Rebasing Protocols
Rebasing protocols are a class of tokens where the circulating supply is adjusted periodically through a smart contract, known as a rebase. This process automatically increases or decreases the number of tokens in every holder's wallet based on the protocol's price target.
If the price is above the target, supply expands, and if it is below, supply contracts. The primary goal is to maintain a stable price relative to an index or fiat currency while allowing the token to remain liquid.
Because the rebase affects all holders proportionally, the percentage of the total supply owned by each user remains the same. This creates a unique trading dynamic where price action is decoupled from total token balance changes, often leading to complex psychological effects on traders.