Rebase is a mechanism used in certain decentralized finance (DeFi) tokens to adjust the token’s circulating supply and potentially influence its price.

Rebase is typically employed in elastic supply tokens, where the token’s supply expands or contracts automatically based on predetermined rules triggered by the token’s price.

This mechanism aims to maintain the token’s target price or stabilize its value by adjusting the circulating supply.
When the token price moves away from the desired target price, the rebase mechanism intervenes, increasing or decreasing the token supply across all wallets proportionally.

For instance, if the token’s price is consistently below the target price, a positive rebase might occur, increasing the token supply held by each holder. Conversely, a negative rebase might decrease the token supply if the price consistently exceeds the target.

Rebasing mechanisms are designed to encourage stability in token price and supply. However, they can also impact investors and traders by altering the number of tokens held, sometimes leading to dilution or concentration of holdings.

Investors in rebase tokens should carefully consider the potential risks and benefits associated with the rebase mechanism, as it can significantly impact the value and dynamics of their holdings in the volatile cryptocurrency market.