Explain the Concept of “Fee Compounding” in a Liquidity Pool.
Fee compounding in a liquidity pool occurs automatically as trading fees are added back into the pool's reserves. When fees are added, the total value of the pool increases.
Since an LP's share is a percentage of the total pool, their share of the fees immediately starts earning a share of future fees. This process of reinvesting earnings to generate more earnings is the core mechanism of compounding.
