred in a timely manner. Just-in-time liquidity bots can even bridge any gaps in this process, ensuring that assets will be transferred no matter how big the transaction is.

Routing Layer

The Composable Parachain includes the ‘Composed’ Routing Layer, which is capable of correctly choosing the optimal route for the transfer of assets across a network of bridges, chains, and layers to guarantee that they reach their intended layer or chain with the lowest cost and quickest speed.

Cross-Chain Virtual Machine (XCVM)

Composable’s XCVM, serves as a platform for developers to create smart contracts that span various chains and ecosystems. Different ecosystems have created siloed smart contracts and often demand distinct languages in order to create them, but the XCVM allows users to create cross-chain and layer-in solutions using a single user-friendly interface. Furthermore, the contract is written in Rust without the need for you to learn any additional languages.

Application Layer

The Substrate framework is used in the application layer of Composable. As a result, they are simple to create, deploy, and combine together or “stack” to produce new apps. Furthermore, Composable has provided a number of DeFi primitives that are ready to be utilized and combined by developers once deployed on Picasso. Applications may also be graduated to the Composable Parachain after they have been deployed on Picasso.

Composable Finance Governance

Composable Finance’s team is following a phased approach to the governance. initially, the team will be mainly responsible for taking the decisions associated with the protocol’s directions.

The team will gradually transition to the Governance Council, which is made up of 7 senior members from Composable Finance and other supporters. The council’s members have control over Composable Finance’s multi-signature wallet as well.

Finally, the team will transition to full democracy. Although no details are given at this time on how the complete democracy would operate, one possibility for the team would be to utilize Polkadot’s democracy module, which other parachains will also employ.

Composable Finance Token Utility

The Composable token (LAYR) is a governance and transaction-fee payment system that incentivizes Collator nodes via the usage of a utility and governance cryptocurrency. That’s a similar utility to the one of other parachain’s native tokens as well as to the ones of Layer 1 blockchains.

According to the official documentation LAYER has the following use-cases:

  • Staking LAYR to get free/reduced-fee transactions or earn part of protocol fees
  • LAYR staked by the oracle pallet on Composable parachain
  • Composable Labs — staking LAYR gives tokens from the LAYR ecosystem
  • For governance decisions on the pallets upgraded to LAYR and voting for additional network/bridge support
  • For staking by Mosaic validators
  • Staking LAYR by relayers and collators
  • Payments for SDK services
  • Staking by Routing nodes
  • Staking by Insurer nodes

Wrapping Up

Composable Finance is a parachain on Polkadot that is currently in development. It aims to build the infrastructure of a cross-chain composable DeFi ecosystem. The Composable team is following a phased approach to governance, with the ultimate goal being full democracy. The Composable token (LAYR) is a utility and governance token that is used to incentivize Collator nodes. LAYR also has a number of other use cases, such as staking to get free/reduced-fee transactions or earn part of protocol fees.

Summing up, Composable Finance is an ambitious project that has the potential to greatly impact the DeFi space. Stay tuned for more updates as the Composable team continues to make progress on their roadmap.

Aris Ioannou
Aris Ioannouhttps://coinavalon.io
Aris created Coinavalon with the purpose of helping the average person navigate the decentralized web. Aris has been passively in the space since 2017 and full time since late 2020. Before Coinavalon, Aris worked as a Business & IT Architect in the financial services sector. Aris holds an MSc in Advanced Computing from Imperial College London, a BSc in Computer Engineering from University of Cyprus and currently pursuing an MBA degree from CIIM.

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