Building with Money Legos
How to mix and match the tools in decentralized finance to make new products and services.
The untapped potential of building with the “money Legos” in decentralized finance (DeFi) is enormous. There are roughly 200 projects listed on DeFi Prime alone, each with their own unique features and infrastructure.
This means that if you picked any 3 out of the roughly 200 listed tools, you’d have 1,313,400 different combinations to choose from to build a new financial product.
You can learn what each product does here:
Money Legos
The core philosophy of the DeFi space: build for interoperability. This allows the ecosystem to benefit from individual progress, pushing decentralized finance continually forward.
This ideology is reminiscent of everyone's favorite toy, Lego. As people visit a large bin of random legos, pieces get combined together in new and creative ways. Then when new people dive into the Lego bin, they find preassembled combinations of Legos that they too start building with, creating bigger and better things. This eventually snowballs into a whole universe of exciting Lego creations.
In DeFi, projects are designed to not only be used as a stand-alone product but also easily integrated into products that can benefit from their functionality. Thus, this ecosystem will eventually snowball into an exciting universe of decentralized financial products!
Here are some classic examples:
MakerDAO CDP Tool
Lego Pieces:
Connecting the DeFi Legos:
MakerDAO takes the basic DeFi building block of Dai, a stablecoin created and managed by the MakerDAO community, and uses it to enable a service normally only accessible through a bank or authorized institution — borrowing funds. By developing a custom smart contract, MakerDAO accepts ETH as collateral for a loan in Dai. By doing this, users can take out funds in the form of Dai without selling off Ether, allowing them to maintain exposure to the price of ETH while using Dai.
Not only is MakerDAO’s CDP tool accessible to build with, their MakerDAO CDP Portal allows for users to connect wallets such as MetaMask,Trezor, Parity, and Ledger to directly open a collateralized debt position.
Compound
Lego Pieces:
- MakerDAO CDP Tool
- Dai
- Custom Compound Smart Contract
Connecting the DeFi Legos:
Carrying forward the ecosystem, Compound uses MakerDAO’s borrowing capabilities as infrastructure for its lending market. Users open a collateralized loan which allows a borrower to take out any cryptocurrency supported by Compound for a fee; lenders supply the lending pool for borrowers with funds and earn interest for their contributions until their funds are withdrawn. Notice how Compound is using the MakerDAO’s CDP Tool as a preassembled DeFi Lego piece, side-stepping building the tool from scratch.
Compound recently took this one step further by rewarding lenders with “cTokens” which represent an asset contributed into a lending pool. The cToken passively appreciates at a rate reflective of the interest being paid by borrowers. Once lenders want to claim their gains, they can simply sell the cToken on the open market for its current, increased value. Thus creating a new basic building block for developers to work with. Test out some cDai for yourself by swapping here.
Similarily to MakerDAO, Compound also provides users direct access to their services with Web 3 wallets so that consumers can participate in the lending market directly through Compound’s in-house interface.
Zerion
Lego Pieces:
Connecting the DeFi Legos:
Zerion acts as a single point of entry for users to easily access existing DeFi services. By being connected to MakerDAO’s CDP Tool, Zerion enables wallet users to borrow funds. By being connected to Compound, Zerion enables users to lend out their funds to passively earn interest. By being connected to Uniswap, Zerion enables users to swap tokens.
Note that Zerion is using multiple preassembled DeFi Legos to create a new and authentic product. Zerion is able to build their product in an agile manner and the DeFi projects that are involved benefit from having their services used — a symbiotic relationship.
Additionally, by connecting with multiple Web 3 wallets, like MetaMask, imToken, Trust Wallet, Coinbase Wallet, and Tokenary, Zerion is giving users a variety of ways to connect funds to their platform to use DeFi services. Instead of creating a new building block, they’ve combined multiple separate pieces to create a simplified product that’s valuable in a new and authentic way.
Totle
Lego Pieces:
Connecting the DeFi Legos:
With Totle, we wanted to simplify the process of connecting to the decentralized exchange market by combining multiple DEXs into a single, preassembled DeFi Lego that builders could easily start using. By doing this, Totle adds new functionality to the DEX space by automatically routing orders to DEXs with the best pricing and using smart contracts to protect users’ funds in the event that a DEX encounters an error.
Developers can use Totle to empower users to easily move in and out of ERC-20s or auto-swap tokens for users to abstract away the complexity of crypto. This can be done without needing to connect with multiple DEXs, writing your own custom smart contracts, and managing the decentralized exchange process. This is the power of DeFi tools.
Build on the Progress of Others
Instead of starting from this:
Builders can use DeFi tools like Compound and Totle to start from this:
Build!
We’re excited to see what inventive use cases builders in the DeFi space will come up with. If you’re working on your own way to build with money Legos, please leave a comment with some information about your DeFi project below!
Get Started
To start building with Totle, access the API here: Totle Documentation
Schedule a call with us to learn more about building with Totle: Book a Call
For additional reading about DeFi Legos, check out: Designing for Composability in Crypto by Brian Flynn Ethereum: The Digital Finance Stack by David Hoffman
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