Our Composable Thesis
A natural evolution in a cross-chain world entails developers and users interacting seamlessly regardless of where their assets lie. Over the last 6 months, Rarestone Labs has been working alongside Advanced Blockchain AG to co-incubate the highly anticipated cross-chain and cross-layer interoperability platform, Composable Finance. Composable’s vision of hyper liquidity and composability abstract the underlying technology into a single interface, unlocking the potential for new primitives developed at an unprecedented pace.
DeFi is still flourishing; at the beginning of Q3 2021, market prices have begun to revert back to the mean after a sustained upward trend. Many top DeFi protocols are still seeing an influx of users and high total value locked (TVL), while stable coins in circulation are at an all-time high. However, this space has become increasingly siloed. As the DeFi industry matures, scalability issues present with the first wave of DeFi 1.0 have resulted in both users and developers seeking alternatives from the cost-heavy and slow Ethereum layer 1 (L1) network. As such, 2021 has seen DeFi branch across multiple blockchains, sidechains and aspiring Ethereum layer 2 (L2) scaling solutions at a rapid pace.
Resultantly, in the race for market share and users, two key functionalities are becoming the most important components for remaining competitive in the quickly evolving landscape; capital efficiency and interoperability. These two elements provide participants on both the supply and demand side with the most cost-effective and performant protocols.
In this manner, a vast and growing opportunity is presented for building the architecture and infrastructure which allows developers to build interoperable cross-layer and cross-chain applications. Additionally, technological advancements in this growing domain create their own opportunities to build new innovative protocols and applications which previously were not possible. It further produces compounding value and a network effect for the projects that solve these challenges adequately.
If the defining characteristic of DeFi is its composability (i.e. the ability to merge different components together to create higher-order functions), in its current form, DeFi will be limited to isolated chains and layers. Therefore, true interoperability is the final missing “LEGO” building block in the renowned “DeFi Technical Stack”.
Composable Finance and its namesake focus on composability is one of Rarestone’s best bets to solve the interoperability question between different competing Ethereum L2s as well in addition to alternate layer 1 blockchains. It is the first project of its kind, made possible thanks to an amalgamation of expert knowledge in different disciplines such as advanced cryptography, Ethereum, and Substrate, imparting a unique approach to solving the aforementioned problems.
With this strong team and the support of Rarestone and a multitude of other strong venture firms in the space, Composable Finance is positioned to elevate the DeFi industry for users, developers, and decentralized applications (dApps) alike.
Key Project Highlights
The incubation arm of Rarestone — Rarestone Labs — is working alongside Advanced Blockchain AG to accelerate new ecosystem projects using Composable’s technology.
Composable’s recent fundraising round was co-led by Rarestone Capital and Advanced Blockchain AG. Other investors included Spartan Group, Hypersphere, Blockchain Capital, Divergence Ventures, Alameda Research, CMS Holdings and more.
In a bid to secure a parachain, Composable has employed a first-of-its-kind parachain vault, designed to incentivise yield farmers to deposit their ERC-20 based crypto-assets in return for retroactive Composable (LAYR) token rewards. Launched in early Q3 2021, the vault has since amassed more than $50 million in TVL.
The Composable Finance Mission
The DeFi industry is siloed and fragmented, and scaling the industry is further perpetuating the fragmentations as projects explore L2s and other L1 networks to launch. Current interoperability solutions for cross-layer and cross-chain communication and value transfer are lacking in number and efficiency. Yet, all DeFi participants need infrastructure to build and use the most cost-effective and performant applications:
- DeFi Users – Individuals will use the most cost effective and performant applications. Currently, protocols draw users by building on L2s scaling solutions as well as other cheaper and quicker chains (other than Ethereum L1).
- DeFi Developers – Developers need infrastructure to build the most cost effective and performant applications in order to remain competitive.
- Siloed On-Chain Value – Scalability solutions have further siloed on-chain value in the Ethereum Network between the various L2s, as well as different DeFi ecosystems on other L1s capturing more on-chain value. There is thus a rapidly growing need for cross-chain communication and value transfer.
