The birth of a DeFi super application

As the crypto market matures, investors are looking for clues from past technological booms to predict the next big trend or turning point.

Historically, digital assets have been difficult to simply compare with previous technology cycles, making it difficult for users, developers and investors to predict their long-term development trajectory.This dynamic is changing.

According to our research, the “application layer” in the field of encryption is evolving, much like the unbundling and rebundling cycles experienced by SaaS (software as a service) and fintech platforms.

In this article, I will describe how the unbinding and rebundling cycles in SaaS and fintech are staged in DeFi (decentralized finance) and crypto applications.The pattern evolves as follows:

The concept of “Composability” is the key to understanding the unbinding and rebinding cycles.

This is an analytical term used by the fintech and crypto community, referring to the ability of finance or decentralized applications and services – especially at the application layer – to interact, integrate and build each other seamlessly like Lego bricks.With this concept as the core, we describe the transformation of product structure in the following two subsections.

From vertical to modular: The Great Unbundling

In 2010, Andrew Parker of Spark Capital published a blog post depicting how dozens of startups can take advantage of Craigslist’s untied opportunities.Craigslist was the “horizontal” Internet market at that time, providing services ranging from apartments, gig workers to commodity sales, as shown in the figure below.

Parker concluded that many successful companies—Airbnb, Uber, GitHub, Lyft—start with a small focus on and verticalizing a small portion of the broad capabilities of Craigslist and greatly improved it.

This trend opens the first major phase of “market unbinding”, during which Craigslist’s fully bundled, multi-purpose market gives way to single-purpose applications.Newcomers aren’t just improving Craigslist’s User Experience (UX) – they redefined the experience.In other words, “unbinding” breaks down a broad-based platform into a strictly ranged, autonomous vertical field, subverting Craigslist by serving users in a unique way.

What made that wave of unbinding possible?The fundamental shift in technology infrastructure, including advances in APIs (application programming interfaces), cloud computing, mobile user experience and embedded payments, has lowered the barriers to building focused applications with world-class user experience.

The same unbinding has evolved in the banking industry.For decades, banks have provided a bundled set of financial services under a single brand and application—everything from savings loans to insurance.However, for the past decade, fintech startups have been accurately dismantling this bundle, each focusing on a specific vertical.

Traditional banking bundles include:

• Payment and remittance

• Checking and savings accounts

• Eating products

• Budget and financial planning

• Loans and credit

• Investment and Wealth Management

• Insurance

• Credit and debit cards

Over the past decade, bank bundles have been systematically broken down into a series of venture-backed fintech companies, many of which have now become unicorns, decameras or near-hundreds:

• Payment and remittance: PayPal, Venmo, Revolut, Stripe

• Bank Account: Chime, N26, Monzo, SoFi

• Savings and Benefits: Marcus, Ally Bank

• Personal Finance and Budget: Mint, Truebill, Plum

• Loans and Credit: Klarna, Upstart, Cash App, Affirm

• Investment and Wealth Management: Robinhood, eToro, Coinbase

• Insurance: Lemonade, Root, Hippo

• Cards and spending management: Brex, Ramp, Marqeta

Each company focuses on a service it can polish and deliver better than existing businesses, combining its skill set with new technological leverage and distribution models to deliver growth-oriented niche financial services in a modular way.In SaaS and FinTech, unbinding not only subverts existing companies, but also creates entirely new categories, ultimately expanding the total addressable market (TAMs).

From modularity to bundling: The Great Rebundling

Recently, Airbnb launched a new “Services and Experience” and redesigned its app.Now users can not only book accommodation, but also explore and purchase additional services such as museum tours, food tours, dining experiences, gallery walks, fitness classes and beauty treatments.

Once a peer-to-peer accommodation market, Airbnb is now transforming into a superapp for vacations – re-bundling travel, lifestyle and local services into a single, cohesive (coherent) platform.Additionally, over the past two years, the company has expanded its product range beyond home rentals and is now integrating payments, travel insurance, local guides, concierge-style tools and featured experiences into its core booking services.

