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Compounding or compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.

It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest.

Compound interest is standard in finance and economics. DeFi protocols have turned it up a notch, by compounding interest automagically, even every 8 hours and often offering very high APR rates to start with (see also APY).

Due to high gas fees on ETH mainnet and several other chains auto-compounding protocols have a clear advantage over those that require manual compounding as often compounding and the needed claiming and staking transactions might cost more in gas fees than it generates.

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