What is a Rebase Token?
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 process of adding or removing tokens from the supply based on changes in the underlying asset's value.
Rebase tokens were created as a solution to the issue of volatility that plagues many cryptocurrencies. They aim to provide a more stable form of cryptocurrency that is better suited for use as a means of payment or as a store of value. Unlike stablecoins, which maintain their value through collateralization or a central authority, rebase tokens maintain their value through automatic supply adjustments.
The most well-known example of a rebase token is Ampleforth (AMPL), which uses an algorithm to rebase its token supply according to changes in its underlying asset, the US Dollar. If the value of the US Dollar rises, the supply of AMPL tokens is reduced, and if the value of the US Dollar falls, the supply of AMPL tokens is increased. This allows the token's price to remain relatively stable, even in times of market volatility.
Rebase tokens have the potential to offer several benefits over traditional cryptocurrencies and stablecoins. They can provide greater stability, making them more suitable for use as a medium of exchange or as a store of value. Additionally, because they are automated, they can eliminate the need for manual intervention, making them more efficient and cost-effective than other types of stablecoins.
However, rebase tokens also have some limitations. For example, they can be difficult to understand and predict, as changes in the underlying asset's value can result in significant supply adjustments. Additionally, they can be vulnerable to manipulation and speculation, as traders may attempt to profit from changes in the token's supply.
Simplified Example
A rebase token is a digital currency that automatically changes how many of them there are, depending on how many people want to buy them.
Think about a bag of candies. If everyone wants to buy the candies, the price of each candy would go up. If there are more candies available, the price of each candy would go down.
A rebase token works in a similar way. If a lot of people want to buy the token, its price will go up and more of the tokens will be created. If not many people want to buy the token, its price will go down and fewer tokens will be created.
This way, the supply of the tokens always matches how many people want to buy them, helping to keep the price stable, and generally speaking constantly increasing to draw in investor attention.
History of the Term "Rebase Tokens"
The notion of rebase tokens, characterized by automatic adjustments to the circulating supply, likely originated organically within the early DeFi and crypto communities around 2020. The term didn't have a singular defining moment or platform of origin. Conversations about elastic supply tokens, alternative reward structures, and inflationary/deflationary mechanisms were scattered across online forums, Telegram groups, and research papers. The collaborative and often anonymous nature of these discussions makes it exceedingly challenging to attribute the coining of the term "rebase tokens" to a specific individual.
Examples
Ampleforth (AMPL): Ampleforth is a rebase token that uses a unique algorithm to adjust its supply in response to changes in demand. The algorithm adjusts the supply of AMPL in such a way that the price of the token remains relatively stable. If the demand for AMPL increases, the supply of the token will increase, which will help to maintain its stability. Conversely, if the demand for AMPL decreases, the supply of the token will decrease, which will also help to maintain its stability.
Basecoin (BASE): Basecoin is a rebase token that uses a similar algorithm to Ampleforth to maintain its stability. The supply of BASE is adjusted in response to changes in demand, with the goal of maintaining a relatively stable price. Unlike other stablecoins, which are pegged to a specific asset, Basecoin is designed to maintain its stability through changes in supply.
HARD Protocol (HARD): HARD is a rebase token that uses a unique algorithm to adjust its supply and maintain its stability. Unlike other rebase tokens, HARD is designed to be used as a decentralized finance (DeFi) platform that provides liquidity for other DeFi protocols. The supply of HARD is adjusted in response to changes in demand, with the goal of maintaining a relatively stable price. HARD is also designed to provide liquidity for other DeFi protocols, making it an important component of the DeFi ecosystem.