What is a Rebase Token? Understanding Elastic Supply Cryptocurrencies
Rebase tokens represent an intriguing experiment in cryptocurrencies, as they offer a novel solution to the perennial challenge of price volatility. By dynamically adjusting their supply based on market conditions, these tokens aim to maintain a stable value. But what exactly *is* a rebase token, and how does it work?
Defining Rebase Tokens: Elastic Supply Explained
Rebase tokens are a type of cryptocurrency that have their supply adjusted dynamically to maintain a stable value relative to a chosen asset or index. This is achieved by automating the expansion and contraction of the token supply. Essentially, they\'re designed in a way that the circulating token supply adjusts (increases or decreases) automatically according to a token’s price fluctuations. This expansion and contraction is what we call a "rebase."
How Do Rebase Tokens Work?
What are rebase tokens, and how do they work? Rebase tokens are a particular kind of cryptocurrency that periodically (typically daily or multiple times a day) modifies its total supply. This adjustment isn\'t random; it\'s algorithmic.
Rebase tokens typically operate on a predetermined rebase schedule, often daily or weekly. During each rebase event, the token’s supply adjusts according to the deviation of the token’s price from its target price.
The Goal: Price Stability Through Supply Adjustment
Contrary to traditional cryptos, a fixed supply is not pre-determined for rebase types. Rebase tokens, also known as elastic tokens, are a relatively new type of cryptocurrency that relies on an algorithmic mechanism to adjust the token supply in response to demand. Read on to understand what rebase tokens aim to achieve: stability.
In essence, rebase tokens aim to counteract price swings. When the price of a rebase token is above its target, the supply increases (positive rebase), theoretically pushing the price back down. Conversely, when the price is below its target, the supply decreases (negative rebase), aiming to increase the price.
What Is Rebase? A rebase (or price-elastic) token is designed in a way that the circulating token supply adjusts (increases or decreases) automatically according to a token’s price fluctuations.