What is a Rebase Token?

Rebase tokens are cryptocurrencies with elastic supply mechanisms that automatically adjust the total token supply in response to price fluctuations, with the goal of maintaining a target price or gradually appreciating value by algorithmically increasing or decreasing the number of tokens in every holder's wallet proportionally.

Unlike fixed-supply cryptocurrencies where price is determined solely by market demand, rebase tokens implement periodic supply adjustments (rebases) that expand supply when price exceeds the target (positive rebase) or contract supply when price falls below target (negative rebase), creating a dynamic where the quantity of tokens changes but each holder's percentage ownership of the network remains constant.

This elastic supply model creates unique economic properties where price stability or predetermined growth trajectories can be targeted, though the psychological impact of seeing token quantities change in wallets has created confusion for users accustomed to fixed-supply models, leading to various user interface approaches that display both quantity and share of total supply.

Rebase tokens have been implemented with different objectives, including stablecoins attempting to maintain parity with fiat currencies, appreciation-focused tokens designed to steadily increase in value through positive rebases, and experimental economic models testing novel approaches to tokenomics that aren't possible with traditional fixed-supply cryptocurrencies.

While innovative, rebase mechanisms have faced challenges including complex tax implications, integration difficulties with DeFi protocols not designed for changing balances, potential for market manipulation around rebase events, and questions about long-term sustainability, leading to ongoing experimentation with hybrid models that combine rebase elements with more traditional tokenomic designs to address these limitations.