A rebase token is a token whose existing balances can be recalculated according to a protocol rule. Rather than distributing tokens through ordinary transfers to each holder, the system changes how balances are represented, often using a shared scaling factor. Total displayed supply can expand or contract as a result.
Why balances change
Different protocols use rebasing for different purposes. Ampleforth adjusts AMPL supply in response to price information as part of an elastic supply policy. Lido's stETH uses rebasing to reflect changes in pooled staking assets, including rewards and possible penalties. Rebasing therefore does not always indicate an attempt to maintain a stable price.
In a simplified proportional rebase, a holder with 100 of 10,000 tokens has 1% of supply. If every balance increases by 10%, that holder has 110 of 11,000 tokens and still owns 1%, assuming no other changes. The larger balance alone is not a 10% investment gain.
Accounting and market value
Portfolio value depends on both token quantity and market price. Negative rebases can reduce balances, and positive rebases do not guarantee higher purchasing power.
Applications must support the token's accounting behavior. Wrapped versions may keep balances constant while changing their conversion rate, introducing a different representation of the same underlying exposure.