Overview
Auto-compounding automatically reinvests earned yield into the principal position to grow returns over time. It removes the manual effort and gas cost of harvesting rewards. Vaults and aggregators make compounding seamless.
How It Works
A vault collects yield from a position, converts it, and reinvests it into the same or a related strategy. This increases the base from which future yield is earned. Users benefit from exponential growth without active management.
Why It Matters
Compounding can significantly boost long-term returns in DeFi. Auto-compounding vaults democratize this benefit and save users time and fees. They also add smart contract and strategy risk.
Related Concepts
Auto-Compounding is a feature of Yield Aggregators and is central to maximizing APY. It connects to Yield Farming and Liquidity Mining.