Auto-compounding Rewards

Auto-compounding rewards to strategies are handled by the BadgerRewardsManager contract.

One of the functions of this contract is as an "external harvester" - it's used for injecting rewards into the Setts.

How the Setts (aka vaults) work is there is a pool of the underlying asset within the system, to which your vault tokens (such as bBadger) entitle you to a %. This underlying asset is called the 'want', which is the original Yearn parlance.

The external harvester has the ability to swap reward tokens (such as badger and digg) into the want for a Sett via an AMM. After swapping, the transferWant() function adds some of the underlying want token to the strategy associated with that Sett. This increases the overall pool, which means each vault share can be redeemed for more. This is how the auto-compounding incentive rewards are added.