How Can a Derivative Protocol Create a “Wrapped” Version of a Rebase Token to Make It Usable as Collateral?

A derivative protocol can create a "wrapped" version of a rebase token by locking the rebase token in a standard smart contract vault and issuing a new, non-rebasing ERC-20 token (the wrapped version) in return. This wrapped token's supply remains static, making it compatible with all standard DeFi protocols.

The rebase mechanics still occur within the vault, but the accruing or diminishing quantity is managed internally, and the wrapped token's value reflects the changing underlying quantity upon unwrapping.