Rebase tokens function similarly to stablecoins, but with one important difference.
Rebase tokens, also known as elastic tokens, are cryptocurrencies for which their supply is dynamically adjusted to control their value. Similar to stablecoins, rebase tokens are usually pegged to another asset. But instead of relying on reserves to maintain the peg, rebasing mints new tokens or burns those that are already in circulation.
Depending on which asset it tracks, the supply of a rebase token can be highly volatile, but its price remains stable.
All cryptocurrencies use a code that specifies the rules for how coins are created (minted) and destroyed (burned). But it is uncommon to design those rules with a specific price in mind.
For example, a new bitcoin is created when miners successfully validate recent transactions. There is no other way to create bitcoin and there is no way to destroy the coins. Bitcoin is designed in this way to make mining more lucrative and to control the issuance of new tokens into circulation, not to affect the bitcoin price. Therefore, bitcoin isn't a rebase token.
Ampleforth (AMPL) is an example of a rebase token. With the aim of keeping the price close to $1, the token supply is adjusted every 24 hours.
As AMPL's price rises by more than a few cents, every wallet that holds AMPL will receive additional tokens in proportion to its existing holdings. That means everyone still owns the same percentage of all the AMPL in existence. When there are more tokens available, fundamental economic forces will drive the price back toward the target. In contrast, when the price falls below a certain threshold, the tokens are taken proportionately out of holders' wallets.
In other words, each AMPL token that you own will still be worth $1, but the total value of all the AMPL tokens you own may still fluctuate wildly. Other tokens like RMPL and based money (BASED) have aimed to improve on AMPL protocol while preserving its core appeal.
In the Shiba Inu ecosystem, a token called dogekiller (LEASH) was created as a rebasing token they mapped the price of dogecoin (DOGE) at a ratio of 1/10000, so if dogecoin was $0.50, Doge Killer would be $500. As a result, Shiba Inu investors were able to take advantage of price movements of dogecoin without having to directly hold the token; attracting more people to the ecosystem.
In the end, however, LEASH tokens were removed from tracking dogecoin's price and now no longer exist. Today, it functions as a store-of-value coin whose price is determined by supply and demand, just like most other cryptocurrencies.
Cryptocurrency remains one of the most volatile asset classes, including a high price swing, a low price swing, and a very wide range of price swings. Because of this, new investors typically try to time the market, especially if they have made a few successful trades in the past.