Definition of rebase tokens

Rebase tokens (Rebase Token), also known as Elastic Tokens or Elastic Supply Tokens, are a type of special cryptocurrency. These tokens share a common feature—an “elastic supply mechanism (Rebase Mechanism),” meaning the circulating supply of the token is automatically and dynamically adjusted based on the token’s price (or the price of the asset it is pegged to). This mechanism is implemented through the token’s smart contracts, keeping the ratio between a user’s token holdings and the total supply so as to stabilize the real value of the user’s position.

How rebase tokens work

Different rebase tokens can have different elastic supply mechanism designs, but overall they follow the same logic: reduce supply when the coin price falls, 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. AMPL’s circulating supply adjusts every 24 hours—that is, one Rebase every 24 hours—with the goal of keeping the price around $1.

It’s the same idea as dilution from money being issued: when the AMPL price exceeds $1, the circulating supply amount will expand during the Rebase period, thereby reducing the value of each AMPL token. Conversely, if the AMPL price falls below $1, the supply amount will contract during the Rebase period, thereby increasing the value of each token.

And the results of the Rebase will spread to all Ampleforth wallets, where their wallet balances will be adjusted proportionally.

Worth noting is that AMPL holders hold a “fixed proportion of the total AMPL circulating supply,” not a fixed number of AMPL tokens. Therefore, no matter how Rebase happens, AMPL holders will keep the same percentage of token supply. From a holder’s perspective, the number of AMPL tokens in their wallet will change every 24 hours, but due to the rebase mechanism, the total value of their AMPL wallet does not change.

Here’s a simple example to help you understand further:

Assume there are currently 100 AMPL tokens in circulation. You have 10 tokens in your wallet, which is 10% of the total circulating supply. Now imagine that, over a short period of time, market demand suddenly increases. AMPL could become scarce in the market. We can assume its price doubles—from $1 to $2. In this case, during the next Rebase, the network will increase the supply by 100 AMPL tokens. At the same time, the amount of AMPL in your wallet will change from 10 tokens to (100+100)*10%=20 tokens, but the actual value of your holdings in theory does not change.

Although most cryptocurrencies have changes in circulating supply, they are fundamentally different from rebase tokens. For example, Bitcoin’s circulating supply is determined by a fixed algorithm in advance, while the circulating supply of rebase tokens adjusts dynamically based on the market price.

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 wanted to enter the rebase token space. The project issued LEASH as a rebase token, pegged to DOGE’s price at a ratio of 1/1000. Specifically, if the price of dogecoin is $0.50, the price of LEASH would be $500. This means participants in the SHIB ecosystem can benefit from DOGE price movements through LEASH without directly investing in DOGE, thereby attracting more users to join the ecosystem.

The SHIB team ultimately decided to abandon LEASH’s rebase token attribute, and the plan to “drain” the dogecoin (LEASH) has also been announced as bankrupt. For more about the SHIB ecosystem, see: Shiba Inu (SHIB)—striving to shed the Meme label of memecoins.

At present, there are still relatively few participants in the rebase token space. Besides LEASH, which was abandoned mid-course, some former top rebase tokens—such as Base Protocol’s BASE and Yam Finance’s YAM—have also not developed well. Why is that?

Limitations of rebase tokens

For users, the main benefit of holding rebase tokens is getting stability of value in a highly volatile crypto market. It’s a property similar to that of stablecoins, which is very attractive to people who need to use cryptocurrency as a means of exchange and as a store of value.

It may seem appealing at first glance, but from another perspective—if what you’re looking for is value stability, why not simply choose USDT instead?

LEASH seems to provide another benefit of holding rebase tokens: indirectly earning from price movements of another asset.

Let’s not even get into which of the two meme coins SHIB and DOGE has better liquidity or a wider audience—if users want DOGE-like returns, why not just buy DOGE directly?

In short, the biggest limitation of rebase tokens is that it uses a seemingly clever new approach to offer a choice that users don’t actually need. And because it’s so “clever,” it makes the concept less friendly and less approachable for users, further limiting its growth.