Rebase Protocols

Rebase protocols are algorithmic monetary systems that automatically adjust the total circulating supply of a token in response to price fluctuations. The goal is to move the token price toward a specific target, often pegged to a stable asset like the US Dollar, without requiring traditional collateral.

When the market price exceeds the target, the protocol increases the supply by distributing new tokens to holders, a process known as a positive rebase. Conversely, if the price falls below the target, the protocol reduces the supply by proportionally removing tokens from holders' wallets, known as a negative rebase.

This mechanism relies on the assumption that market participants will adjust their behavior based on the changing supply, thereby influencing the price back toward the target. It is a form of elastic supply policy implemented directly at the smart contract level.

These protocols are distinct from traditional stablecoins, which typically maintain pegs through collateral reserves or debt positions. Rebase tokens are often used in decentralized finance as a synthetic asset class that attempts to maintain purchasing power parity.