Elastic supply tokens also called rebase tokens don’t have a fixed token supply. In their case, indicators like demand and rate of the assets determine the supply. Having an elastic supply suggests minting new tokens and eliminating them from circulation.
This process is achieved due to algorithm implementation and the adopted solution is termed rebasing.
The idea was first put forward by crypto enthusiast Ferdinando M. Ametrano, who described the policy in his work titled “Hayek Money: The Cryptocurrency Price Stability Solution” in 2014. Hedge fund manager Robert Sams also issued a paper suggesting the same concept. His work was called “A Note on Cryptocurrency Stabilisation: Seigniorage Shares”.
The primary project built on the adaptable supply idea was the Basis stablecoin pegged to USD. Although the protocol boosted $133 M in funding in 2018, it was closed by the US regulatory agency as the company’s tokens were determined as securities.
However, afterwards the idea was evolved and new kinds of elastic tokens appeared.
How do elastic tokens work?
Tokens with elastic supply operate on a special technique termed rebase. This is an algorithm-based token supply regulation. It’s worth mentioning that during these arrangements customers’ proportional assets eventually aren’t diluted and remain the same.
The goal of rebases is to connect a token with a definite price considering supply and demand. As an instance, let’s view a case when there is a rebase token with the objective to deliver a value of 1 USD. If its price surpasses 1 USD, the algorithm will heighten the existing supply and the cost of a single token will go down. If the cost is under 1 USD, the opposite action takes place. Accordingly, rebases can be positive or negative.
Following a rebase, the quantity of tokens in user wallets modifies accordingly.
At some points, elastic supply tokens have similarities with stablecoins – both of them intend to correspond to the particular price, but the used techniques differ.
- Stablecoins are described as semi-fixed supply currencies that are governed (as they have the option to mint more coins to corresponding demand when being collateralized). In contrast, rebase tokens are actively adapting supply to reach a non-collateralized peg rate.
- In the case of fiat collateralized stablecoins (like USDT), there is a trust issue as users need to trust that the other side really holds the stocks it states. So, there is counterparty risk. As for elastic tokens, their work is based on algorithms.
- Stable coins don’t intend to bring income or trade like stocks. Likewise, elastic tokens are a store of value. Nevertheless, they can bring income given that when the market cap grows, users acquire rebases. To accomplish this, the rebase technique issues recently minted currencies to users, without the dilution of their possessions.
At any rate, it’s essential to be alert of the risks that investing in tokens with not constant supply has. Rebases expend holders’ capital when the rate is growing, but also cause more losses on the way down.
Symmetric and asymmetric rebases
Symmetric rebase also called standard rebase suggests changing the number of tokens in the customers’ wallets equally when an adjustment is managed. As for asymmetric (non-standard) rebase it doesn’t impact all wallets in the same way. This means users can volunteer to reduce their token supply. By doing so, they will acquire higher returns in case of a positive rebase.
Originally, elastic supply tokens mainly used a symmetric rebase standard. Afterwards, aiming to reduce the supply contraction, the asymmetric rebase model appeared.
Anyway, no matter what structure of rebasing is adopted, elastic supply tokens should keep relative stability, or they will fail to perform their basic function.
Examples of elastic supply tokens
An important thing to note about elastic tokens is that their value can be pegged not only to fiat currencies but also to all kinds of commodities and stock indexes, such as gold, oil, Dow Jones Industrial Average, Bitcoin, etc.
The creator of the token chooses the collateral and sums up an additional value.
Below are the descriptions of some common rebase tokens currently.
The primary elastic supply token after Basis was closed is Ampleforth (AMPL). It is an ERC20 token. Among all the rebase tokens, AMPL has the biggest market cap (over $232 M at the moment).
The token was found by a proficient product manager and businessman Evan Kuo in 2019. Its initial token offering was managed on Bitfinex’s Tokenix network and had a huge success. Originally launched with a flowing supply of 50 M tokens, it boosted $4.9 M just in 15 seconds.
AMPL a non-collateralized synthetic commodity.
Ampleforth uses Chainlink price oracles to reach the target price. Oracles aim to link external prices to smart contracts. In AMPL’s case, it is $1.009. This corresponds to the U.S. dollar’s 2019 Consumer Price Index rate. Rebases are implemented every day at 2 am UTC.
AMPL is traded onKuCoin, UniSwap, Bancor, and other exchanges.
The elastic supply token RMPL is Ampleforth’s fork. There is no fixed timeframe for the token’s rebases. The adjustments happen in terms of 48-hour intervals, averagely every 24 hours. The price of RMPL is pegged to $1 USD. In a case when the token’s rate is between $0.95 and $1.05, the algorithm responds.
The team standing behind RMPL is unknown.
This is the preliminary elastic supply token the Binance chain integrated. Ditto was released on PancakeSwap in December 2020. It is pegged to $1 USD.
Ditto’s rebase is set to four hours but can occur up to 6 times a day. The creator of the token is unknown.
The major part of elastic supply tokens is linked to fiat. The specialty of Digg is that it mimics the price of Bitcoin. So, the token is non-custodial synthetic Bitcoin on Ethereum’s blockchain.
Digg went live on January 22, 2021. It is governed by the open-source, decentralized automated organization Badger founded by Chris Spadafora. Digg is in the early stages.
Currently, it is possible to trade the token on SushiSwap, CoinMarketCap, 1inch Exchange, and other markets.
Elastic supply token Base’s cost is pegged at a ratio of 1:1 trillion to the entire market cap of all crypto assets. This means if a total crypt market cap is $1.89 T, the cost of the BASE token is $1.89.
When the two don’t match perfectly, Base must adapt to reach a state of equilibrium.
The protocol founded by Nick Ravanbakhsh, Dylan Senter is powered by Ethereum and uses a Chainlink oracle. The public sale of the token was held on November 30, 2020.
The creation of elastic supply tokens is one of the breakthroughs in the DeFi sector. Although these tokens are in the observational phase, many think they will be the future of stablecoins. The reason to think so is that elastic supply tokens’ implementation is achieved via the algorithm and the supply altering option unlocks a number of options.
Rebase tokens are one of the most rapidly advancing spheres of DeFi. Along with this, their popularity is growing too.