Rebase

November 21, 2023 - Around 2 mins mins to read

Understanding Rebase

A rebase token, also referred to as a price-elastic token, is a specific type of token that automatically adjusts its circulating supply based on price fluctuations. This adjustment mechanism is known as a rebase.

Rebase tokens share similarities with stablecoins as they both have price targets. However, rebase tokens differ in that they possess an elastic supply. This means that the circulating supply of rebase tokens adjusts in response to supply and demand without impacting the value of the tokens held by users.

Let’s delve into how rebase tokens function:

Rebase protocols are scheduled to occur at regular intervals. For instance, the AMPL token from Ampleforth undergoes a rebase every 24 hours with a target price of $1. If the price of AMPL surpasses $1, the circulating supply expands during the rebase, resulting in a decrease in the value of each AMPL token. Conversely, if the price of AMPL falls below $1, the circulating supply contracts during the rebase, leading to an increase in the value of each token.

From the perspective of users, the number of tokens in their wallets will increase or decrease accordingly. However, the overall value of their wallets remains unaffected due to the rebasing mechanism.

For instance, let’s consider the scenario where Bob possesses 1 AMPL token, which doubles in value to $2. During the rebase period, the supply will inflate, causing Bob’s 1 AMPL to decrease to 0.5 AMPL. Nevertheless, the value will still amount to $1 since 1 AMPL is now valued at $2.

Other examples of rebase tokens include YAM, RMPL, and BASED.