# How It Works

## The Basics

KRK tokens trade on Uniswap (Base network). Behind the scenes, a **trading vault** holds ETH that backs every KRK token. This creates a **floor price** — the absolute minimum value your tokens are worth.

## Earning by Staking

When you stake KRK tokens, you claim **owner slots** — a percentage of the protocol's staking pool. Every time someone buys KRK on the open market, new tokens are minted, and stakers get a proportional share. The more slots you hold, the more you earn.

### Choosing Your Rate

When you stake, you pick an **earning rate** (called a "tax rate" in the contracts). This is the yearly cost of holding your position:

| Rate Level | Yearly Cost | Trade-off |
|-----------|------------|-----------|
| Low (1-5%) | Cheap to hold | Easy for others to challenge |
| Medium (12-30%) | Moderate cost | Balanced protection |
| High (50%+) | Expensive to hold | Very hard to challenge |

**The key insight:** Your earning rate is also your protection level. A higher rate costs more, but makes it harder for anyone to take your position.

## Challenges (Snatching)

If someone wants your staking slots and is willing to pay a higher rate than you, they can **challenge** (snatch) your position:

1. The challenger stakes at a higher rate
2. Your position is automatically closed
3. You receive the **full market value** of your staked tokens — including any earnings
4. The challenger takes over your slots

**You never lose money in a challenge.** You get compensated at current market value. You just stop earning from those slots.

## The Trading Vault

The Liquidity Manager automatically manages the ETH/KRK trading pool:

- When staking activity is high (bullish signal), it concentrates liquidity for better trading
- When activity drops, it spreads liquidity wider for stability
- It tracks a **volume-weighted average price (VWAP)** to set the range

This happens automatically — no human decisions, no hidden operators. The rules are in the smart contract.

## Floor Price

Every KRK token is backed by ETH in the vault. The **floor price** is calculated as:

```
floor = ETH in vault ÷ total KRK supply
```

Your tokens can never be worth less than the floor. When someone buys KRK, more ETH enters the vault. When someone sells, ETH leaves. The system maintains balance.

## Summary

1. **Buy KRK** on Uniswap (Base)
2. **Stake** to earn from every trade
3. **Choose your rate** — higher = more protection, higher cost
4. **Earn passively** as the protocol generates trading activity
5. If challenged, you get **paid out at market value**

→ [Getting Started Guide](./getting-started.md)