Positive Rebase Dilution

Positive rebase dilution occurs when the supply of a token increases to push the price down toward a target, resulting in individual holdings becoming a smaller percentage of the total supply. While the nominal number of tokens in a user's wallet increases, the market value of each individual token typically drops to compensate for the expanded supply.

If the price does not adjust perfectly, or if the market reacts slowly, users may perceive the increase in tokens as profit, even if their total portfolio value remains unchanged. This creates a psychological effect often exploited in tokenomics design to encourage holding behavior.

However, it also means that unless a user's balance grows faster than the total supply, their relative share of the network's economic value is diluted. It is a critical consideration for liquidity providers who must balance supply expansion against impermanent loss.