Regenerative Compounding

Definition

Capital in a closed pool declines geometrically, Cₙ = C₀Rⁿ⁻¹. What compounds is the system value it generates on the way down: each cycle deploys γ times the capital still in the pool, so value accrues while the principal runs off.

Formula

Example

Starting with $100K, R = 0.85, γ = 1.5: capital is $85K after cycle 1 and $0.9K by cycle 30, while cumulative system value reaches 9.9× the original $100K. Holding the pool level instead would take $15K of replenishment each cycle.

Source

REA §4 (with rca §15 on the closed/open distinction)