Rebase Tokens or are cryptocurrencies that maintain their value by increasing or decreasing the total supply of coins in the market. Rebase tokens address the key limiting factors of both US Dollars and Bitcoin. They have stablecoin like properties and maintain their value over time. However, there are also concerns regarding their safety and reliability. We will also gauge if they have future value.
What are Rebase Tokens?
Rebase Tokens are those cryptocurrencies that control their supply to maintain a fixed monetary value over time. They are very similar to stablecoins but do not use any backing. They are a unique kind of tokens because their value is totally controlled by the economics of demand and supply. If the token price falls in value, then a proportionate amount of tokens are removed from the total supply, which then leads to recovery in price. Similarly, when the price increases, more tokens are supplied in the market to keep the prices at a constant level.
How do they work?
How does it work?
Rebase Tokens work on the principle of Rebase Mechanism. Their value is completely dependent on the laws of demand and supply. Price rise is caused by Greater demand which is controlled by additional token supply. Similarly, falling prices are controlled by removing supply from the market. The Rebase Mechanism works through Rebase Protocol. After every period(say 24 hours) supply is increased or decreased(re-based) depending on the change in price.
They control the supply through built-in smart contract coding. Users automatically end up with more tokens if the price is rising and your tokens decrease in supply if the prices are falling. The supply here is controlled by code but work on the same law of demand and supply.
Top 5 Rebase Tokens based on the market cap are Olympus($271.6M) and Temple DAO($62.2M), Snowbank($35.3), Ampleforth($34.9M), and Klima DAO as of Nov 12, 2022. Here is a complete list of Rebase Tokens from Coin gecko.
How are they taxed?
The income in these tokens is mostly through selling tokens which you got from increased supply. However, if you wish to transfer your gains from other cryptocurrencies to Rebase Tokens, you will incur a tax liability even if you have not sold them for cash.
Rebase tokens are taxed similar to other cryptocurrencies. In the USA and UK, they are taxed in accordance to the Capital Gain rules. In India, there is a 30% Income Tax on gains made from Virtual Digital Assets.
Are Stablecoins like USDC and USDT also Rebase Tokens?
No, unlike Rebase Tokens, stablecoins like USDT and USDC have proof of reserves. They back each and every issued stablecoin with a peg like the US Dollar. Sometimes Dollar-equivalents like US Treasury Bonds which can be always redeemed for US Dollars are also used. Each stablecoin from major players like USDC, USDT and BUSD are backed by such reserves.
But, both stablecoins and rebase tokens have the same target, to keep the token price stable.
Do they have a Future?
Yes, Rebase Tokens have immense potential to address the shortcomings of both fiat currencies such as US Dollar and major cryptocurrencies like Bitcoin.
On the fiat front, they can help central banks control monetary policy and directly inject cash into the economy. The current mechanism of Repo and Liquidity Windows often take several months to show difference. It is also upon banksâ will whether they wish increase or decrease their lending rates. Often they need to be forced by the Central Banks.
On the cryptocurrency front, they can help issuers better control their coins and tokens to protect them from volatility which is a major issue in almost all cryptocurrencies.
Presently, it seems that Rebase Tokens are ahead of their time. Such technology could have immense effect on the economies of the future. Upcoming CBDCs might also be a kind of Rebase Tokens in their own right. However, currently they are still in an infant stage.
