The world of blockchain and Decentralised Finance (DeFi) has become more relevant today. With more industries looking into this technology, innovations within it are steadily created, one of which is the elastic supply token.
A 2020 innovation, elastic supply tokens offer you new ways to invest and help make crypto investments much better. Aiming to lessen the impact of the natural volatility of cryptocurrencies that potentially decrease the value of your investments, elastic supply tokens are there to keep your purchase valuable. After all, with the amount of hard work you’ve put into buying them, it helps to have something that retains its value.
So in this BTC post, learn how the volatile-combating cryptocurrency does its helpful feature and why today is the time to invest in them.
Defining the Elastic Supply Token
An elastic supply token is a type of digital asset whose current circulating supply grows or shrinks based on its current prices. It uses smart contracts to automatically change the number of the current supply depending on what it needs to maintain a specified price. This shifting process is called ‘rebasing,’ which is why elastic supply tokens are also known as ‘rebase tokens’.
How rebasing works
When elastic supply tokens are created, a specific and set target price is associated with them. Because of this, whenever the elastic supply tokens’ value changes and doesn’t fit the set price, the rebase process begins.
Once this happens, the number of tokens in circulation increases or decreases depending on what it needs to bring the price back to the initial target. The rebase process occurs every 24 hours based on the token’s time-weighted average price (TWAP).
Though the circulation of tokens rises and falls, their initial value remains constant. So after the rebase process, the value of your tokens remains the same. This stable feature makes it an ideal investment for you to have since these tokens are less vulnerable to price drops and in turn, investment losses.
Types of rebase processes
There’s more than just one type of rebase process and to know how these differ and affect your investment, check their descriptions below:
Symmetric – The symmetric process is considered the ‘standard’ rebase system. It involves symmetrically changing the number of your current tokens according to the current circulating supply change to retain its value.
For example, if you have 6 tokens in your wallet and a symmetric rebase process occurs, your tokens increase to 12. However, despite the increase, your tokens still hold the same values as the initial 6.
Asymmetric – When this occurs, you have the option to increase or decrease your current token supply as you see fit to maintain the value of your tokens. Should you choose this option, you can receive attractive future rebase returns if a positive rebase happens.
Regardless of the rebase process, your chosen elastic supply tokens must be kept stable. Otherwise, the efficiency of these tokens fall apart and you lose your investment. So make sure to research the stability and rebase process of the tokens you’re buying.
Difference between Elastic Supply Token and Stablecoins
With their price maintenance feature, elastic supply tokens are frequently compared with stablecoins whose price values are pegged to less volatile assets. However, the two are different from each other in more ways than one.
Here are some of their differences:
Stablecoins follow a fixed exchange rate set up within the blockchain to maintain their price. This exchange rate bonds the coin’s price to that of physical assets such as the US dollar, resulting in a stabilised coin price with low volatility.
Elastic Supply Token
To meet their target price, elastic supply tokens rely on the rebasing process and not on external assets. Additionally, it aims to only lessen volatility and not eliminate it which is what stablecoins aim to do.
Examples of Elastic Supply Tokens
Want to start investing in elastic supply tokens? Here are some of the most well-known tokens you can start investing in:
- Ampleforth (AMPL)
- Price: US$1.07
- Market Capitalisation: US$114.35 M
- Yam Finance (YAM)
- Price: US$ 0.3184
- Market Capitalisation: $ 4.50 M
- BASE Protocol (BASE)
- Price: US$0.8194
- Market Capitalisation: $347,159
- DEFI 100 (D100)
- Price: $0.1218
- Market Capitalisation: N/A
Is investing in Elastic Supply Tokens risky?
Like other crypto investments, there’s still a high risk in elastic supply tokens. However, you can lessen this by being a wise investor. The first thing you need to do is to get educated on the elastic supply token of your choice. You will need to be thorough in learning the token’s goals, internal network mechanics and purchasing history.
However, if you’re still a novice investor, these topics can be too dense to learn in one sitting. Fortunately, a lot of educational articles and videos are available online for you to peruse. Aside from this, you can also seek the expertise of financial advisors to learn more about the token and make informed decisions.
If you invested your money head-on on elastic supply tokens while basing simply on token charts, the risk can grow on the next occurring rebase. After all, there’s more to what you’re seeing on the chart as prices change daily.
Additionally, the chances of you either earning big or losing your investments are almost the same if you invest without researching. And if you do lose your investment on price decreases, not only will your investment value drop significantly, but you will also earn fewer tokens on any future rebases.
So to enjoy lucrative cryptocurrency benefits in the future, always stay educated on any of your crypto investments and ask experts to lessen any risks. After all, this is a long-term investment you’d want to keep.
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