In this post we will outline how the compounders work and what the trust assumptions are.

Compounders are a specific implementation of an Arcadia Asset Manager, hence before we dive deeper into how the compounders work, let’s start with explaining what Asset Managers are and how they can be used.

Asset Managers

An Asset Manager of an Arcadia Account is a privileged role that can, as the name implies, manage the assets of an Account. Their main purpose is to enable a wide range of automation for the owner of the Arcadia Account, without the owner having to give up self-custody of their assets.

Each Arcadia Account may have one or more Asset Managers, and only the owner of an Account can add or remove Asset Managers. Asset Managers can perform the following actions:

• Deposit assets.
• Withdraw assets.
• Transfer funds from the Owner.
• Execute flash actions (optimistically execute arbitrary logic with the withdrawn/transferred assets).

Any Ethereum address, whether a smart contract or an externally owned account, can be set as an Asset Manager. This opens up a wide range of solutions for users with varying trust assumptions. We can roughly define three models in this context: permissionless, permissioned, and custodial.

1. Non-Custodial Permissionless: Asset Managers are immutable, trustless smart contracts that can only perform a single action and do not require any additional user input. An example of this are the Compounders that will be described in more detail in this article.
2. Non-Custodial Permissioned: Asset Managers can be smart contracts that restrict the actions they can perform to a single purpose, but do require user input. An example would be an Asset Manager to rebalance Liquidity Positions. While the contract can only change the range of a position and not, say, withdraw assets, it might require a permissioned role that only triggers a rebalance when it makes sense.
3. Custodial: Asset Managers can be EOAs that run strategies as a service for users. While there might be off-chain agreements regarding what these managers can and cannot do, these are not enforced on-chain, and the Asset Managers essentially have full power over the Account.

Some examples how asset management can be automated with Arcadia Accounts and Asset Managers are:

• Compounding fees
• Rebalancing portfolios
• Managing Liquidity ranges
• Stop losses

Compounders

Uniswap V3 (and similar CLAMMs like Slipstream) do not natively compound the yield earned by liquidity providers. Automatically compounding the yield for these protocols is an effective way to boost returns, leading to an exponential rather than a linear increase in the portfolio's value.