A rebase, or elastic, token is a cryptocurrency whose supply is algorithmically adjusted in order to control its price. Similar to stablecoins, rebase tokens are usually pegged to another asset. But instead of using reserves to maintain the peg, rebase tokens automatically burn tokens in circulation or mint new tokens.
The supply of a rebase token can be highly volatile, but its price tends to remain steady depending on which asset's price it’s tracking.
The code behind every cryptocurrency specifies rules for the coin’s supply, meaning all the ways coins can be created (minted) or destroyed (burned). But it is uncommon to design those rules with a specific price in mind.
For example, new bitcoin is created when miners successfully validate recent transactions. There is no other way to create bitcoin and there is no way to destroy the coins. Bitcoin is created in this way to incentivize mining and control the issuance of new tokens entering circulation, not to control the bitcoin price. Therefore, bitcoin isn't a rebase token.
Ampleforth (AMPL) is an example of a rebase token. Every 24 hours, the supply of the token is adjusted with the aim of keeping its price close to $1.
If AMPL’s price rises by more than a few cents, then every wallet that holds AMPL is given extra tokens in proportion to its existing holdings. That means everyone still owns the same percentage of all the AMPL in existence. With more tokens going around, fundamental economic forces will tend to drive its price back down toward the target. On the other hand, when the price falls below a certain threshold, the opposite happens as tokens are proportionately removed from holders' wallets.
The point is that each AMPL token you own will still be worth roughly $1, while the total value of all the AMPL tokens you own can still fluctuate wildly. Other tokens like RMPL and based money (BASED) have aimed to improve on AMPL protocol while preserving its core appeal.
A token from the Shiba Inu ecosystem named dogekiller (LEASH) was originally released as a rebase token that tracked the price of dogecoin (DOGE) at a ratio of 1/1000th – meaning if the price of dogecoin was $0.50, Doge Killer's token price would be $500. This meant that Shiba Inu investors could benefit from the price movements of dogecoin without having to directly invest in the token; drawing more users to the ecosystem.
Eventually, however, LEASH tokens were “unleashed” and now no longer track dogecoin’s price. Instead, it now operates as a store-of-value coin whose price is dictated by supply and demand like a vast majority of other cryptocurrencies.