We’ve seen many use cases of smart contracts in terms of blockchains. However, the elastic supply mechanism has incorporated its use for maintaining stability in the crypto market.
Imagine having a crypto asset with low exposure to price fluctuations controlled by algorithms.In our previous discussion, we explored how stable coins are revolutionizing the world of crypto assets.
We also touched upon the different types of stable coins and their utilities. Hence, this led us to a brief discussion concerning algorithmic cryptocurrencies.Continuing our discussion, let’s begin by understanding the elastic supply mechanism itself.
The elastic supply mechanism is a method through which the price of a crypto asset is controlled by a smart contract. Unlike other stable coin crypto currencies, it relies on algorithms
This process involves controlling the amount of cryptocurrency in circulation through automatic removal or addition. Although, these actions are dependent on the market condition of the token.
Therefore, we can conclude that this occurs solely due to flunctuation in price.Moreover, this discussion is what brings us to a term known as “Rebase tokens.” What are these tokens exactly, and how do they manage to maintain price stability? In reality, there isn’t much to say about them actually.
However, it wouldn’t hurt to discuss them, would it?Rebase tokens are designed to maintain price stability by automatically adjusting the circulating supply.
This mechanism is similar to the elastic supply concept, as it addresses price fluctuations. Hence, rebase tokens are specifically designed to utilize this mechanism
Furthermore, this leads us to the question of whether Bitcoin can be considered a rebase token, as it is a common misconception among many individuals.
Is Bitcoin a rebase token? Let’s address this concern to dispel any misunderstandings you might have had.Firstly, many people are unaware of the distinction between deflationary tokens and rebase tokens.
For instance, in the case of Bitcoin, new coins are generated as a reward for validators who validate transactions. Therefore, there are no alternative methods to creating them.Neither can they be destroyed also.
This is because they are created to incentivize mining and insurance of releasing them into circulation. Thus, we can say bitcoins are released to control the circulation supply and not the price. Therefore, Bitcoin isn’t a rebase token
Hence, we can say the elastic supply mechanism can be seen as an effective means of achieving price stability and maintaining a decentralized era. With that, we conclude our discussion on the elastic supply mechanism.
I am confident that you now grasp its essence.