The Hidden Cost of Ignoring Asset Composability

Each bridge mints its own wrapped version (wBTC, renBTC, multichainBTC), fragmenting liquidity and trust. This creates a $1B+ liquidity tax across DeFi.

• Capital Inefficiency: Identical assets cannot be pooled, forcing protocols to bootstrap separate liquidity for each wrapper.
• Trust Fragmentation: Users must audit each bridge's custodian, exposing them to risks like the $130M Multichain exploit.
• UX Friction: Swapping between wrapped versions adds unnecessary steps and fees.

Canonical bridges mint native representations (e.g., Stargate's USDC) that are composable across the ecosystem. LayerZero's OFT standard enables native omnichain fungible tokens.

• Unified Liquidity: A single token pool serves all applications, maximizing capital efficiency.
• Reduced Trust: Relies on decentralized oracle/relayer networks instead of single custodians.
• Seamless Composability: Tokens move natively between DEXs, lending markets, and yield vaults without wrapping.

Yield-bearing assets (e.g., stETH, aTokens) are often locked within their native protocol, creating stranded collateral worth tens of billions.

• Opportunity Cost: Users cannot use stETH as collateral on most lending platforms without wrapping it (e.g., wstETH), adding complexity.
• Protocol Risk: Wrappers introduce additional smart contract risk and often have lower liquidity.
• Fragmented Governance: Each wrapper becomes a separate governance token, diluting network effects.

ERC-4626 standardizes yield-bearing vault interfaces, making them instantly composable. EigenLayer enables native restaking of staked ETH without wrapping.

• Plug-and-Play Composability: Any DeFi app can integrate any ERC-4626 vault, unlocking collateral utility.
• Capital Multiplicity: Assets like stETH can be simultaneously used for consensus security (EigenLayer) and DeFi collateral.
• Reduced Systemic Risk: Eliminates bespoke wrapper contracts, reducing the attack surface.

Static NFTs (PFP, art) are non-composable financial assets. Their $10B+ market cap is largely illiquid and unproductive.

• Zero Yield: NFTs generate no cash flow while held, purely speculative.
• No Collateral Utility: Difficult to price and liquidate, making them poor loan collateral on platforms like Aave.
• Fragmented Valuation: Each NFT is unique, preventing the fungibility needed for deep liquidity pools.

Fractionalization protocols (e.g., Fractional.art) turn NFTs into fungible ERC-20 tokens. ERC-6551 gives every NFT a smart contract wallet, enabling asset composability.

• Liquidity Creation: Fractions can be traded on DEXs like Uniswap, unlocking deep liquidity.
• Composable Stacks: An NFT (via its wallet) can own other tokens, revenue streams, and identities, creating complex financial positions.
• Yield Generation: Fractionalized shares or bundled NFTs can be deposited into yield-bearing vaults.

Staking ETH on Lido yields ~3-4%. Aave on Ethereum offers ~2-3%. Each is a dead end. Your capital is trapped, unable to be used as collateral or liquidity elsewhere without complex, risky unwrapping.

• Capital Inefficiency: Billions in TVL sit idle, generating single-digit yields.
• Opportunity Cost: Missed leveraged farming, collateralized borrowing, and cross-protocol strategies.
• Fragmented Risk: Managing exposure across silos increases operational overhead and smart contract attack surface.

Assets should earn yield by default and remain composable. A deposit should automatically become a yield-generating, debt-bearing unit across the stack.

• Automatic Compounding: Yield accrues natively in the asset, no manual claiming or restaking required.
• Universal Collateral: Your staked asset can be simultaneously used in money markets (Aave, Compound) and as liquidity (Uniswap V3).
• Protocol Revenue Alignment: Projects like EigenLayer and Pendle build economic security and novel yield markets atop this primitive.

Moving assets across chains via canonical bridges mints wrapped derivatives (wBTC, stETH). These wrappers create liquidity fragmentation and counterparty risk, breaking composability with native applications on the destination chain.

• Liquidity Fragmentation: wETH and ETH pools exist separately, diluting TVL.
• Trust Assumptions: You now rely on the bridge's multisig or oracle security, not the underlying chain's.
• Composability Break: Many DeFi protocols on Arbitrum or Optimism have inferior support for wrapped assets versus native ETH.

The endpoint is an asset that is native on every chain. Infrastructure must abstract away the bridging process entirely through intent-based architectures.

• Native Representation: Protocols like LayerZero enable true omnichain fungible tokens (OFTs).
• Intent-Based Routing: Users specify a desired outcome ("swap X on Chain A for Y on Chain B"); solvers like Across and Socket handle the messy cross-chain steps.
• Unified Liquidity: Removes the wrapper middleman, consolidating liquidity into a single canonical pool across the network.

Composability requires price feeds. Every protocol integrating a new asset must source its own oracle (Chainlink, Pyth), creating redundancy, cost, and systemic risk from feed latency or manipulation.

• Redundant Costs: Each protocol pays for the same data feed.
• Latency Arbitrage: Slight differences in oracle update times can be exploited in composable "money legos".
• Systemic Fragility: A failure in a major price feed (e.g., Chainlink) can cascade through every dependent protocol simultaneously.

Composability must extend to security and data layers. Shared security models and ZK-proofs of state allow protocols to reuse trust, not rebuild it.

• Restaking Security: EigenLayer allows ETH stakers to provide cryptoeconomic security for oracles, bridges, and other AVSs, creating a unified trust layer.
• ZK-Verifiable State: Projects like Brevis enable smart contracts to consume proven, trust-minimized data from any chain.
• Interchain Security: Hyperlane and Cosmos ICS provide modular security for cross-chain messaging, making composable actions as secure as on-chain transactions.