The Composable Finance Offering
Through developing an infrastructure that allows seamless cross-chain and multi-chain interoperability, Composable believes that it will deliver advanced utility to DeFi applications and their users.
The project is focusing on two different verticals. The first is bridging the gap between different Ethereum Layer 2 implementations. The second is unlocking further interoperability by creating a DeFi ecosystem on Polkadot with a pallet-enhanced parachain.
Ethereum Layer 2 to Layer 2 interoperability solution – Composable is developing a suite of developer tools and software development kits (SDKs) that offer application-specific protocols and developers the building blocks and ABIs (Application Binary Interface) needed to deploy interoperable decentralized applications (dApps) with the ability to communicate and execute transactions across different layers seamlessly.
Picasso Parachain – Composable is developing a parachain on Polkadot (first being architected under the name ‘Picasso’ on Kusama, Polkadot’s Canary Network) that will underpin its entire ecosystem and provide enhanced access and utility to parachains. The parachain will be enhanced by Substrate pallets, which are essentially the building blocks for developers to create applications along the chain. Each pallet is designed for different DeFi functionalities needed to build the ecosystem. Composable’s end goal is for in-house and project/developer-built pallets to cover all major components of DeFi, including primitives, core/secondary functions, and application/tertiary infrastructures. Firstly, primitives underpin all of DeFi and are crucial to the DeFi technical stack. These include oracles, smart contracts, tokens, transaction execution, keepers, and governance. Next, core functionality can be developed on top of the primitives to facilitate basic value creation, for example, money markets like borrowing and lending. Additionally, applications are built into more complex and value-generating opportunities, such as yield aggregation. Projects and developers can thus propose pallets for Primitive, Core, or Application tracks.
- DeFi/Web3 Developers
- In order to remain competitive in the evolving blockchain ecosystem, dApps need to build products that are both cross-layer and cross-chain.
- Existing DeFi/Web3 Projects
- Projects with launched dApps are looking to leverage cross-chain, cross-layer liquidity as well as onboard new users from these ecosystems. These are easily integratable using the Composable ABI.
- Composable is able to use its cutting edge technology to attract developers and projects from all networks, regardless of the natively developed application (ink!, Rust, Solidity, Tezos’s Michelson, etc.).
- DeFi End Users
- Users will use the most cost-effective and highly performant applications, made possible by L2 scaling technology.
- Users will use the products that offer the most cross-chain liquidity.
- DeFi/Web3 Token Holders (Ethereum, L2s and Polkadot)
- Composable targets token holders/capital providers for the Kusama and Polkadot parachains and Ethereum users looking for yield and exposure to DOT/KSM ecosystem.
Composable Finance Value Propositions
- Community-Driven Approach – Composable is building an open-source community-driven ecosystem which differs from many of the projects working on similar solutions, where the technology itself is gated and behind closed doors. The Composable developer tools and SDKs will be available for anyone to use in order to build new interoperable applications.
- Unlocks Liquidity Cross-Layer and Cross-Chain – Composable is creating the infrastructure to harness otherwise siloed liquidity and on-chain value. This improves end user experience substantially for DeFi participants because it abstracts away the current complex processes and systems that users need to fulfil in order to participate across different DeFi ecosystems.
- Near-Instant Cross-Chain Movement of Assets – In its current form, moving assets between layers can take weeks due to fragmentation and lockup times. Composable is building the new infrastructure and developer tooling needed to bridge the current technology gap in interoperability.
- Hyper-Composability – Composable allows decentralized applications to extend their available functionalities through integrations that exceed what is possible today. Hyper-composability delivered by Composable facilitates the infrastructure for the next stage of DeFi. The end goal for the DeFi industry is a fully functioning and interoperable ecosystem across chains and layers. In such an ecosystem, users will not care which chain or layer they are transacting on; users will merely trade, and then it will be executed on the chain or layer with the best rate and lowest latency available at that time for that trade. Such a maturation of the DeFi industry is akin to the legacy finance/traditional finance (TradFi) industry where the New York Stock Exchange (NYSE) is comparable to Ethereum Layer 1 and the Layer 2 solutions are individual stock brokers, providing advanced options and utility to users beyond what was previously available.
