A rebase token, also known as a price-elastic token, is a unique type of cryptocurrency that automatically adjusts its circulating supply based on price fluctuations. Unlike traditional tokens whose supply remains constant, rebase tokens have an elastic supply, which means the number of tokens in circulation changes dynamically.

Rebase tokens have gained popularity in the decentralized finance (DeFi) space due to their ability to maintain a stable price target while allowing for supply adjustments. These tokens strive to achieve price stability, similar to stablecoins, but with a mechanism that is different from pegging their value to a particular asset or collateral.

The main idea behind rebase tokens is to find a balance between stable value and supply adjustments. The supply changes ensure that the token’s price moves towards the desired target, even in volatile market conditions.

What is the working principle of Rebase Tokens?

Rebase protocols are designed to maintain the price stability of the token by expanding or contracting the token’s supply. This process occurs periodically and is typically triggered when the token price deviates from its target value.

Let’s take a closer look at how rebase tokens work in practice:

1. Scheduled Rebase: Rebase events are usually scheduled at regular intervals, such as daily or weekly. During these scheduled rebase periods, the token’s supply is adjusted.

2. Price Deviation: When the price of a rebase token deviates from its target price, the protocol takes corrective measures to bring it back to the desired level. If the token’s price is higher than the target, the protocol will increase the supply. Conversely, if the token’s price is lower than the target, the protocol will decrease the supply.

3. Supply Adjustment: The supply a

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