Rebase tokens, also known as elastic tokens, are a type of cryptocurrency whose supply adjusts algorithmically to regulate their price. Unlike stablecoins, rebase tokens are tethered to another asset but maintain price stability by either burning existing tokens or minting new ones automatically.

Despite being highly volatile, the price of rebase tokens tends to remain stable based on the asset they are linked to. Rebase tokens achieve this price stability through periodic "rebase" events triggered at set intervals, where the token's supply is adjusted according to a specific formula.

For instance, if the demand for a rebase token increases by 20% since the last rebase, the token's supply will automatically increase by 20%. Conversely, a decrease in demand will lead to a reduction in the token's supply. Investors interested in rebase tokens should exercise caution due to potential large price fluctuations, highlighting the importance of a thorough understanding of the token's characteristics.

The supply of rebase tokens is elastic, directly correlating with supply and demand fluctuations without affecting the overall value in users' wallets. The total value of the tokens in wallets remains constant even as the number of tokens adjusts. By following a predetermined routine, rebase tokens undergo supply adjustments to maintain price stability based on changing market conditions.

Differentiating rebase tokens from traditional fixed-supply tokens, rebase tokens use an elastic supply mechanism to dynamically adjust the circulating supply concerning market dynamics, price stability, or target price adherence. Smart contracts automatically adjust each holder's balance to retain their proportionate share of the total supply, unlike manual changes seen in traditional tokens.

In contrast to stablecoins, rebase tokens like AMPL and BASE have adjustable supplies controlled algorithmically to manage inflation, encourage participation, and reduce volatility, aiming to stabilize token values or meet specific goals.

Potential users should consider several risks associated with rebase tokens, including price instability, user confusion, smart contract vulnerabilities, and regulatory uncertainties. The automated nature of rebase functions does not guarantee price stability, leading to deviations in severe market conditions and potential legal risks related to compliance with existing regulations.