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One of the challenges of investing in or trading cryptocurrencies is the issue of supply and demand. In contrast to fiat currencies, the amount of supply is regulated by the monetary authority. the amount of supply of cryptocurrency will not be controlled by anyone (depending on how much is mined) while demand fluctuates
As a result, the prices of these instruments are highly volatile and there is a possibility that the price of cryptocurrencies will drop sharply. according to the law of supply and demand If supply increases while demand remains The price of a good or asset will decrease. Vice versa, if supply decreases while demand remains. The price of the asset will increase.
Cryptocurrency developer Try to overcome this in various ways ranging from limiting the number of coins that can be mined. The same is true of Bitcoin, or its “dependency” on cryptocurrencies. With real-world assets such as stablecoins, one of these methods is to create tokens that belong to the flexible or rebase token category.
Definition of Rebase Token (Elastic Token)
Rebase tokens, or flexible tokens, are crypto assets whose supply is modified by partially burning or “printing” new tokens to stabilize market prices. This allows the price of these types of tokens in the market to remain volatile. But it is comparatively more stable compared to other tokens.
An example of this type of crypto token is Ampleforth (AMPL). Every 24 hours, the algorithm behind this crypto asset adjusts the amount of AMPL in circulation by burning part of the AMPL, or “printing it.” New AMPL according to AMPL’s prevailing procurement conditions.
How does the Rebase token work?
To explain how this type of token works. Let’s look at an example of how Ampleforth (AMPL) works. Ampleforth (AMPL) is not. stable coinBut this token targets a price roughly equal to $1.
If one day AMPL price rises above 1$ due to limited supply and increased demand, the AMPL algorithm will print new tokens automatically. Therefore, the price fell again to approach 1$. The token algorithm automatically burns existing AMPLs in the market. to bring the value closer to $1 again
From a user point of view, let’s say Dewiq has 1 unit of AMPL that is worth 1$. When the AMPL price touches 2$, the algorithm retypes the AMPL so that the AMPL owned by Dewiq is reduced from 1 unit to 0.5 units. Therefore, the value remains at 1$. This can happen because now 1 AMPL is equivalent to 2$. On the other hand, if the AMPL value drops to 0.5$, the algorithm will automatically increase the supply to return the value. came equal to 1$
Pros and Cons of Rebase Tokens
The advantage of rebase tokens lies in the price stability of this crypto-asset. in terms of price volatility This makes rebase tokens relatively safe compared to other crypto assets. Still, that doesn’t mean that this crypto asset is without drawbacks.
The downside is that, according to some sources, The concept of rebase tokens is really good but due to burning process and supply increase. This makes evaluating rebase tokens quite difficult using accounting methods. This also makes the price movement of this crypto asset difficult to predict. Not to mention the cost of fuel. besides that Many say this type of token is still experimental.
Difference Between Rebase Tokens and Stablecoins
Even though they have the same idea. which is to make the price of crypto more stable at a fixed price, but rebase tokens and stablecoins are two different things. As the name suggests, rebase or elastic tokens are crypto assets in the form of tokens, while stablecoins are in the form of coins.
According to the article Tokens vs. CoinsA token is a digital asset built on a blockchain that belongs to other digital assets, including coins. A coin is a crypto asset built on its own blockchain.
In addition, the mechanisms for stabilizing the prices of these two assets are also different. in rebase tokens Price stabilization is carried out by burning and printing crypto assets. And no asset is used as a “reserve”. Stablecoins are stabilized by selling. Underlying Assets under the coin
For example, there is a stablecoin that is based on the dollar. Underlying Assets Lots of cash and government bonds. If the value of the dollar decreases The price of this coin will also decrease. to maintain stability, not to fall too hard Developers then sell bonds. Therefore, the number of dollars in the market has decreased and the price has increased again.
An example of a Rebase token
In addition to Ampleforth, here are some other examples. of rebase tokens:
- Olympus (OHM)Olympus is currently the largest flexible token with a market capitalization of $262,532,711.
- measure DAO. The second largest flexible token is TempleDAO, valued at $59,894,547.
- snow bank While Ampleforth is in third place with a market capitalization of $37,530,305, Snowbank is the fourth flexible token with a market capitalization of $34,945,438.
- DAO climate The 5th highest market capitalization rebase token is Klima, which has a market capitalization of $16,127,095.
Is Rebase Token a good investment?
If you see the pros and cons above. In conclusion, rebase tokens are high-risk investment tools and are not suitable for beginners because:
- There are no underlying assets like Stablecoins.
- Burning and creating new tokens will stabilize the price. But at the same time, it makes the price of these crypto assets harder to predict and record.
- There is an issue with oil fees which may occur from burning and generating new tokens.
- It is possible that this type of token is still experimental.
Basically Each type of digital asset has its own innovations that aim to improve the cryptocurrency ecosystem itself and stand out from other types of digital assets. these Because each type of token or coin has different characteristics and structure.
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