# Compounding

Compounding is the practice of exchanging yield farming rewards for the [underlying pool's](#user-content-fn-1)[^1] tokens and reinvesting them into the same pool. This process aims to maximize the APY earned from the pool.

In the context of Cadabra’s strategies, the compounding process has some specifics:

* Rewards harvested from the underlying protocols are first sold and then deposited into the strategy.
* This process results in the creation of new shares[^2], and ownership of these newly minted shares is transferred to the Cadabra protocol.
* The Cadabra protocol utilizes these shares to purchase ABRA tokens, and these ABRA tokens are subsequently distributed to the participants of the strategy.
* The protocol retains ownership of these shares, and since they continue to generate yield, the exponential compounding effect is preserved, albeit in an indirect way.

{% hint style="success" %}
Of cause, you always can manual compound just to use the shorcut Invest option on Token page &#x20;
{% endhint %}

See details about [liquidity-pools](../tokenomic/liquidity-pools "mention")

[^1]: External DeFi protocols like Aave, Curve etc. that generate yield. Cadabra strategies allocate capital across yield sources.

[^2]: Strategy shares/liquidity provider (LP) tokens: Tokens representing a user's share of the assets deposited in a Cadabra strategy. Users receive strategy tokens when they deposit, which can be redeemed for their funds.