Robinhood is undergoing a similar transformation.The company, which has disrupted the brokerage industry with the ban on commission stock trading, is now actively expanding into a full-stack financial platform and is re-bundling many verticals previously untied by fintech startups.

Over the past two years, Robinhood has taken the following steps:

• Launching payment and cash management features (Robinhood Cash Card)

• Increase cryptocurrency transactions

• Launch retirement accounts

• Launch margin investment and credit cards

• Acquisition of Pluto, an AI-powered research and wealth consulting platform

These moves show that Robinhood, like Airbnb, is bundling previously fragmented services to build a comprehensive financial super application.

By controlling more financial stacks – savings, investments, payments, loans and consulting – Robinhood is reshaping itself from a broker to a full range of consumer finance platforms.

Our research shows that this unbinding and rebundling dynamic is affecting the crypto industry.In the remainder of this article, we provide two case studies: Uniswap and Aave.

DeFi unbinding and rebinding cycle: Two case studies

Case Study 1: Uniswap – From monolithic AMM to liquidity LEGO, back to trading super application

In 2018, Uniswap was launched on Ethereum as a simple but revolutionary automated market maker (AMM).In its early stages, Uniswap was a vertically integrated application: a small smart contract code base and hosted by its team for the official front-end.The core AMM function—the exchange of ERC-20 tokens in a constant product pool—is present in a single on-chain protocol.Users mainly access it through Uniswap’s own web interface.This design proved to be very successful, with Uniswap’s cumulative on-chain transaction volume growing to over $1.5 trillion as of mid-2023.With its tightly controlled technology stack, Uniswap provides a smooth user experience for token exchanges, which guided the development of DeFi in its early days.

At that time, Uniswap v1/v2 implemented all transaction logic on the chain, without the need for an external price oracle or a chain order book.The protocol determines the price within a closed system through its liquidity pool reserve (x*y=k formula).The Uniswap team developed the main user interface (app.uniswap.org) to interact directly with the Uniswap contract.Early on, most users accessed Uniswap via this dedicated front-end, similar to the proprietary exchange portal.Uniswap does not rely on any other infrastructure except Ethereum itself.Liquidity providers and traders interact directly with Uniswap’s contracts without built-in external data feeds or plug-in hooks.The system is simple but isolated.

With DeFi expanded, Uniswap evolved into a composable liquidity “Lego” rather than a standalone application.The open, license-free nature of the protocol means that other projects can integrate and add layers to Uniswap’s pool.Uniswap Labs gradually abandoned control of partial stacks, allowing external infrastructure and community-built capabilities to play a greater role:

• Decentralized Exchange (DEX) Aggregator and Wallet Integration: Most of Uniswap’s transaction volume begins to flow through external aggregators such as 0x API and 1inch, rather than through Uniswap’s own interface.By the end of 2022, an estimated 85% of Uniswap exchanges are routed through an aggregator like 1inch, as users seek the best price across multiple exchanges.Wallets like MetaMask also integrate Uniswap liquidity into their exchange features, allowing users to trade on Uniswap from their wallet app.This external routing reduces dependence on Uniswap’s native front-end and makes AMM more like a plug-and-play module in the DeFi stack.

• Oracles and Data Indexers: While Uniswap’s contracts did not require price oracles to trade in the past and present, a wider ecosystem built around Uniswap requires it.Other protocols use Uniswap’s pool price as an on-chain oracle, and Uniswap’s interface itself also relies on external indexing services.For example, the front-end of Uniswap uses The Graph’s subgraphs to query pool data off-chain for a smoother user interface (UI) experience.Instead of building its own inode, Uniswap utilizes a community-driven data infrastructure—a modular approach to offloading heavy data queries to professional indexers.

• Multi-chain deployment: In the modular stage, Uniswap expands to many blockchains and Rollups outside Ethereum: Polygon, Arbitrum, BSC and Optimism, etc.Uniswap’s governance authorizes its core protocols to be deployed on these networks, effectively treating each blockchain as a base layer plugin for Uniswap liquidity.This multi-chain strategy emphasizes the composability of Uniswap: the protocol can exist on any chain compatible with Ethereum virtual machine (EVM), rather than binding its fate to a vertically integrated environment.

