Rebase token meaning, otherwise known as elastic supply tokens, work in a way that the circulating supply expands or contracts due to the changes in token price. This increase or decrease in supply works with a mechanism called rebasing. When a rebase occurs, the supply of the token is increased or decreased algorithmically, based on the current price of each token.
The rebasing mechanism adjusts the token circulating supply periodically. Let’s say we have an elastic supply token that aims to achieve a value of 1 USD. If the price is above 1 USD, the rebase increases the current supply, reducing the value of each token. Conversely, if the price is below 1 USD, the rebase will decrease the supply, making each token worth more.
The amount of tokens in user wallets changes if a rebase occurs. Let’s say we have some token that targets a price of 1 USD. You have 100 of them safely sitting in your hardware wallet. Let’s say the price goes below 1 USD. After the rebase occurs, you’ll have only 96 of them in your wallet, but at the same time, each will be worth proportionally more than before the rebase.
Even though the amount of tokens or coins that you are holding may change, the total value of them does not change, as each token’s value changes according to the market rate. Some examples of rebase tokens are Ampleforth and Yam Finance among many others.
Risks of rebase tokens
Elastic supply tokens are highly risky and very dangerous investments. You are advised to only invest in them if you completely understand what you’re doing.
While this can maximise your gains to the upside, it can also amplify your losses. If rebases occur while the token price is going down, you not only lose money from the token price going down, you’ll also own an increasingly fewer number of tokens after each rebase. Rebase tokens are a tricky concept to understand, and most traders will experience losses investing in such tokens.
In Conclusion
Rebase token meaning is a token that can change its circulating supply rather than its price. Such a mechanism is difficult to understand, and it is not advisable for traders with no prior knowledge to trade in this area.
