What is a rebase token?

A rebase token is a cryptocurrency whose balances change on a schedule without anyone sending or receiving it. Most tokens keep a fixed count in your wallet while their price moves. A rebasing token does the opposite. The protocol adjusts how many tokens each address holds, in proportion, so every holder keeps the same share of the total.

How does a rebase token work?

The token's smart contract stores balances as shares of a total, then applies a common adjustment. When the protocol rebases, it updates that adjustment, and every wallet's displayed balance changes at once. Ampleforth's documentation, for example, says its supply changes are applied by updating a global coefficient every day at 2 a.m. UTC, applied to all addresses without any transaction between holders.

Why does stETH rebase?

Lido describes stETH as a transferable rebasing token that represents a share of all ether staked through the protocol, including deposits and rewards. Its balance updates once a day, at 12 p.m. UTC, when the amount of stETH in an address increases with staking rewards. So a holder who does nothing sees their stETH count grow over time. The wider model is explained in what Lido is and what liquid staking is.

Ampleforth uses rebasing for a different goal. Its AMPL token targets the 2019 US dollar adjusted for inflation, and the number of tokens in wallets expands when demand is high and contracts when it is low. Its documentation says rebases happen only when the price is more than 5% from target, and that the size of each change is smoothed by a curve.

What is the difference between a rebase token and a wrapped token?

Some apps and bridges expect a token's balance to stay the same unless a transfer happens, so a rebasing balance can confuse them. The common fix is a wrapper. Lido says wstETH keeps the holder's balance fixed and uses an underlying share system to reflect rewards. Its example is that 100 stETH might wrap to 99.87 wstETH, and unwrapping later could return 101 stETH. The general idea is covered in what a wrapped token is.

Can a rebase reduce your token balance?

It depends on the design. A rewards token such as stETH is built so that balances grow as staking rewards arrive. A price-targeting token such as AMPL is designed to shrink balances when its price is below target, so holders can end up with fewer tokens. In both cases each holder's share of the total supply stays the same after a rebase, but that share says nothing about what the tokens will be worth.

How a rebase is treated for tax purposes is unsettled in some countries. Check the tax authority or a qualified professional for your own situation.