How Can a “Rebase” Token’s Non-Standard Behavior Affect Its Use as Collateral?

A rebase token's supply automatically adjusts to maintain a target price, meaning the number of tokens in a user's wallet can increase or decrease overnight. This non-standard behavior is incompatible with most collateral-based DeFi protocols, which assume a static quantity of collateral.

If a rebase occurs, the collateral value in the smart contract may be miscalculated, potentially leading to incorrect liquidations or under-collateralization, making them high-risk and often unusable as standard collateral.