What is a forked token?

Forked token definition.

Definition of Rebase Token

A Rebase Token, also known as an Elastic Token or Elastic Supply Token, is a type of cryptocurrency with a unique characteristic – the “Rebase Mechanism”. This mechanism automatically adjusts the circulating supply of the token based on the fluctuation of the token price or the price of the underlying asset it is pegged to. This mechanism is implemented through the smart contract of the token, ensuring that the value of users’ holdings remains stable by maintaining a certain ratio with the total supply.

Operation Mechanism of Rebase Token

Different Rebase Tokens have different designs for their elastic supply mechanism, but they generally follow the same logic: decrease supply when the price falls and increase supply when the price rises.

Take Ampleforth as an example.

Ampleforth (AMPL) is a decentralized stablecoin project on Ethereum and one of the earliest projects to implement the Rebase mechanism. The circulating supply of AMPL tokens is adjusted once every 24 hours, which is referred to as a Rebase, with the aim of maintaining the price at $1.

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Similar to how currency issuance dilutes the price of assets, when the price of AMPL exceeds $1, the circulating supply during Rebase will expand, thereby reducing the value of each AMPL token. On the other hand, if the price of AMPL falls below $1, the supply will decrease during Rebase, thereby increasing the value of each token.

The result of Rebase will be propagated to all Ampleforth wallets, and the wallet balances will be adjusted proportionally.

It is worth noting that holders of AMPL hold a “fixed proportion of the total circulating supply of AMPL” rather than a fixed quantity of AMPL tokens. Therefore, regardless of the Rebase, AMPL holders will maintain the same proportion of token supply. From the perspective of holders, the quantity of AMPL in their wallets will change every 24 hours, but due to the Rebase mechanism, the total value of their AMPL wallets remains unchanged.

Let’s use a simple example to further understand:

Suppose there are currently 100 AMPL tokens in circulation, and you have 10 tokens in your wallet, which accounts for 10% of the total circulating supply. Now imagine that there is a sudden increase in market demand, causing the price of AMPL to double from $1 to $2. In this case, the network will increase the supply of AMPL by 100 tokens during the next Rebase, and the quantity of AMPL in your wallet will also increase from 10 tokens to (100+100)*10% = 20 tokens. However, the actual value of your holdings theoretically remains unchanged.

While most cryptocurrencies have changes in their circulating supply, they differ fundamentally from Rebase Tokens. For example, the circulating supply of Bitcoin is predetermined by a fixed algorithm, whereas the circulating supply of Rebase Tokens is dynamically adjusted based on market prices.

For more information about the circulating supply of Bitcoin, please refer to the entry: What is Bitcoin Halving.

The Shiba Inu project, the meme coin project, also once wanted to enter the field of rebasing tokens. The project once launched LEASH as a rebasing token, anchoring the price of Dogecoin (DOGE) at a ratio of 1/1000. Specifically, if the price of Dogecoin is $0.50, the price of LEASH will be $500. This means that participants in the SHIB ecosystem can benefit from the price fluctuations of Dogecoin through LEASH, without directly investing in Dogecoin, in order to attract more users to join the ecosystem.

The SHIB team eventually decided to abandon the rebasing token attribute of LEASH, and the plan to suck the blood of Dogecoin was also declared bankrupt. For more information about the SHIB ecosystem, please refer to: What is Shiba Inu (SHIB) – A Memecoin Striving to Escape the Meme Label.

Currently, there are still relatively few participants in the field of rebasing tokens. In addition to the abandoned LEASH, some former leading rebasing tokens such as BASE from Base Protocol and YAM from Yam Finance also have not developed optimistically—why?

Limitations of Rebasing Tokens

For users, the main benefit of holding rebasing tokens is to obtain stability in value in a highly volatile cryptocurrency market. This is a property similar to stablecoins and is attractive to people who need to use cryptocurrencies as a medium of exchange and a store of value.

It seems appealing, but from another perspective, if users are pursuing stability in value, why not simply choose USDT?

LEASH seems to offer another benefit of holding rebasing tokens: indirect profit from the price fluctuations of another asset.

Putting aside which one, SHIB or DOGE, has more liquidity and a wider audience—since users want to profit from Dogecoin, why not simply buy Dogecoin directly?

In conclusion, the biggest limitation of rebasing tokens is that it offers a seemingly innovative new way to provide a choice that users do not necessarily need. And because of its “innovativeness,” it makes it less user-friendly and less accessible in terms of conceptual understanding, further limiting its development.

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