Rebasing tokens are a specific type of cryptocurrency whose total supply is frequently modified. Fertilization occurs daily or several times a day.
The goal of adjustments is to stabilize the price of the rebased token or target a specific value through a strategy of increasing or decreasing the token supply while responding to price deviations from the set target.
For example, a positive rebase increases token supply and minimizes current holders’ balances if the token price rises above the target. Conversely, a negative rebase lowers supply and increases the value of existing holdings if the price falls below the target.
The ever-changing supply coordination network presents unique features and factors to consider. Examples of rebasing tokens include Basis Cash (BAC) and Ampleforth (AMPL). Rebase tokens have risks and benefits, including creative token engineering and price stability.
Investors will need to keenly evaluate the token’s mechanics and understand the impact of supply adjustments on their holdings as rebase events are automated and smart contracts are leveraged.
Additionally, consumers may have difficulty fully understanding the rebase token structure due to its complexity. Investors interested in token rebasing should do their homework and proceed very cautiously, as there can be huge price fluctuations and a wide range of token features and characteristics.
How are Rebase tokens different from traditional tokens?
By adding some dynamic adjustments to the general supply, rebasing tokens deviate from the traditional fixed supply strategy.
Unlike traditional tokens, rebase tokens use an elastic supply mechanism to modify the total amount available for circulation depending on market conditions and maintain price stability or adhere to target prices.
Rebasing tokens automatically adjust the balances of all holders through a smart contract, maintaining a proportional share of the accumulated supply despite volatility, unlike traditional tokens where supply changes are rare and manual.
Nonetheless, frequent algorithm-based modifications of rebasing tokens aim to stabilize token prices or achieve predetermined goals by leveraging advanced techniques to control inflation, encourage participation, and reduce price volatility.
Rebased tokens are able to adapt to market conditions because of their new strategy, which strives to stabilize their value in a way that traditional tokens, whose value is determined solely by fixed supply and market demand, cannot. This important difference highlights the changing nature and diverse applications of digital assets within the cryptocurrency ecosystem.
How do Rebase tokens work?
Rebasing tokens works according to a unique mechanism where the total supply of a token is often adjusted to maintain price stability or target a specific value.
As an example, we can use Ampleforth (AMPL) to explain how rebasing tokens work. Rebasing is a technique used by rebasing tokens such as AMPL to maintain a target price (e.g. $1). Specifically, the protocol automatically modifies the token supply to bring the market price of AMPL back to $1 whenever it deviates from its target.
A positive rebase occurs when the market price exceeds $1. This strategy increases the total supply of AMPL tokens held by all users, diluting the value of all tokens and driving the price closer to $1.
Conversely, a negative rebase occurs when the market price is below $1. In this scenario, the protocol reduces the total number of AMPL tokens owned by all users, increasing the value of all tokens and bringing the price closer to $1, effectively ‘burning’ a portion of the supply, adjusting the price upwards to the target.
Supply reduction is achieved through balance reconciliation between all holders rather than destroying tokens. Rebasing tokens adjusts for changes to the token supply to keep the price stable around the intended value.
So are rebase tokens the same as algorithm tokens? Rebase tokens and algorithmic tokens are not the same. Algorithmic tokens refer to a broader category that uses many algorithms for value stabilization or management, including but not limited to supply adjustments such as rebasing tokens, while rebasing tokens are algorithmically supplied to achieve price stability. Change .