Many popular DEXs offer additional rewards to incentivize LPs to provide liquidity for specific token pairs. Liquidity providers can put their LP tokens to work in a farming or staking pool to earn these additional rewards beyond transaction fees.
Tethys handles this process automatically with Tethys Vaults. Any lending pool with a Tethys Vault enabled will earn and reinvest these rewards. Rewards are accrued to anyone who deposits or leverages their collateral (LP tokens) in the lending pool, and periodically reinvested to buy more LP tokens on their behalf.
Whenever a borrower deposits LP tokens in a lending pool which supports Tethys Vaults, the LP tokens are automatically staked in the underlying staking pool. Later, when the borrower deleverages or withdraws their LP tokens, it is automatically withdrawn from the underlying staking pool. This way, the borrower automatically earns additional LP tokens.
Reinvestment is enabled by a permissionless bounty system for Tethys Vaults. Anyone can initiate the reinvestment process for the pending reward of a lending pool. In exchange, they keep a small percentage of the reward as a reinvestment bounty (currently 1%).