Top Rebase Tokens Coins by Market Cap

What is a Rebase Token? 

A Rebase Token is a cryptocurrency with an algorithmically adjusted supply that controls its price. Just like stablecoins, a rebase or elastic token is typically pegged to a different asset. However, rather than using reserves to ensure the peg, rebase tokens burn circulating tokens, or mint new tokens automatically. Rebase tokens have a highly volatile supply, but their price usually stays steady based on the particular assets' price they track. 

How Does Rebase Tokens Work?

The idea with rebase tokens is that rather than price volatility, token supply is what changes via events termed rebases. Think of it this way. The rebase mechanism works by adjusting the amount of tokens in your wallet to achieve a threshold price. So if you had a particular number of tokens and there is a price increase, you would have doubled the number of tokens you had previously. However, each of the tokens would now be worth half of what they were before the price increase.  

So what is a practical example of a rebase token? Ampleforth (AMPL) is a rebase token. Every day, the supply of Ampleforth is adjusted for the purpose of maintaining its price near $1. Whenever AMPL's price increases over a couple of cents, every wallet holding AMPL receives additional tokens in proportionate to the current holdings. This means that all holders of the token would still own the same percentage of AMPL in existence despite the increase. With an increase in the token and circulation, fundamental economic forces will drive the price back down to the target. Alternatively, when the token price drops below a particular threshold, the opposite occurs as tokens are removed from holders' wallets in proportion to their existing holdings. The idea is that every AMPL token that you hold would still be worth approximately $1 but the overall value of every AMPL token you hold may still fluctuate without control.

The Risks of Rebase Tokens 

Rebase or elastic supply tokens are very risky investments. You only want to invest in this kind of token if you are entirely certain of what you are doing. Keep in mind that studying the price charts won't be that helpful because the number of tokens the user holds changes after a rebase. Granted, rebase tokens have the potential of amplifying your profits. However they can also amplify your losses. When rebases happen while the token price is dropping, users will lose money from the price drop and they will also own fewer tokens after every rebase. 

Because rebase tokens are very difficult to understand for most investors, investing in tokens with elastic supply potentially results in a loss for most people. That said, rebase tokens are certainly one of the prime innovations to keep an eye on in the DeFi space. But the crypto space is yet to see if these tokens with an elastic supply are just a passing fad or tokens that will gain traction and create their own niche.