Essential oils and terpenes are highly touted in modern medicine for their myriad benefits that come with virtually no side effects.
However, what their coveted properties do come with is fragility on two levels: susceptibility to environmental damage in the form of light, heat, and humidity, and low bioavailability due to their lipid nature being in direct conflict with the aqueous environment that is the human body.
Scientists look to encapsulation as a solution to both problems, which is a way of providing stability and/or aqueous camouflage to lipid compounds, most often by embedding them into a structure of layers that improves their interaction with our water-dominant bodies.  This protects compounds against environmentally-caused chemical degradation, in addition to increasing bioavailability, allowing controlled drug release, and enabling passage through biological barriers. 
Additional benefits of encapsulation include the omission of unwanted odors and flavors and the homogenous dispersal into a food product. 
The capsules, which are the product of encapsulation, fall into one of three categories, depending on their size: “macro, which are larger than 5000 μm; micro, having a size between 0.2-5000 μm; and nano, which are less than 0.2 μm.” The smaller the size of the capsule, the more it can pass unobstructed through our bodies, resulting in higher bioavailability.
Another distinction can be drawn between microspheres and microcapsules — microcapsules cover the substance of interest completely, whereas microspheres leave a small part of it exposed.
The “wall” surrounding the substance to be encapsulated by said wall can be made from various natural products including gums (e.g., sodium alginate or carrageenan, carbohydrates (e.g., starch or maltodextrin), chitosan from crustacean shells, lipids, proteins, etc.
The methodologies, employed for encapsulation, include “atomization, extrusion, fluidized bed, coacervation, drum drying, lyophilization, ionic gelation, molecular inclusion and liposome inclusion processes.” 
But encapsulation doesn’t have to literally encapsulate the oily compound of interest — it can also mix into the aqueous component by way of emulsifiers, which is known as emulsification and is one of the most popular encapsulation methods.
“The adsorption of the emulsifier at the interface reduces the surface tension, which leads to the formation of an emulsion with the aid of agitation.” 
It’s also worth noting that polymers have garnered a lot of interest among scientists as “an inexhaustible source of networks/matrices for the encapsulation of essential oils,” providing protection and stability against hazardous environmental factors. 
1- Radünz M, Gandra TKV, Gandra EA. A mini-review on encapsulation of essential oils. J Anal Pharm Res. 2018;7(1). Impact Factor = n/a; Times Cited = 2 (Semantic Scholar)
2- de Matos SP, et al. Essential oils and isolated terpenes in nanosystems designed for topical administration: A review. Biomolecules.2019;9(4):138. Impact Factor = 4.57; Times Cited = 30 (Semantic Scholar)
3- Chiriac AP, et al. Polymeric carriers designed for encapsulation of essential oils with biological activity. 2021;13:631. Impact Factor = 4.213; Times Cited = 1 (Semantic Scholar)
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