Relative Value Dilution

Relative value dilution is the loss of a user's percentage ownership of a network's total supply due to the issuance of new tokens. In a rebase protocol, this happens whenever the total supply increases, and the user's holdings do not increase at the same rate.

This is distinct from price volatility; it is a change in the user's relative stake in the protocol's ecosystem. For long-term holders, this dilution can significantly impact their influence in governance and their share of future value accrual.

Understanding and accounting for this dilution is critical for sophisticated investors who are concerned with their long-term position in the network. It requires tracking not just the token price, but also the total supply and the user's relative share over time.