Recently, Uniswap has been regressing towards vertical integration, with the goal that seems to be to capture more user journeys and optimize the stack for its use cases.Key reintegration developments include:

• Native Mobile Wallet: In 2023, Uniswap released Uniswap Wallet—a self-hosted mobile app—and then released a browser extension where users can store tokens and interact directly with Uniswap’s products.Launching a wallet is an important step towards controlling the user interface layer, rather than giving it to a wallet like MetaMask.With its own wallet, Uniswap now integrates user access vertically, ensuring exchanges, browsing non-fungible tokens (NFTs) and other activities take place in the environment it controls and may be routed to Uniswap liquidity.

• Integrated Aggregation (Uniswap X): Uniswap also introduced Uniswap X, a built-in aggregation and transaction execution layer, rather than relying on third-party aggregators to find the best price.Uniswap X uses an open network of off-chain “fillers” to acquire liquidity from various AMMs and private market makers and then settle transactions on the chain.As a result, Uniswap has transformed its interface into a one-stop trading portal to aggregate liquidity sources for user interests—similar to services provided by 1inch or Paraswap.By running its own aggregator protocol, Uniswap Labs reintegrates the feature to keep users internally while ensuring optimal prices.Importantly, UniswapX is integrated into the Uniswap web application itself—and may also be integrated into the wallet in the future—so users no longer need to leave Uniswap for the sake of the aggregator.

• Application-specific chains: In 2024, Uniswap announced its own layer 2 blockchain—called “Unichain”—as part of Optimism Superchain.Elevating vertical integration to the infrastructure level, Unichain is a customized Rollup tailored for Uniswap and DeFi transactions with the goal of reducing Uniswap user fees by about 95% and reducing latency to about 250 milliseconds.Uniswap will control the blockchain environment on which its contract runs, rather than as an application on another chain.By operating Unichain, Uniswap will be able to optimize everything from Gas cost to maximum extractable value (MEV) mitigation for its exchanges and introduce native protocol fee sharing with UNI holders.This complete circular transformation has transformed Uniswap from a decentralized application (dApp) that relies on Ethereum to a vertical integration platform with a proprietary UI, execution layer and dedicated blockchain.

Case Study 2: Aave – From P2P lending market to multi-chain deployment, and back to credit super application

Aave’s origins date back to 2017’s ETHLend, a self-contained lending application that gave way to a decentralized peer-to-peer lending market renamed Aave in 2018.The team developed smart contracts for lending and provided an official web interface for users to participate.At this stage, ETHLEND/Aave matches lenders and borrowers’ loans in an order book manner and processes everything from interest rate logic to loan matching.

As it evolves toward a pooled lending model similar to Compound, Aave has undergone vertical integration.Aave v1 and v2 contracts on Ethereum include innovations such as flash loans – an in-protocol feature that allows unsecured borrowing in the same transaction – as well as an interest rate algorithm.Users access this protocol primarily through the Aave network dashboard.The protocol manages internally key functions, such as interest accumulation and liquidation, rarely rely on third-party services.In short, Aave’s early design was a monolithic money market: a dApp with its own UI, handling deposits, loans and liquidations in one place.

Aave is part of a wider DeFi symbiosis, integrating MakerDAO’s DAI stablecoin as a key collateral and lending asset from the outset.In fact, Aave and Maker simultaneously launched and immediately supported DAI, reflecting the tight coupling between pioneers of vertical integration and early on indicating that no protocol was an island.Even in its “vertical” phase, Aave benefits from another protocol’s product—stablecoin—to operate.

As DeFi evolved, Aave unbound and adopted a modular architecture, outsourcing some of its infrastructure and encouraging others to build on its platform.Several shifts illustrate Aave’s advance towards composability and external dependencies:

• External oracle network: Aave does not run its own price feed exclusively, but uses Chainlink’s decentralized oracle to provide reliable asset prices for collateral valuations.Price oracles are crucial to any lending agreement because they determine when a loan is under collateral.Aave Governance chooses Chainlink Price Feeds as the primary oracle source for most assets on aave.com, thus outsourcing pricing infrastructure to professional third-party networks.While this modular approach improves security – Chainlink, for example, aggregates many data sources – it also means that Aave’s stability depends on external services.

