Rebase Token

Unlike traditional cryptocurrencies with fixed supplies, rebase tokens automatically modify their total supply based on market conditions. This adjustment, known as a "rebase," occurs periodically and is governed by smart contracts that either add to or subtract from the existing token supply. The primary goal is to stabilize the token's price by aligning supply with demand.

🔑 Key Aspects of Rebase Tokens:

• Elastic Supply Mechanism – The token's supply is not fixed; it adjusts automatically to achieve a predetermined price target.
• Proportional Holdings – During a rebase event, all holders experience a proportional change in their token quantities, ensuring their ownership percentage remains constant.
• Smart Contract Governance – Rebase operations are executed through decentralized algorithms or smart contracts, ensuring transparency and reducing the need for manual intervention.

How Rebase Tokens Work:

When a rebase token's market price deviates from its target:

• Positive Rebase – If the price exceeds the target, the protocol increases the token supply, distributing additional tokens to holders, which theoretically brings the price down.
• Negative Rebase – If the price falls below the target, the protocol decreases the token supply, reducing the number of tokens each holder possesses, aiming to push the price up.

🏛 Example 1: Ampleforth (AMPL)

Ampleforth adjusts its supply daily to maintain a target price of $1. If AMPL's price rises above $1, the protocol increases the supply, distributing more tokens to holders. Conversely, if the price drops below $1, the supply contracts, reducing the number of tokens each holder has.

🏛 Example 2: OlympusDAO (OHM)

OlympusDAO's OHM token utilizes a rebase mechanism to achieve price stability while being backed by a treasury of assets. The protocol adjusts the supply of OHM through rebasing, distributing rewards to stakers and aiming to maintain the token's value over time.

📚 References

1. CoinDesk - What Is a Rebase/Elastic Token?
2. Unchained Crypto - What Is a Rebase Token?

⚠️ Controversies & Misconceptions

• "Rebasing increases or decreases the value of my holdings." – False. While the number of tokens in your wallet changes during a rebase, the total value of your holdings remains the same immediately after the rebase, as the price adjusts inversely to the supply change.
• "Rebase tokens are the same as stablecoins." – Not exactly. While both aim for price stability, stablecoins maintain their peg through collateralization or reserves, whereas rebase tokens adjust their supply to achieve a target price.

🚀 Conclusion

Rebase tokens introduce an innovative approach to achieving price stability in the cryptocurrency space through automatic supply adjustments. By utilizing smart contracts to expand or contract the token supply in response to market conditions, rebase tokens aim to maintain a consistent value. However, potential investors should understand the mechanics and implications of rebasing, as the fluctuating token balances can be complex and may not suit all investment strategies.

Related Terms

• TVL (Total Value Locked)

  Total Value Locked (TVL) represents the total amount of assets deposited within a decentralized finance (DeFi) protocol. This includes funds in liquidity pools, lending platforms, staking contracts, and other DeFi applications. TVL serves as a key metric for assessing the adoption, security, and growth of a DeFi platform.

• Hard Cap

  A hard cap refers to the maximum supply of a cryptocurrency or token that can ever exist. It is a fixed limit set by a project's protocol, ensuring that no additional tokens can be created beyond this predefined amount.

• Stablecoin

  A stablecoin is a type of cryptocurrency designed to maintain a stable value by pegging its worth to a reserve of assets, such as fiat currencies like the U.S. dollar, commodities like gold, or a basket of assets. This stability allows stablecoins to be widely used for transactions, trading, and decentralized finance (DeFi) applications.

• Governance Token

  A governance token is a cryptocurrency that grants holders voting power in a decentralized finance (DeFi) protocol. These tokens enable users to influence key decisions, including protocol upgrades, fee structures, and treasury allocations.

• Wrapped Token

  A wrapped token is a tokenized representation of a cryptocurrency or asset native to one blockchain, designed for use on a different blockchain while maintaining a value pegged to the original asset.