What is rebase?

Or in other words: elastic supply

Rebase is an increase or decrease in the total supply of a given token across all holding pools and all wallets. This is done in order to adjust the token price, without affecting the value of anyone’s share of coins. This can be beneficial as the chart will always look healthy regardless of dips and we can be on the top gainers parts on platforms due to the illusion of a rise in price floor.

According to Binance Academy

Elastic supply tokens have a changing circulating supply. The idea is that instead of price volatility, what changes is the token supply through events called rebases.

Imagine if the Bitcoin protocol could adjust how much bitcoin is in user wallets to achieve a target price. You have 1 BTC today. You wake up tomorrow, and now you have 2 BTC, but they’re each worth half of what they were yesterday. That’s how a rebase mechanism works.

The risks of elastic supply tokens

Elastic supply tokens are highly risky and very dangerous investments. You should only invest in them if you completely understand what you’re doing. Remember, looking at price charts isn’t going to be all that helpful, since the amount of tokens you hold will change after rebases occur.

Sure, this can amplify your gains to the upside, but it can also amplify your losses. If rebases occur while the token price is going down, you not only lose money from the token price going down, you’ll also own less and less tokens after each rebase!

Since they’re quite tricky to understand, investing in rebasing tokens will likely result in a loss for most traders. Only invest in elastic supply tokens if you can fully grasp the mechanisms behind them. Otherwise, you’re not in control of your investment and won’t be able to make informed decisions.

source: https://academy.binance.com/