• Wallet and Application Integration: Aave’s lending pool becomes a building block for many other dApp integrations.Portfolio managers and dashboards like Zapper and Zerion, DeFi automation tools like DeFi Saver, and earnings optimizers are all connected to Aave’s contracts through their open software development kits (SDKs).Users can deposit or borrow through a third-party front-end interface with Aave, but the official Aave interface is just one of many access points.Even the DEX aggregator indirectly utilizes Aave’s Lightning loan for complex multi-step transactions performed by services like 1inch.By open source its design, Aave allows composability: Other protocols can integrate Aave’s capabilities—for example, using Aave’s Lightning Loan inside a Uniswap arbitrage robot—all are coordinated by external aggregators.As a liquidity module rather than an isolated application, its composability expands Aave’s influence in the DeFi ecosystem.

• Multi-chain deployment and isolation mode: Similar to Uniswap, Aave is also deployed on multiple networks—such as Polygon, Avalanche, Arbitrum, Optimism—is essentially cross-chain modularity.Aave v3 introduces features such as the isolation market for certain assets—architectural modularity—creates different risk parameters for each market, sometimes running separately from the main pool.It also introduced license variants such as “Aave Arc” used by “KYC” organizations, which are conceptually standalone “module instances” of Aave.

These examples demonstrate the flexibility of Aave to operate in a variety of environments, not just an integrated environment.During this unbinding phase, Aave relies on a wider infrastructure stack: Chainlink oracle gets data, The Graph is used for indexing, wallets and dashboards for user access, and tokens of other protocols—such as Maker’s DAI or Lido’s staked ETH—as collateral.The modular approach increases Aave’s composability and reduces the need to “reinvent the wheel”.The trade-off is that the Aave part loses control over those stack parts and the risks associated with relying on external services.

Recently, Aave showed signs of regression vertical integration by developing built-in versions of key components that previously depended on others.For example, in 2023, Aave launched its own stablecoin GHO.Historically, Aave has promoted the lending of various assets, especially MakerDAO’s DAI stablecoin, which is significantly scaled on Aave.With GHO, Aave now has a native stablecoin on its platform that acts as a distribution channel for other protocol stablecoins.Like DAI, GHO is an over-collateralized, decentralized, and US dollar-pegged stablecoin.Users can mint GHOs with their deposits on Aave V3, which gives Aave a vertical part of the previously outsourcing of the lending stack—the stablecoin offering.therefore:

• Aave is a stable asset issuer—not just a place to borrow existing stablecoins—and directly controls the parameters and revenues of stablecoins.GHO is a competitor to DAI, so now Aave can reclaim interest payments into its ecosystem, and GHO interest can benefit AAVE token stakers instead of indirectly increasing the fees of MakerDAO.

• The introduction of GHO also requires dedicated infrastructure.Aave has “facilitators” – including major Aave pools – that can cast and destroy GHOs and set up governance strategies.By controlling this new functional layer, Aave built a build of MakerDAO products to serve its own community.

In another noteworthy move, Aave is leveraging Chainlink’s Smart Value Routing (SVR) or similar mechanisms to recapture MEVs for Aave users (maximum withdrawable value, similar to order flow payments in stocks).A closer coupling to the oracle layer to redirect arbitrage profits back to the protocol is blurring the boundaries between the Aave platform and the underlying blockchain mechanism.This move shows that Aave is interested in customizing even lower-level infrastructure for its own benefit, such as oracle behavior and MEV capture.

While Aave hasn’t launched its own wallets or chains like Uniswap and other companies have, other ventures from its founder (projects) show that his goal is to build a self-sufficiency ecosystem.For example, Lens Protocol for social networking can be integrated with Aave for financials based on social reputation.Architecturally, Aave is moving towards providing all key financial primitives: lending, stablecoins (GHO), and possibly decentralized social identities (Lens), etc. rather than relying on external protocols.In my opinion, the product strategy is about deepening the platform: with stablecoins, loans and other services, Aave’s user retention and protocol revenue should benefit.

