What is a Rebase Token?
Last Update: March 8th, 2022
Rebase refers to the practice of increasing or reducing the circulating token supply, based on the price directions. The rebase tokens can be increased by minting more coins for supply, or burning existing ones to reduce the number in circulation.
What is elastic supply and how does rebasing work?
An elastic supply is a mechanism that automatically adjusts the number of tokens in a liquidity pool, based on the price movements. Rebase works by automatically adjusting the supply of circulating tokens according to the token price movements. Rebase tokens are similar to stablecoins in that there is a set price target. The difference is that rebases have an elastic supply of tokens. Rebase mechanisms mitigate the effects of inflation, based on the balance of market demand and supply.
What is a positive/negative rebase?
A positive rebase occurs when the price of an elastic token is above the target price, and the reverse is referred to as a negative rebase. For example, we have 50 of token A, with a target rebase price of $1. If the price of the token jumps by 20% to $1.2, and the rebate increases the tokens by 20%, the holder would have 60 tokens and a portfolio price of $72. The value of an elastic token is compounded in a positive rebase, and the reverse applies in a negative one.
In a positive rebase scenario, the holders of the governance tokens can participate in voting and get a part of the payout. The liquidity providers and token holders can both receive the rewards from the positive rebase without being affected by the negative rebases.
How do projects determine the target price?
Projects determine the target price by setting the token nominal price to move to the target price steadily. Rebases make elastic price tokens synthetic commodities with fluctuating values and a supply skewed towards stability. The token supply is set according to the market demand and supply, to prevent any price manipulation.
Combining rebase mechanism with bonds
Rebase increases or reduces currency supply directly into the user’s address, to incentivize demand. The bonds are purchased and are redeemable for the algorithmic asset in the market model that maintains the asset ratio. The third aspect is staking, where assets are locked for liquidity and incentive demand. Users can buy bonds using stablecoins, and stakers can earn the minted tokens in a process that is referred to as rebase. The bond process gives the protocol the ability to control a big part of its liquidity instead of renting it.
List popular rebase projects
Ampleforth is an uncollateralized, synthetic asset that offers uncorrelated returns in the DeFi industry. AMPL uses the Chainlink Oracle in rebasing. The target price is $1.009 to the USD 2019 CPI. The rebase occurs daily at 02:00 Hours UTC. AMPL has launched the Geyser liquidity mining, which is structured to distribute rewards to users in the next decade.
Base Protocol is fixed to the overall cryptocurrency market capitalization, in order to track the overall crypto industry market trends. The variety of assets included is valuable in giving investors wider exposure. The Base token’s target price is set on a tiny fraction of the whole crypto market that is decentralized, thus making it reliable.
RMPL was forked from AMPL and uses a randomized rebasing with a $1 price target. The project rebasing period takes place within a maximum of two days. The rebase process happens when the price jumps above $1.05 or falls under $0.95. Unlike AMPL, whose rebase is aimed at arbitrage events, RMPL leverages random rebasing, in order to prevent price-fixing.
The Yam Finance project was created as a staking system, rebase protocol and governance protocol. The platform purchases yCRV tokens in positive rebases for its governance treasury. YAM rebases every 12 hours, at 8 PM UTC and at 8 AM UTC. A bug was found in the initial version, which could go against the project’s deflation measures. AS a result, the protocol initiated plans to allow users to convert their YAM to YAMv2. This will enable users to convert their tokens to YAMv3 later, via a smart contract, once an audit has been completed.
REB is a rebase project that targets a price of $1 and rebases every 12 hours. The project, which first debuted in 2020, has a circulating REB supply of 2 million tokens from an initial supply of 2.5 million. The protocol claims to be inflation-resistant and immutable.
BASED is a price elastic supply DeFi protocol aiming for a rebase price of $1 Synthetix’s dollar-pegged stablecoin. The network seeks to burn its private keys to make the platform autonomous and immutable forever. Rebase takes place every day at BASED whenever there is a price increase or decrease of 5%. Initially, BASED was supposed to only start once 97% of all the BASED tokens have been claimed. The protocol used Pool 0 and Pool 1 in the token distribution process. Pool 0 halved the rewards daily, while the second pool had a halving period of 72 hours.
Olympus DAO (OHM)
Olympus DAO is a decentralized finance protocol that aims to mint stablecoin assets pegged to cryptocurrencies. The protocol uses staking and bonding to incentivize users to deposit or dispose of their collateral to the Olympus treasury for discounted OHM tokens. Olympus DAO addresses the challenge in stablecoins, where the market faces a depreciating asset exposure. The existing stablecoins are pegged to the USD. Olympus DAO uses its reserve of cryptocurrencies to back the issuance of OHM, its native token. Olympus owns its liquidity in exchange for OHM tokens, unlike other decentralized projects. The project was created by a pseudonymous person called Zeus.
Wonderland is a decentralized reserve currency protocol that was forked from Olympus DAO. The protocol backs each unit of the native token, TIME, with multiple reserve assets, like liquidity tokens. The model is set to ensure that TIME retains its intrinsic value. When TIME drops below the backed amount, the protocol’s treasury repurchases the tokens and burns them. Wonderland users can choose between bonding and staking models, whereas bonding is the creation of new tokens and the purchasing thereof from the treasury at a discount. In contrast, staking enables users to earn a compounding return.