Elastic supply tokens, also known sometimes as rebase tokens, are tokens that have a mechanism that consists in adjusting the total supply according to the market changes and demand, generally through an automated mechanism that increases or decreases the token supply of the tokens in the holders' wallets without changing the proportion of the total market cap. Unlike traditional tokens, that have a fixed supply, elastic tokens dynamically increase or decrease their circulating supply in response to price changes, with the goal of maintaining a target price or stabilizing market value.
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​How Elastic Supply Tokens Work
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The mechanism behind elastic supply tokens is called rebasing. In a rebase, the token's supply is being adjusted at regular intervals. If the token's prices rises above a set target value, the supply increases, through that distributing more tokens to the holders. The opposite can also happen, when the price falls bellow target, the supply decreases, through that reducing the number of tokens in circulation. Shortly, the token adjusts the supply in response to the demand.

Two popular examples of elastic supply tokens include Ampleforth (AMPL) and Yam Finance (YAM).

It is important to note however that, while elastic supply tokens aim to provide stability in volatile markets, they also come with risks. Because their value can fluctuate based on both demand and supply adjustments, predicting future price fluctuations can be very difficult. Because of these aspects, the rebase mechanism may lead to unexpected confusion and outcomes for holders, especially if they are not aware of how the mechanism works and how it might impact their holdings.

For any additional questions, please view our other knowledge base articles or contact a support team member via the chat button. Examples are for illustrative purposes only.