Define the Term “Rebase” and Its Function in Some Stablecoin Designs.
A rebase is a mechanism that automatically adjusts the supply of a stablecoin in users’ wallets to maintain a target price, typically $1. If the price is above $1, the supply increases (positive rebase).
If below $1, the supply decreases (negative rebase). The goal is to correct the price without user intervention, but negative rebases can trigger panic selling.
Glossar
Rebase Token
Algorithm ⎊ Rebase tokens operate through a dynamic supply mechanism, adjusting the circulating token quantity based on a predetermined algorithmic function, often tied to price fluctuations or time-based schedules.
Elastic Supply
Supply ⎊ The concept of elastic supply, within cryptocurrency derivatives and financial engineering, describes a responsiveness of the available asset quantity to price fluctuations, a characteristic particularly relevant in nascent markets.
Rebase
Mechanism ⎊ Rebase operations, within cryptocurrency and derivatives, represent a revision of the blockchain’s history, altering the base from which future blocks are built; this differs fundamentally from a hard fork, maintaining chain continuity while rewriting commit history.
Negative Rebase
Mechanism ⎊ A negative rebase, within cryptocurrency and derivatives, represents a contractual obligation altering the total supply of an asset, typically reducing holdings proportionally across all wallets.