What is Rebase?
A rebase token (or price-elastic token) is a type of cryptocurrency designed with a mechanism that adjusts its circulating supply automatically in response to price fluctuations. This adjustment, known as the rebase mechanism, causes the supply to expand or contract without affecting the total value of the tokens held by users. Rebase tokens are similar to stablecoins in that they aim to maintain a price target. However, unlike stablecoins, which achieve this through reserves or collateral, rebase tokens use an elastic supply model. This means the number of tokens in circulation adjusts based on market demand and supply, while the value of tokens in users’ wallets remains unchanged.
How Rebase Tokens Work
A rebase protocol typically operates on a routine schedule. For example, Ampleforth’s AMPL undergoes a rebase every 24 hours with a target price of $1.
- Price Above Target: If the token’s price exceeds $1, the circulating supply expands. This reduces the value of each token to bring the price closer to the target.
- Price Below Target: If the token’s price falls below $1, the circulating supply contracts. This increases the value of each token to stabilize the price.
Example of Rebasing in Action
Let’s consider a user, Bob, holding 1 AMPL:
- If AMPL’s price rises to $2, the protocol inflates the supply during the rebase period. Bob’s 1 AMPL is reduced to 0.5 AMPL, but each token’s value doubles to $2. As a result, Bob’s wallet still holds $1 worth of AMPL.
- Conversely, if AMPL’s price drops to $0.50, the protocol contracts the supply. Bob’s 1 AMPL may increase to 2 AMPL, with each token now worth $0.50. Again, the total value in Bob’s wallet remains $1.
Key Characteristics of Rebase Tokens
- Elastic Supply: The token’s circulating supply adjusts automatically to stabilize its price near a target.
- Value Stability: Despite changes in supply, the total value of a user’s holdings remains unchanged after a rebase.
- Routine Adjustments: Rebase protocols typically operate on a predefined schedule, such as daily.
Popular Rebase Tokens
Examples of rebase tokens include:
- Ampleforth (AMPL): One of the first and most well-known rebase tokens, with a target price of $1.
- YAM: A governance token using a rebase mechanism to maintain value stability.
- RMPL: Focuses on supply adjustments to combat price volatility.
- BASED: A rebase token with a community-driven focus.
Conclusion
Rebase tokens introduce a unique approach to price stabilization through elastic supply adjustments. While they share similarities with stablecoins in targeting price stability, their mechanism of supply expansion and contraction sets them apart. This innovative model makes rebase tokens an intriguing part of the cryptocurrency ecosystem, offering an alternative approach to achieving price equilibrium.