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Understanding how Elastic Supply Tokens work

The emergence of blockchain technology paved the way for decentralised finance to reach its full potential. With the availability of various DeFi solutions, users have more means to have control over how they manage their assets. One concept in the DeFi sphere that’s been gathering traction is elastic tokens.

Are you interested in having a better understanding of how these tokens work and what they do? Keep reading here in Cryptoshimbun!

What are Elastic Supply Tokens (EST)? 

Tokens with an elastic supply are those whose supply changes in direct proportion to the value of the asset they represent. Supply adjustments are made to keep the value of these tokens stable. Because they rely on price stability, tokens with an elastic supply are often likened to stablecoins. 

Stablecoins operate under a fixed exchange rate of the token or commodity they’re pegged after. On the other hand, elastic supply tokens are intended to achieve a particular price through a method called rebasing. 

What is rebasing? 

In essence, rebasing is a method to adjust the supply in circulation through ‘burning’ assets or by ‘minting’ them to control their price. Depending on the token, the rebasing mechanism can change. This allows users to maintain their assets’ value since when the price dips and surges, it doesn’t affect the tokens stored in wallets.

When compared to stablecoins, rebase tokens have an elastic supply, which means that the total number of tokens in circulation fluctuates in response to changes in supply and demand without influencing the value of the tokens in users’ wallets.

Check out the explanations below to learn more about the different rebase processes and how they affect your investment:

  1. Symmetric – Also known as standard rebase, this kind of rebasing simply means that digital assets stored in a wallet are changed equally when price adjustments are being made. 
  2. Asymmetric – An asymmetric rebase is a procedure that lets you add or remove tokens from circulation at will if you want to keep your tokens’ value stable. Keep in mind that if a positive rebase occurs, you might benefit from rebasing returns if you pick this option. A positive rebase means there’s continuous growth in the asset you’re investing in.

Top Elastic Tokens

There are several elastic tokens available in the market, and choosing which one suits you the best can be quite challenging and confusing. It’s best to pick one that is well known and is performing well to give you a sense of assurance and security. Check out some of the top elastic tokens below:

  1. Redacted Cartel ($BTFL)

Redacted Decentralised organisation Cartel focuses on governance tokens and voting power across many of the most common liquidity management protocols to give meta-governance services to other DeFi DAOs. The BTRFLY token is utilised as a native governance token and an index for the protocol’s vote-escrow tokens.

  1. Wonderland ($TIME) 

Developed by Daniele Sesta, and an anonymous team of DeFi members, TIME was launched in September of 2021. With the use of a decentralised autonomous organisation (DAO) architecture, token holders may make decisions about the protocol’s future evolution.

TIME is a decentralised reserve money system and this token is backed by a treasury of several assets which is why its value remains stable. Aside from the staking and minting, other TIME aspects contribute to the market’s economic and game-theoretic vitality. An AVAX-native currency system will be developed and then bridged across several blockchains to accomplish this objective. 

  1. Klima ($DAO)

The Klima DAO is a decentralised autonomous organisation to disrupts carbon emission markets. Increasing the price of carbon assets is Klima DAO’s aim to incentivize businesses to reduce their carbon footprint. 

A bonding mechanism developed by OHM is being used to stimulate the issue of extra Base Carbon Tonnes (BCT), a tokenized form of carbon credits, on the Ethereum blockchain. It will enable the project to stockpile as much BCT as possible in its bank account if it purchases BCT on behalf of the KLIMA Foundation.

  1. Ampleforth ($AMPL)

Ampleforth is an elastic token which runs on the Ethereum blockchain and is designed to encourage a network of users to retain a crypto asset with a value equal to one dollar for every unit of account ownership. 

When it comes to price stability, Ampleforth is different from other stablecoins since it takes a unique method. Instead of depending on deposits or issuing and redeeming debt, AMPL supply via rebasing is adopted. 

If there is a strong demand for AMPL tokens and each AMPL token is worth more than $1, the supply of AMPL tokens will increase. If demand is deficient, the supply will be decreased.

  1. Olimpus ($OHM)

Olympus is a decentralised storage mechanism that is collateralized and backed by the Olympus DAO. It is built on the OHM token as its foundation. Unlike other cryptocurrencies, the value of OHM tokens will not change as a result of the absence of collateral supporting them in the Olympus ecosystem, which makes them unique. 

It is important to note that, although Olympus is decentralised and censorship-resistant reserve money, it is widely accepted across Web3 and is also extremely liquid and well-backed by assets.

Should you invest in Elastic Supply Tokens?

Just like with any other type of cryptocurrency, investing in elastic tokens has its risks because of the volatile nature of the crypto market. 

While these tokens provide more stability when it comes to keeping your assets’ price, that doesn’t guarantee instant returns with your investment. Always tread cautiously, because there’s no linear movement when it comes to digital assets.  

However, you can always be prepared by researching to further expand your knowledge and understanding of key concepts to help you make well-informed decisions. 

On top of that, Cryptoshimbun offers numerous articles for readers to scroll through that will allow users to kickstart their crypto journey with ample knowledge of how most cryptocurrencies work.  

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