Original Title: "What is a Rebase Token"
Original Source: TokenInsight
Definition of Rebase Token
A Rebase Token, also known as an Elastic Token or Elastic Supply Token, is a type of special cryptocurrency. These tokens have a common feature - the "rebase mechanism," which automatically adjusts the circulating supply of tokens based on the fluctuation of token prices (or the prices of the underlying assets). This mechanism is implemented through the smart contract of the token, ensuring that the user's holdings maintain a certain ratio to the total supply, stabilizing the actual value of the user's position.
Operating Mechanism of Rebase Token
Different Rebase Tokens have different designs for their elastic supply mechanism, but overall, they adhere to the same logic: reducing supply when the price falls, and increasing supply when the price rises.
Let's take Ampleforth as an example.
Ampleforth (AMPL) is a decentralized stablecoin project on Ethereum and one of the earliest projects to implement the Rebase mechanism. The circulating supply of AMPL tokens is adjusted once every 24 hours - a Rebase - with the aim of maintaining the price at $1.
Similar to how currency issuance dilutes asset prices, if the price of AMPL exceeds $1, the circulating supply will expand during the Rebase period, thereby reducing the value of each AMPL token. On the other hand, if the price of AMPL falls below $1, the supply will decrease during the Rebase period, thereby increasing the value of each token.
The results of the Rebase propagate to all Ampleforth wallets, adjusting their wallet balances proportionally.
It's worth noting that AMPL holders own a fixed proportion of the total circulating supply of AMPL, not a fixed quantity of AMPL tokens. Therefore, regardless of Rebase, AMPL holders will retain the same proportion of token supply. From the holder's perspective, the quantity of AMPL in their wallet will fluctuate daily, but due to the Rebase mechanism, the total value of their AMPL wallet remains unchanged.
Let's use a simple example to further understand:
Assuming there are currently 100 AMPL tokens in circulation, and you have 10 tokens in your wallet, representing 10% of the total circulating supply. Now, imagine that there is suddenly an increased demand in the market, causing the price of AMPL to double from $1 to $2. In this scenario, the network will increase the supply of AMPL by 100 tokens during the next Rebase. As a result, the quantity of AMPL in your wallet will increase from 10 tokens to (100 + 100) * 10% = 20 tokens, but the actual value of your holdings theoretically remains unchanged.
Although most cryptocurrencies have changes in circulating supply, they are fundamentally different from fork tokens. For example, the circulation of Bitcoin is predetermined by a fixed algorithm, while the circulating supply of fork tokens is dynamically adjusted based on market prices.
For more information about the circulation of Bitcoin, please refer to the entry: What is Bitcoin Halving?
The meme coin project, Shiba Inu, also wanted to enter the field of fork tokens. The project once launched LEASH as a fork token, anchored to the price of Dogecoin (DOGE) at a ratio of 1/1000. Specifically, if the price of Dogecoin is $0.50, the price of LEASH would be $500. This means that participants in the SHIB ecosystem can benefit from the price movements of Dogecoin through LEASH, without directly investing in Dogecoin, in order to attract more users to join the ecosystem.
The SHIB team eventually decided to abandon the fork token attributes of LEASH, and the plan to leech off Dogecoin was declared bankrupt. For more information about the SHIB ecosystem, please refer to: What is Shiba Inu (SHIB) - A Memecoin Trying to Break Free from the Meme Label
Currently, there are still relatively few participants in the field of fork tokens. In addition to the abandoned LEASH, some previous head fork tokens like BASE from Base Protocol and YAM from Yam Finance have also had poor development. Why is that?
Limitations of Fork Tokens
For users, the main benefit of holding fork tokens is the stability of obtaining value in highly volatile crypto markets. This is a property similar to stablecoins, which is attractive to those who need to use cryptocurrencies as a medium of exchange and a store of value.
It seems appealing, but from another perspective, if users pursue value stability, why not directly choose USDT?
LEASH seems to provide another benefit of holding fork tokens: indirectly gaining profits from price movements of another asset.
Setting aside which meme coin, SHIB or DOGE, has more liquidity and a larger audience - if users want the returns of Dogecoin, why not simply buy Dogecoin?
In conclusion, the biggest limitation of fork tokens is that they offer a seemingly unique and innovative way of providing a choice that users don't actually need. And due to its "uniqueness," it makes it less user-friendly and less accessible in terms of conceptual understanding, further limiting its development.
