Definition of rebase tokens
Rebase Token, also known as Elastic Token or Elastic Supply Token, is a special type of cryptocurrency. These tokens have a common feature - the "Rebase Mechanism", that is, the circulating supply of the token will automatically and dynamically adjust according to the fluctuation of the token price (or the price of the underlying asset). This mechanism is implemented through the token's smart contract, which stabilizes the actual value of the user's position by maintaining a certain ratio between the user's holdings and the total supply.
How rebase tokens work
Different rebase tokens have different designs for elastic supply mechanisms, but in general they all follow the same logic: reduce supply when the price of the coin falls, and increase supply when the price rises.
Take Ampleforth, for example.
Ampleforth (AMPL) is a decentralized stablecoin project on Ethereum and one of the first to apply the Rebase mechanism. The circulating supply of the AMPL token is adjusted every 24 hours – aka once – in order to keep the price at $1.
When the price of AMPL exceeds $1, the circulating supply will expand during the Rebase, thereby reducing the value of each AMPL token, and if the price of AMPL falls below $1, the supply will decrease during the Rebase, thereby increasing the value of each token.
The results of the Rebase are propagated to all Ampleforth wallets, and their wallet balances are proportionally adjusted.
It is important to note that holders of AMPL hold a "fixed percentage of the total circulating supply of AMPL", rather than a fixed amount of AMPL. Therefore, AMPL holders will retain the same percentage of the token supply regardless of Rebase. From the holder's point of view, the amount of AMPL in their wallet changes every 24 hours, but the total value of their AMPL wallet does not change due to the rebasing mechanism.
Here's a simple example to understand further:
Let's say there are currently 100 AMPL in circulation, and you have 10 in your wallet, which is 10% of the total circulation. Imagine that AMPL becomes in short supply in the market when there is a sudden increase in market demand and we can assume that its price doubles, from $1 to $2. In this case, the network will increase the supply of 100 AMPL in the next rebase, and the amount of AMPL in your wallet will change from 10 to (100 + 100) * 10% = 20, but the actual value of your position will not change theoretically.
While most cryptocurrencies have changes in circulating supply, they are fundamentally different from rebase tokens. For example, the circulating supply of Bitcoin is predetermined by a fixed algorithm, while the circulating supply of rebase tokens is dynamically adjusted based on the market price.
For more information about the circulating supply of Bitcoin, please refer to the entry: What is Bitcoin Halving
The meme coin project Shiba Inu also wanted to get involved in the debase token space. The project has released LEASH as a rebase token, pegging the price of Dogecoin (DOGE) at 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 Dogecoin's price movements through LEASH without having to invest directly in Dogecoin, as a way to attract more users to the ecosystem.
The SHIB team finally decided to abandon LEASH's rebased token attributes, and the plan for vampire Dogecoin was declared bankrupt. For more information about the SHIB ecosystem, please refer to: What is Shiba Inu. (SHIB) – Memecoin that strives to get rid of the meme tag
At present, there are still relatively few participants in the field of rebase tokens, except for LEASH, which gave up halfway, some of the former top rebase tokens, such as Base Protocol's BASE and Yam Finance's YAM, are also not optimistic - why?
Limitations of rebase tokens
For users, the main benefit of holding rebase tokens is the stability of value gained in a highly volatile crypto market. This is a stablecoin-like property that is attractive to people who need cryptocurrency as a means of exchange, a store of value.
It may seem attractive, but from another point of view, since the pursuit of value stability, why don't users just choose USDT?
LEASH seems to offer another benefit of holding a rebase token: an indirect gain from a change in the price of another asset.
Leaving aside the question of which of the two meme coins, SHIB or DOGE, has more liquidity and a wider audience - if you want the benefits of Dogecoin, why don't users just buy Dogecoin?
All in all, the biggest limitation of rebasing tokens is that they offer a choice that users don't need in a seemingly ingenious new way. And because of its "ingenuity", it is more unfriendly and approachable to users in terms of conceptual understanding, which further limits its own development.
Disclaimer: The above content does not constitute any investment advice, investment is risky, and participation should be cautious.