What Is A Rebase Token?

Snorlax

Nov 18, 2022•2 min read

A rebase token, also known as an elastic token, is a cryptocurrency whose supply is algorithmically modified in order to regulate its price. Rebase tokens, like stablecoins, are often tied to another asset. However, rather than utilizing reserves to keep the peg, rebase tokens automatically burn or mint new tokens in circulation.

The quantity of a rebase token can be very unpredictable, but its price tends to remain stable depending on whatever asset's price it is monitoring. Every cryptocurrency's code contains regulations for the coin's supply, which means all of the ways coins can be generated (minted) or destroyed (burned). However, it is unusual for those guidelines to be designed with a certain price in mind.

*Rebase tokens are elastic and non-dilutive, filling a market void. (Source: Finematics)*

When miners correctly validate recent transactions, for example, a new bitcoin is generated. There are no other ways to generate bitcoin, and there are no other ways to destroy the coins. Bitcoin is designed in this manner to encourage mining and manage the introduction of new tokens into circulation, rather than to control the bitcoin price. As a result, bitcoin is not a rebase token. The rebase token Ampleforth (AMPL) is an example. The token's supply is modified every 24 hours in order to keep its price near $1.

If the price of AMPL rises by more than a few cents, every wallet that holds AMPL receives additional tokens in proportion to its current holdings. That means that everyone still owns the same fraction of all AMPL. Fundamental economic forces will tend to drive its price back down toward the target as more tokens circulate. When the price falls below a certain threshold, the opposite occurs, and tokens are removed proportionately from holders' wallets.

The point is that each AMPL token you own will continue to be worth roughly $1, while the total value of all AMPL tokens you own will continue to fluctuate wildly. Other tokens, such as RMPL and BASED, have attempted to improve on the AMPL protocol while retaining its core appeal.

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