Rebase Mechanism

Definition ∞ A rebase mechanism is an algorithmic process used in some digital assets to adjust the total supply of tokens in circulation, often daily, to maintain a target price or peg. This adjustment is performed automatically and proportionally across all holders’ wallets, meaning the number of tokens they possess changes. The goal is to stabilize the token’s value relative to another asset, such as a stablecoin or fiat currency. This mechanism directly impacts token quantity.
Context ∞ The discussion surrounding rebase mechanisms frequently concerns their effectiveness in achieving price stability and their potential for significant volatility. A key debate involves the psychological and practical implications of a fluctuating token balance for holders. A critical future development to watch for is the refinement of these algorithms and their integration into more complex economic models, aiming for greater stability and predictable behavior in dynamic market conditions.