DeFi's superpower is that protocols stack like Lego.
What you will learn
Explain yield farming and composability
Understand DEX aggregation and routing
Recognize the compounding risk of stacked protocols
Liquidity pools
Liquidity pools
A composed strategy loop
A composed strategy loop
Composability: DeFi's superpower
DeFi protocols are 'money legos' — you can stack them. Deposit in a lending protocol, use the receipt token as collateral elsewhere, earn governance tokens, and re-invest them. Each layer adds yield — and each layer adds its own risk.
What yield farming is
Yield farming is moving capital between protocols to chase the best return — often earning governance tokens as an extra incentive. It's arbitraging yield across a fast-moving landscape. The highest farm yields are usually early and short-lived.
💡 The stacked-risk problem
A 5-layer yield strategy might earn 30% but carry five separate smart-contract risks, three token-devaluation risks, and illiquidity risk. If any layer fails, the whole stack can collapse. 'Yield' and 'risk' stack the same way — but only one is advertised.
DEX aggregation
Aggregators (1inch, Matcha) split your trade across multiple DEXs to get the best combined price — routing through pools, splitting size, and avoiding large slippage. They turn many fragmented pools into one best-execution venue.
How routing works
The aggregator queries every DEX's current price, finds the optimal path (direct, or A→B→C→D via intermediates), and executes atomically in one transaction. You pay a small fee for better execution than any single DEX could offer on a large trade.
💡 Why routing matters for size
A $1M swap on one DEX could move the price several percent. Split across five DEXs, the same trade gets filled with far less slippage. For small trades it hardly matters; for size, aggregation is the difference between cheap and expensive execution.
❓ Quick check
Composability in DeFi means:
A) Protocols can't interact
B) Protocols stack and build on each other
C) Only one protocol exists
D) Everything is centralized
Money legos.
(Knowledge check — full exam is next)
Key takeaways
Composability stacks yield AND stacks risk
Yield farming chases returns across protocols; highest yields are fleeting
Aggregators split trades across DEXs for best execution
📝 Weekly Exam — pass with 80% to unlock next week
10 questions. Review the Deep Dive and courses before attempting.
1. Composability refers to DeFi's ability to:
Money legos.
2. Yield farming is:
Yield arbitrage across protocols.
3. A 5-layer yield strategy carries:
Risk stacks with yield.
4. A DEX aggregator's job is to:
Best-execution routing.
5. For a large trade, an aggregator is valuable because it:
Splitting reduces price impact.
6. The highest farm yields are usually:
Fleeting early incentives.
7. A governance token's purpose is:
Governance tokens = voting.
8. An aggregator can route a trade:
Multi-hop routing.
9. The hidden side of stacked yield is:
Risk compounds too.
10. Atomic execution in routing means:
All-or-nothing execution.
Your score: —
🛠 Weekly Project
Compare a direct swap vs an aggregated route.
1
Pick a token pair and check the price on two different DEXs.
2
Note the slippage each would cause for a $10,000 trade (estimate).
3
Check an aggregator's quoted price for the same pair.
4
Write 2 sentences on whether aggregation saved you slippage, and why.