In short, Aave has evolved from a closed-loop lending dApp to an open LEGO that connects to DeFi and relies on others like Chainlink and Maker, and is now returning to a more expandive (expansive) vertically integrated financial suite.The launch of GHO in particular highlights Aave’s intention to reintegrate the stablecoin layer it once outsourced to MakerDAO.

Our research shows that the history of Uniswap, Aave, MakerDAO, Jito, and other protocols demonstrates a wider cyclical model in the crypto industry.In the early days, vertical integration—building a monolithic product with very specific uses—was necessary to pioneer new features such as automated trading, decentralized lending, stablecoins or MEV capture.These self-contained designs allow rapid iteration and quality control in emerging markets.As the field matures, modularity and composability become priority: the protocol unbound part of its stack to launch new features or provide more value to external stakeholders, relying on the advantages of other protocols to become a “currency Lego”.

However, the success of modularity and composability presents new challenges.Relying on external modules introduces dependency risks and limits the ability to capture the value that the protocol creates elsewhere.Now, the largest players and protocols with strong product market fit (PMF) and revenue streams are turning their strategies back to vertical integration.While they have not abandoned decentralization or composability, these projects are reintegrating key components for strategic reasons: launching their own chains, wallets, stablecoins, front-ends and other infrastructure.Their goal is to provide a more seamless user experience, capture additional revenue streams, and guard against reliance on competitors.Uniswap is building wallets and chains, Aave is issuing GHOs, MakerDAO is forking Solana to build NewChain, and Jito is merging staking/re-staking with MEVs.We believe that any DeFi application large enough will eventually seek its own vertical integration solution.

in conclusion

History won’t repeat itself, but it will always be surprisingly similar.The crypto field is humming a familiar tune.Just like SaaS and market revolutions over the past decade, DeFi and Application Layer protocols are focusing on new technology primitives, changing user expectations and a desire for more value capture while moving along the trajectory of unbinding and re-bundling.

In the 2010s, startups specializing in a segment of the huge Craigslist market effectively atomized them into distinct ( distinct).This unbinding gave birth to giants—Airbnb, Uber, Robinhood, Coinbase—all of which later began their own re-bundling journey, integrating new verticals and services into cohesive, sticky platforms.

The crypto space is following the same path at a revolutionary pace.

Originally as a rigorous vertical experiment with scope – Uniswap as AMM, Aave as a money market, Maker as a stablecoin vault – modularized into license-free LEGOs, opening up liquidity, outsourcing key features, and allowing composability to flourish.Now that the scale of use has expanded, the market is fragmented, and the pendulum begins to swing back.

Today, Uniswap is becoming a transaction super application with its own wallet, chain, cross-chain standards and routing logic.Aave is issuing its own stablecoins and bundling borrowing, governance and credit primitives.Maker is building a completely new chain to improve the governance of its monetary ecosystem.Jito unifies staking, MEV and validator logic into a full stack protocol.Hyperliquid combines exchanges, L1 infrastructure and EVM into a seamless on-chain financial operating system (OS).

In the crypto world, primitives are unbound in design, but the best user experience – and the most defensible business – are increasingly re-bound, not a betrayal of composability, but an implementation of it: build the best Lego bricks and use it to build the best castles.

DeFi is compressing the entire cycle into just a few years.How to do it?DeFi works very differently:

• Licensing-free infrastructure reduces the friction of experiments: any developer can fork, copy or expand existing protocols in hours rather than months.

• Capital formation is instant – with tokens, teams can fund new projects, ideas, or incentives faster than ever before.

• Liquidity is highly liquid.Total lock value (TVL) moves at the speed of motivation, making new experiments easier to gain attention, and successful experiments can expand exponentially.

• The potential market size is larger.The agreement enters a global, license-free pool of users and capital from day one, often reaching scale faster than its Web2 peers that are restricted by geographic, regulatory or distribution channels.

DeFi’s super apps are expanding rapidly in real time.We think that winners are not protocols that have the most modular stack, but protocols that know exactly which parts of the stack should be owned, which parts to share, and when to switch between the two.