# ⚙️ How it works ⚙️

## What is Teneo?

Every trader who survived a long period of crypto holding and/or trading knows the following situation:

One moment you look into your portfolio and are happy because of a great performance with multiple Xs — the next moment all profits are gone… -30%, -50% or even -90% is nothing unusual in the crypto space.

Teneo addresses this. Long term holders, as well as traders and other projects, are able to benefit from the extreme volatility of the crypto markets. The Teneo Project creates a Win-Win-Win situation for all these parties.

## How it works 

There are two kinds of tokens in the ecosystem:

1. The [Teneo token](https://teneofinance.gitbook.io/teneo-finance/teneo-token-ecosystem/teneo-token), a reward token.
2. Different [tenXXX ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)tokens, e.g. tenWBTC, tenETH, ten…

Let’s start with [tenXXX](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token): A [tenXXX ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)is a pegged token like WBTC. \
In this example we use ETH: \
Every time someone locks an ETH, an [Automated Market Maker (AMM)](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/automated-market-maker) mints a [tenETH ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)token and in reverse, every time an ETH is unlocked a tenETH gets burned.

Therefore the exchange ratio of [ETH](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/underlying-token):[tenETH ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)is nearly 1:1 at any time.

It is only “nearly” 1:1, because there are transaction fees. The whole system benefits from these fees. They are used to buy back [Teneo ](https://teneofinance.gitbook.io/teneo-finance/teneo-token-ecosystem/teneo-token)and mainly are redistributed to the liquidity provider of the [tenXXX ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)token. But any other [transaction fee](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token#transaction-fees) will also be redistributed to every holder of the [tenXXX ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)token in the form of a tenXXX token. We call them [*reflows*](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token#reflows).

But why should someone make a transaction with this token that has a fee? Would people not just lock and hold until they want to cash out?

That’s where the \~1:1 ratio comes in. Liquidity pools of [tenXXX ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)are rewarded (and also gain reflows). That means there is an arbitrage possibility on every price change of the [pegged token](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/underlying-token) in any pool. And in contrast to other similar tokens, there is no possibility to drain wealth out of the system, because the token is pegged (1 tenETH is always worth 1 ETH minus the transaction fee).

This is visible in the chart WBTC:BTC. The price of WBTC is moving +1.2-1.8% to -0.6-1.2% around the BTC price (because of the \~1.2% lock/unlock fees). But every time ETH is moving 10% [tenETH ](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/tenxxx-token)will also move \~10% and the gaps in the [DEX liquidity pools](https://teneofinance.gitbook.io/teneo-finance/tenxxx-token-ecosystem/liquidity-pools-on-dex) will be filled by [arbitrage traders](https://teneofinance.gitbook.io/teneo-finance/introduction/untitled).


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