How Does a Rebase Mechanism Concretely Adjust the Token Supply in User Wallets?

A rebase mechanism works through a smart contract function that is called periodically, typically daily. This function checks the current market price of the stablecoin against its target peg (e.g.

$1). If the price is above the peg, the smart contract automatically increases the token balance in every holder's wallet.

If the price is below the peg, it decreases the balance. This supply adjustment happens universally and proportionally, so each holder's share of the total supply remains constant, even as the number of tokens they hold changes.