Clear DefinitionsRebasing
2 min read
Pronunciation
[ree-beys-ing]
Analogy
Imagine everyone in a town owns a certain number of 'town shares'. If the town council decides the total number of shares should increase by 10% to reflect growth (a positive rebase), everyone's share count automatically increases by 10% – if you had 100 shares, you now have 110. Your *number* of shares changed, but your *percentage ownership* of the town remains the same. Conversely, if they decrease the total shares (a negative rebase), your share count also goes down proportionally.
Definition
A mechanism used by some cryptocurrencies where the total supply of the token is automatically adjusted (increased or decreased) algorithmically, with the changes applied proportionally to all token holders. This means the number of tokens in each user's wallet changes, but their percentage share of the total supply remains the same. It's often used by algorithmic stablecoins or elastic supply tokens.
Key Points Intro
Rebasing tokens dynamically adjust their circulating supply to influence price or maintain a peg.
Key Points
The token's circulating supply is not fixed but changes algorithmically based on certain conditions (e.g., price relative to a target).
Adjustments (rebases) are applied proportionally to all holders; the number of tokens in a user's wallet changes automatically.
Aims to maintain a stable price (for algorithmic stablecoins) or create specific tokenomics.
Does not change a user's percentage of the total supply.
Example
Ampleforth (AMPL) is a well-known example of a rebasing cryptocurrency. Its supply adjusts daily based on its price relative to a target (e.g., $1). If AMPL is trading above $1, the supply increases (positive rebase). If below $1, the supply decreases (negative rebase). Olympus DAO (OHM) and similar projects also use rebasing or bonding mechanisms that affect supply, though often with more complex dynamics.
Technical Deep Dive
Rebasing is typically implemented via a smart contract that has a function to adjust token balances. This function is called periodically (e.g., daily or every few hours). The contract calculates the supply adjustment needed based on an oracle price feed or other metrics. It then iterates through token holder balances or updates a global scalar that affects individual balances to reflect the new total supply. This means the number of tokens visible in a user's wallet can change without them initiating any transaction.
Security Warning
Rebasing mechanisms can be confusing for users as their token balances can change unexpectedly. The price stability of rebasing stablecoins is not guaranteed and depends on market dynamics and the effectiveness of the algorithm. Understanding the rebase mechanism is crucial before interacting with such tokens.
Caveat
While a user's percentage of the total supply remains constant during a rebase, the *value* of their holdings can still fluctuate significantly based on the token's market price, which the rebase attempts to influence but doesn't directly control.
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