How Compounding Works
Learn how MaxFi's auto-compounding feature and manual reinvesting multiply your returns.
Key Takeaways
- Auto-compounding reinvests matching-token fees during each rebalance
- You can also compound manually by opening new positions with harvested fees
- Compounding turns good returns into great returns over time
What is Compounding?
You earn fees. Those fees get reinvested. Now those fees earn fees too. Your position grows faster and faster.
Think of a snowball rolling downhill. It picks up more snow. The bigger it gets, the more it picks up. That is compounding.
MaxFi's Auto-Compounding
When you deposit, you can enable Fee Compounding. Here is what happens:
- Your position goes out of range
- MaxFi waits (rebalance delay) to see if the price comes back
- MaxFi places a new range one tick spacing away from the current price
- During that rebalance, matching-token fees are automatically added to your new position
- Non-matching fees are sent to your wallet
No extra steps. Your position grows a little bigger with every rebalance.
What are Matching-Token Fees?
When your position is out of range, it holds mostly one token. If the price went up, your position is mostly USDC. If the price went down, your position is mostly WETH.
Fees earned in the same token your position already holds can be added directly to the new position. No swap needed. Fees in the other token go to your wallet because compounding them would require a swap.
Roughly half your fees get auto-compounded. The other half goes to your wallet.
Manual Compounding
You can also compound manually in two ways:
Option 1: Open a new position. Harvest your fees from maxfi.tech/positions. Use those tokens to open a new position on the deposit page. Now you have two positions earning fees.
Option 2: Withdraw and redeposit. Withdraw your entire position. Then redeposit with your original capital plus the fees and rewards you earned. This gives you one larger position.
Simple Example
You deposit $1,000. You earn 50% per year.
Without compounding:
- Year 1: Earn $500. Total: $1,500
- Year 2: Earn $500. Total: $2,000
- Year 3: Earn $500. Total: $2,500
With compounding:
- Year 1: Total grows to ~$1,632
- Year 2: Total grows to ~$2,665
- Year 3: Total grows to ~$4,350
Same starting amount. Same rate. But compounding gives you $4,350 instead of $2,500.
What You Learned
- Auto-compounding reinvests matching-token fees during each rebalance
- You can also compound manually by opening new positions with harvested fees
- Compounding turns good returns into great returns over time