What Is “Composability” in DeFi and Why Are Token Standards Essential for It?

Composability, often called "money legos," is the ability of different DeFi protocols and applications to seamlessly interact and build upon each other. This is possible because all components adhere to the same underlying token standards, primarily ERC-20.

For example, a lending protocol can accept any ERC-20 token as collateral, and that collateral can then be used by a derivative platform. Token standards act as the universal interface, ensuring that the inputs and outputs of one protocol are instantly recognizable and usable by another.