Bancor's new and unique single-sided pool tokens allow for a passive rewards system in which pool token holders can earn rewards without any further interactions with a staking contract or additional gas costs. This applies when the reward token is the same as the deposited token - which is referred to Auto-Compounding Rewards.
In simple terms, not only your trading fees, but your liquidity mining rewards are auto-compounding gaslessly.
The rewards programs on Bancor 3 operates in a distinctively unique manner in the industry.
First, a new token project can establish liquidity for their project by petitioning the Bancor DAO to whitelist TKN, and can help to manage the impermanent loss risk by allocating a certain proportion of the TKN supply to the insurance contracts.
Second, they can also include an incentives program for their own community and the rewards are exclusively used for the benefit of their own liquidity providers.
Third, the entire incentives budget is used as liquidity from the first instant. This is a profound change from the status quo, and a much more effective use of funds than the conventional rewards distribution schemes.
Over time, the pool tokens associated with the incentives liquidity are burned, thus transferring shares of the pool to the other liquidity providers. This process is gasless, and auto-compounding by nature. There are no additional contracts with which they must interact regularly to participate in the incentives program.