The supply of a cryptocurrency known as a "elastic supply token," sometimes referred to as a "rebasing token" or a "reflexive token," changes or "rebases" dynamically based on predetermined rules or algorithms. A token with elastic supply aims to keep its price or purchasing power steady over time.
In contrast to typical cryptocurrencies like Bitcoin, which have set supplies and a finite number of coins that will ever exist, elastic supply tokens have a variable supply that can increase or decrease depending on specific circumstances. Regularly, sometimes daily or even more frequently, the supply changes are initiated.
The Rebasing Process And Operations
Price-based Rebase: Changes in the token's price cause #supply changes to be made. The token supply grows when the price of the token exceeds a predetermined level, and it decreases when the price drops below that barrier. This expansion and contraction work to push the token price in the direction of a specific goal.
Supply Expansion: Tokens are issued and distributed proportionately among holders when the price of the token reaches the threshold, thereby increasing the supply. Positive rebase is another name for this procedure.
Supply Reduction: On the other hand, when the price of the token drops below the cutoff, a portion of the tokens are withdrawn from holders' accounts to lower the supply. It's common to call this procedure a negative rebase.
Goals Of Elastic Supply Tokens
By altering the token supply in response to market demand, an elastic supply token seeks to preserve price stability or a certain price target. The supply changes are intended to encourage either purchasing or selling pressure in order to achieve equilibrium and reduce price volatility.
One example of a token with an elastic supply that uses a rebasing technique to maintain price stability is #Ampleforth (#AMPL). Before interacting with elastic supply tokens, careful study and research are essential because they can be complicated and have their own issues and hazards.