Definition of rebasing token

Rebasing token Rebase Token, also known as Elastic Token or Elastic Supply Token, is a special cryptocurrency. This type of tokens have a common feature - "Elastic Supply Mechanism (Rebase Mechanism)", that is, the circulating supply of the token will change based on the price of the token (or the price of the linked asset). Automatically adjust dynamically according to fluctuations. This mechanism is implemented through the smart contract of the token and stabilizes the actual value of the user's holdings by maintaining a certain ratio between the user's holdings and the total supply.

The operating mechanism of rebased tokens

Different rebased tokens have different elastic supply mechanism designs, but overall they all follow the same One logic: reduce supply when currency prices fall, and increase supply when prices rise.

Take Ampleforth as an example.

Ampleforth (AMPL) is a decentralized stablecoin project on Ethereum and one of the first projects to apply the rebase mechanism. The circulating supply of AMPL tokens is adjusted - or rebase - every 24 hours in order to keep the price at $1.

Just like the issuance of currency will dilute the asset price, when the price of AMPL exceeds $1, the circulating supply will expand during the Rebase period, thus reducing the value of each AMPL token; and if AMPL When the price drops below $1, the supply decreases during the rebase, increasing the value of each token.

The results of the rebase will be propagated to all Ampleforth wallets, and their wallet balances will be adjusted proportionally.

It is worth noting that AMPL holders hold "A fixed proportion of the total circulating supply of AMPL" rather than a fixed amount of AMPL. Therefore, AMPL holders will retain the same proportion of the token supply regardless of rebase. From the perspective of the holder, the amount of AMPL in his or her wallet will change every 24 hours. However, due to the rebasing mechanism, the total value of his or her AMPL wallet will not change.

A simple example to further understand:

Suppose there are currently 100 AMPL in circulation, and there are 10 in your wallet, that is, the total circulation is held 10%. Imagine that when market demand suddenly increases within a short period of time, AMPL becomes in short supply in the market and we can assume that its price doubles from $1 to $2. In this case, the network will increase the supply of 100 AMPL during the next rebase, and the number of AMPL in your wallet will also change from 10 to (100+100)*10%= 20 at this time, but the number of AMPL you hold The actual value theoretically does not change.

While most cryptocurrencies have changes in circulating supply, they are fundamentally different from rebased tokens. For example, the circulating supply of Bitcoin is predetermined through a fixed algorithm, while the changes in the circulating supply of rebased tokens are dynamically adjusted based on market prices.

For more information about the circulation of Bitcoin, please refer to the entry: What is Bitcoin Halving

Meme Coin Project Shiba Inu also once Want to get into the field of rebased tokens. The project previously released LEASH as a rebased token, anchoring the price of Dogecoin (DOGE) at a ratio of 1/1000. Specifically, if the price of Dogecoin is $0.50, the price of LEASH will be $500. This means that participants in the SHIB ecosystem can benefit from the price changes of Dogecoin through LEASH without directly investing in Dogecoin, thereby attracting more users to join the ecosystem.

The SHIB team finally decided to abandon the rebasing token attribute of LEASH, and the vampire Dogecoin plan also declared bankruptcy. For more information about the SHIB ecosystem, please refer to: What is Shiba Inu (SHIB) - Memecoin that strives to get rid of the Meme label

There are still relatively few participants in the field of rebased tokens. , except for LEASH, which was abandoned midway, some of the leading rebasing tokens in the past, such as Base Protocol's BASE and Yam Finance's YAM, also did not develop optimistically - why?

RebasingLimitations of Tokens

For users, the main benefit of holding rebased tokens is , gaining value stability in highly volatile crypto markets. This is a property similar to stablecoins that is attractive to people who need cryptocurrencies as a means of exchange and a store of value.

It seems very attractive, but from another perspective, since the pursuit of value stability, why don’t users just choose USDT?

LEASH appears to offer another benefit of holding a rebased token: indirect access to the income generated by the price movement of another asset.

Let’s not talk about which of the two meme coins, SHIB or DOGE, is more liquid and has a wider audience - since they want the income of Dogecoin, why don’t users just buy Dogecoin directly?

All in all, the biggest limitation of the rebased token is that it uses a seemingly ingenious new method to provide a choice that users do not need. And because of its "originality", it is less user-friendly and approachable in terms of conceptual understanding, further limiting its own development.