An Overview of Rebase Tokens and Their Limitations
Currently, there are still relatively few participants in the field of base tokens. Apart from the abandoned LEASH, some previously prominent base tokens such as Base Protocol's BASE and Yam Finance's YAM have also not developed optimistically.Original Title: What is Rebase Token
Original Author: TokenInsight
Definition of Rebase Token
Rebase Token, also known as Elastic Token or Elastic Supply Token, is a special type of cryptocurrency. These tokens share a common characteristic—the "Rebase Mechanism," which means that the circulating supply of the token is automatically and dynamically adjusted based on fluctuations in the token price (or the price of the pegged asset). This mechanism is implemented through the token's smart contract, maintaining a certain ratio between the user's holdings and the total supply to stabilize the actual value of the user's holdings.
Operation Mechanism of Rebase Token
Different Rebase Tokens have different designs for their elastic supply mechanisms, but overall they follow the same logic: reduce supply when the price drops and increase supply when the price rises.
Take Ampleforth as an example.
Ampleforth (AMPL) is a decentralized stablecoin project on Ethereum and one of the earliest projects to apply the Rebase mechanism. The circulating supply of AMPL tokens is adjusted every 24 hours—this is known as a Rebase—aiming to keep the price around $1.
Similar to how currency issuance dilutes asset prices, when the price of AMPL exceeds $1, the circulating supply will expand during the Rebase period, thereby reducing the value of each AMPL token; conversely, if the price of AMPL drops below $1, the supply will decrease during the Rebase period, increasing the value of each token.
The result of the Rebase will propagate to all Ampleforth wallets, and their wallet balances will be adjusted proportionally.
It is important to note that AMPL holders possess a "fixed proportion of the total circulating supply of AMPL," rather than a fixed number of AMPL tokens. Therefore, regardless of how the Rebase occurs, AMPL holders will maintain the same proportion of token supply. From the holder's perspective, the number of AMPL tokens in their wallet will change every 24 hours; however, due to the Rebase mechanism, the total value of their AMPL wallet remains unchanged.
To further understand, here’s a simple example:
Suppose there are currently 100 AMPL tokens in circulation, and you have 10 tokens in your wallet, which means you hold 10% of the total circulating supply. Imagine that when market demand suddenly increases in a short period, AMPL becomes scarce in the market, and we can assume its price doubles from $1 to $2. In this case, the network will increase the supply of AMPL by 100 tokens during the next Rebase, and your wallet's AMPL quantity will change from 10 tokens to (100+100)*10% = 20 tokens, but the actual value of your holdings theoretically does not change.
While most cryptocurrencies experience fluctuations in circulating supply, they are fundamentally different from Rebase Tokens. For example, Bitcoin's circulating supply is predetermined by a fixed algorithm, while the circulating supply of Rebase Tokens is dynamically adjusted based on market prices.
For more information about Bitcoin's circulating supply, please refer to the entry: What is Bitcoin Halving
The meme coin project Shiba Inu also once attempted to venture into the Rebase Token space. The project launched LEASH as a Rebase Token, pegged 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 could benefit from the price fluctuations of Dogecoin through LEASH without directly investing in Dogecoin, thereby attracting more users to join the ecosystem.
The SHIB team ultimately decided to abandon the Rebase Token attribute of LEASH, and the plan to siphon off Dogecoin was declared a failure. For more information about the SHIB ecosystem, please refer to: What is Shiba Inu (SHIB)------A Memecoin Striving to Shed the Meme Label
Currently, there are still relatively few participants in the Rebase Token space. Aside from the abandoned LEASH, some previously prominent Rebase Tokens like Base Protocol's BASE and Yam Finance's YAM have also not developed optimally—why is that?
Limitations of Rebase Tokens
For users, the main benefit of holding Rebase Tokens is the stability of value in a highly volatile cryptocurrency market. This is a property similar to stablecoins, which is very attractive for those who need to use cryptocurrencies as a medium of exchange or a store of value.
It seems appealing at first glance, but from another perspective, if users are seeking value stability, why not directly choose USDT?
LEASH appears to offer another benefit of holding Rebase Tokens: indirectly gaining profits from the price fluctuations of another asset.
Setting aside which of the two meme coins, SHIB or DOGE, has better liquidity or a broader audience—if users want the benefits of Dogecoin, why not just buy Dogecoin directly?
In summary, the biggest limitation of Rebase Tokens is that they offer a seemingly innovative new way to provide a choice that users do not need. Moreover, due to its "innovative" nature, it makes the concept less user-friendly and approachable, further limiting its development.