Ethereum L2 / L2
Composable’s solution aims to deliver a fully decentralized method for users to make cross-layer transactions in a trustless way. Additionally, the same mechanics can be used to produce cross-layer-function calls. Users that are performing deposits and withdrawals are matched cross-layer. As a result, developers and Web3 projects can build an application using Composable’s infrastructure and open-source SDK. The Composable SDK enables DeFi protocols to be able to run a smart contract on one layer 2 (E.g Optimism) and then call said contract using another smart contract on another layer 2 (E.g zkSync). This means that using the SDK makes it possible to build applications that control different instances of the same dApp on different layers:
Composable Software Development Kit (SDK)
Composable has built a very easy-to-use SDK which allows developers to integrate cross-layer function calls by merely plugging in a contract ABI.
Such a design means that not only is it possible to build new cross-layer applications using the SDK, but it is also an easy integration process for launched projects to integrate the ABI and unlock cross-layer functions calls. For example, this would facilitate adding cross-layer function calls for an automated market maker (AMM) deployed on multiple layers. The process would be to get the AMM ABI from Polygon and the AMM ABI from Arbiturm and plug it into the Composable SDK, at which point the two instances of the AMM can talk to each other cross-layer. By using building blocks instead of using its own chain, Composable is able to preserve the nativeness of each DeFi application. Instead, their infrastructure uses a cryptographic signature relay between two different instances. Composable will earn revenue from this endeavour by charging a small fee for every L2/L2 transaction.
Equal Cash (EQLC)
As a proof-of-concept and to highlight the power of its Ethereum layer 2 interoperability solution, Composable will be launching its own multi-layer and multi-chain stablecoin. The EQLC stablecoin is backed by liquidity provider (LP) tokens from stablecoin token pairings such as USDT/DAI and USDC/DAI, as well as Uniswap’s version 3 non-fungible token (NFT) LP tokens and other interest-bearing receipt tokens. Thanks to EQLC’s novel infrastructure, it is able to deploy onto a multitude of blockchains as well as both layer 1 and layer 2 of Ethereum. The receipt tokens collateralizing EQLC are generating interest, which is being used to pay down the debt that has been used as collateral for EQLC, making EQLC effectively capable of paying for itself. Note – Existing stablecoin implementations such as MakerDAO’s DAI cannot exist natively across-layer 2 networks. Maker for instance is required to deploy a new stablecoin to the likes of Optimism, e.g. oDAI.
Polkadot is, as Gavin Wood describes it, a “layer zero” protocol that connects various blockchains (termed parachains) to its main Relay Chain. Polkadot’s design enforces consensus and interoperability between different parachains. The goal is also to use the parachain model for unique application-specific blockchains, for example, an oracle parachain, a money market parachain, an insurance parachain, etc. However, at present, XCMP is not fully functional and will not be active on the network for some time. The Picasso parachain which aims to host its own DeFi ecosystem augmented by its own customizable pallets, hopes to also offer a solution for interoperability for Polkadot in the interim.
Pallets will be made available for each essential component of DeFi and dApps, including primitive, core, and application functions. Essentially each pallet replaces the individual blockchain-specific parachains (E.g Oracle parachain) in the Polkadot network. Blockchain-specific functionality that are added to each pallet are anchored to the Composable parachain and projects that would typically require their own parachain can deploy directly on Composable.
Picasso includes a proprietary smart contract unit that enables developers from different ecosystems to deploy a variety of smart contracts and languages and communicate each other, on the same parachain. In the near term, Composable will support smart contracts using EVM, Tezos, ink!, and Solana’s eBPF.
Initially, Composable will use a whitelisting process including a security checklist and governance in order to add the different pallets to the parachain thereby introducing a permmisioned layer. This is to safeguard the ecosystem from malicious actors building and then deploying to the parachain. In this way, the governance will be the gateway for projects to use Picasso.
