Rebase Tokens
Web3 / defi
Rebase tokens are cryptocurrencies with elastic supply mechanisms that automatically adjust the number of tokens held in user wallets to maintain a target price or achieve specific protocol objectives. Rather than changing individual token prices through market forces alone, rebase tokens modify token balances across all holders proportionally at predetermined intervals. When the token trades above its target price, the supply increases (positive rebase), diluting each holder's balance but maintaining proportional ownership. When trading below target, the supply contracts (negative rebase), concentrating value among remaining holders. This mechanism creates interesting monetary dynamics distinct from traditional fixed-supply cryptocurrencies. Example: Ampleforth (AMPL) is a rebase token that automatically adjusts its supply daily to maintain a price target of $1 USD, with all holder balances changing proportionally regardless of market conditions. Why it matters for DeFi: Rebase tokens introduce unique collateral dynamics and risk considerations in lending protocols, as borrower positions may be adversely affected by negative rebases. They also create novel yield farming opportunities and require specialized risk management strategies within DeFi ecosystems.
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