How Compounding Works
Learn how Snuggle'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
The Snowball Effect
You earn fees. Those fees get reinvested. Now you earn fees on a bigger position. Those new fees get reinvested too. Your earnings grow faster and faster.
This is compounding. It is the most powerful force in finance.
Snuggle's Auto-Compounding
When you deposit, you can enable Fee Compounding. Here is what happens:
- Your position goes out of range
- Snuggle waits (rebalance delay) to see if the price comes back
- Snuggle 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. No manual harvesting needed for the compounded portion. 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 your positions page. 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.
A Simple Example
You deposit $1,000. Your position earns 50% per year in trading fees.
Without compounding: You earn $500 each year. After 3 years, you have $1,000 plus $1,500 in fees. Total: $2,500.
With compounding: After year 1, about $1,632. After year 2, about $2,665. After year 3, about $4,348. That is $1,848 more than without compounding.
Same deposit. Same pool. The difference is reinvesting your earnings.
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