Every pool has the ability to mint/burn pool tokens following a user deposit or withdrawal. The Bancor Auto Compounding Rewards contract inherits the ability to burn pool tokens (only burn). The contract can only burn the bnTokens it holds.
When bnTokens are burned, the pool re-distributes the underlying (deposited) token to the remaining pool tokens, making the value of each pool token higher than before.
Example:
John deposits 10,000 DAI and receives 10,000 bnDAI
Jill deposits 10,000 DAI and receives 10,000 bnDAI
Each one holds 50% of the pool tokens and has access to 50% of the underlying token.
1 bnDAI = total deposited tokens/total pool token =
1 bnDAI = 20,000 DAI / 20,000 bnDAI = 1 DAI
Assume that John deposited 2000 of his bnDAI pool tokens into
the Auto Compounding Rewards contract,
and set them to burn at a pace of 10 per day.
...
After 100 days:
John holds 8,000 pool tokens
Jill holds 10,000 pool tokens
Auto Compounding Rewards contract holds 1,000 pool tokens
(100*10=1000 bnDAI were burnt)
Deposited tokens in the pool are still 20,000 DAI
1 pool token = 20,000 DAI / 19,000 bnDAI = 1.0526315789 DAI