Token Value Accrual Thesis
The Composable Token (LAYR) use cases include:
- Projects pay to transact using the parachain
- Validators oversee/operate the protocol (with incentives)
- Governance regarding adding smart contract support
- Token used for layer 2 / layer 2 transactions
Parachain Vault – In addition to using the standard staking KSM or DOT tokens to participate in a parachain auction through a crown loan model, Composable has built a strategy where people with stablecoins from the Ethereum ecosystem can participate in the parachain auction. This is a first-of-its-kind approach to securing a parachain. With Composable’s vault, users can deposit ERC-20 tokens, which are then routed to underlying yield farms. Composable takes a 50% cut of the yield, which is effectively the KSM stake in their Kusama parachain auction. The remaining yield is delivered to the user to increase their staking position, unlike in traditional means of parachain procurement. The vault has already launched in stages and currently has a TVL of around $50 million. Composable estimates that it will give them the funds to acquire a parachain in the coming weeks.
Incubations Through Composable Labs – Composable has partnered with Blockchain AG and Rarestone Labs to incubate and launch projects that use Composable-based infrastructure to build new innovative cross-layer and cross-chain DeFi applications. Composable Labs thus acts as both a testing ground for these projects as well as a broader VC network offering grants, security audits, and support to teams who are looking to build using the Composable tech stack.
- MEV-Resistant Oracle
- Future Yield using Synthetic Tokens (Alchemix on Polkadot)
- LP Position Manager Across L2s and L1
- Building Cross Layer DEX Aggregator
Composable’s founding team comprises many cryptocurrency veterans and scholars whose experience includes Yale, Trail of Bits, BadgerDAO and more. Although some of the team wish to remain anonymous.
Cosmin Grigore | CEO
Cosmin entered the crypto space in 2017, initially starting with Solidity development and trading. He has had a long career in computer science, working as a full-stack engineer before pivoting into engineering management. Cosmin made a full transition to crypto in 2020, working as a dev lead for nakamo.to, an Advanced Blockchain AG portfolio company. While there, he had the idea for Composable Finance, and started working with Advanced Blockchain to make it a reality. Cosmin is Composable’s venerable leader, bringing extensive experience and cutting-edge ideas, while managing a complex product and ecosystem.
0xbrainjar | Head of Product
Composable Head of Product is currently anonymous. Originally trained in physics, they bring valuable DeFi know-how and passion. You can find them on Twitter or Medium to keep up to date on product updates and industry insights. He’s also leading Composable Labs, the incubator and the testing ground for projects using Composable’s tech stack.
0Xvatbrain | Lead Polkadot Developer
Composable’s Lead Polkadot Developer is also anonymous. They have an impressive resume in security and blockchain technology, and have worked on well-known projects. Check them out on Twitter for updates.
Stage of Maturity
Immediate Ethereum Roadmap:
Phase 1 of L2/L2 Portal
- Creation of a layer 1 vault to support L2/L2 transactions, providing cross-layer capabilities
- Creation for a system for vault fees to be swapped to Composable tokens to pay the liquidity providers in the vault.
- Initial deployment of this vault to support transfers between Polygon and Arbitrum
Immediate Polkadot Roadmap:
Parachain Auction Vault Strategy
- To receive and maintain a parachain, it must be purchased in an auction with the chain’s native DOT/KSM
- There is normally an opportunity cost to users, who miss out on potential staking rewards when they contribute these tokens
- To maximize chances of winning a parachain slot, the team is working to reward users who help Composable stake KSM/DOT with a novel ETH vault strategy
Parachain Auction Vault Strategy Launchpad
- To enable other projects to benefit from the parachain vault strategy, Composable is offering the strategy for use by other protocols
- These other protocols can use our ETH vaults for parachain procurement of their own.
Oracle Pallet: August 2021
- Composable Labs is incubating the first pallet being added to its Picasso parachain, an oracle pallet
- Oracles are an essential DeFi primitive, and thus this pallet will be an important addition to the DeFi ecosystem being built on Picasso
Long Term Roadmap:
- Q3 2021
- Parachain auction (Kusama) to obtain a parachain for Picasso
- Incubator Program: Composable Labs
- Providing a testing ground & support to projects using Composable’s cross-layer SDK or building pallets on its parachain
- Q4 2021
- Phase 3 of the L2 – L2 Portal: Connecting the strategy to all other L2 solutions