Base Protocol Elasticity

Base protocol elasticity describes the ability of a protocol to expand or contract its token supply in response to price changes. An elastic protocol adjusts the circulating supply of tokens held by users to influence the price toward a target.

If the price is above the target, the protocol increases the supply by rebasing, which gives users more tokens proportionally. If the price is below the target, it decreases the supply by removing tokens from user wallets.

This approach ensures that the unit price of the token stays near the target, even if the total market capitalization changes. Elastic protocols require precise oracles to track the target price and ensure the rebase occurs at the correct frequency and magnitude.