In the DeFi (Decentralized Finance) space, rebase describes when a token's total token supply is automatically adjusted on a routine basis. ^{[1] [4]}

Ampleforth (Cryptocurrency) is a cryptocurrency is well known for its use of rebase. AMPL's smart contract design allows the increase and decrease of supply to be automatically executed without any need for a transfer between peers, and without the need for a bank. This supply adjustment operation happens once per day and is called a rebase. ^[7]

These token supply adjustments, called “rebases,” take place per market demand and are done in such a way that users’ proportional holdings ultimately don’t change and thus aren’t diluted.

Rebases are performed per a specific target price, with the idea being that a token’s nominal price will steadily be moved over time toward its target, e.g. $1 USD.

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Price-elastic tokens can be viewed as cousins to stablecoins stablecoins, in that both have price targets. Yet these token classes are fundamentally different. Stablecoins have semi-fixed, governable supplies and are designed to closely track their target prices at all times, while rebases make price-elastic tokens into synthetic commodities with fluctuating values and supplies that gradually stabilize. ^[1]

Ultimately, rebases are designed to be tradable, and thus potentially profitable, events.

However, the nature of rebases means that gains or losses can be compounded when investing in price-elastic tokens.

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Rebases affect many different stakeholders in the cryptocurrency ecosystem.

From holders, to traders, to automated market makers.

Holders are affected by rebases since they change the supply of the token leading to a holder gaining or losing tokens.

While subject to the same ramifications as a holder, the rebase has a unique affect on order books. Rebases cause bids to go stale, no longer reflecting the supply(@ 02:00 UTC).

This exposes bidders to the losing side of arbitrage if not properly managed.

AMMs are better suited than most to adapt to rebases, and adjust their pricing according to their relative supplies of assets.

This makes them a great source of liquidity for the market and attracts impressive fee generating activity.

In this example, let’s say Navin bought 100 XYZ, a hypothetical price-elastic token with a target price of $1, for $100.

Then let’s say buy pressure pushed the price of XYZ up 20% to $1.20 and a rebase pushed the XYZ total supply up by 20%.

This would leave the user with 120 XYZ and an acute portfolio price of $144.

On the flip side, negative rebases (when the XYZ price is below its target) combined with a plunging XYZ market capitalization could lead to compounding losses. ^{[2] [3]}

Ampleforth (Cryptocurrency), Based Money, and Yam (Protocol) are tokens with elastic supply using the "rebase" model. ^[1]

Elastic supply tokens comprise a rising sector of DeFi that is seeing rapid iteration lately.

For some, these projects don’t provide meaningful or productive additions to the current landscape of digital money. For others, price-elastic projects are innovations in cryptocurrency that pave the way to new kinds of finance. ^{[1] [5]}

Price-elastic token projects are attracting a lot of attention in the blockchain and cryptocurrency industry recently, which brings with it greed as well as bad actors. ^[6]