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Here if we talk about an elastic supply token, it is also known as a rebase token, which does not have any fixed token supply of any kind. In this case, their demand and asset rates are usually determined by the indicative supply.

Elastic supply from which it is suggested to create new tokens from starring as well as eliminate them from circulation. Due to algorithmic implementation, this process is initiated and this solution is known as rebasing. Elastic supply tokens, however, are in a way relatively new and lesser-known concepts commonly found within the DeFi (decentralized finance) sector. Learn why BIPs are important for Bitcoin's future, if you are interested in Bitcoin.

 

In this blog, we are going to discuss Elastic Supply Tokens in which we will also talk about some of the earlier concepts, how they can work, why they are needed and much more. So, let's learn about it.

 

About Elastic Supply Token

 

Speaking of elastic supply tokens, it is a token that can refer to an asset whose supply is, usually, dependent on its price and at the same time fluctuating accordingly. Essentially, elastic supply is the total token supply of the project that is adjustable. Meaning, if there is a particular crypto project then its total token supply is adjusted through rebasing from time to time. Example You purchase an XYZ coin that is worth only $1 today. Whereas tomorrow you have two XYZ coins, then Courtesy of rebasing, each coin will now be worth half of yesterday's value.

 

Elastic Supply Token Requirement

 

Here if we go back to the basics of this concept, the value of these tokens remains constant, which is usually achieved by supply adjustments. Their purpose is to keep the price stable, which is why elastic supply tokens have also been viewed similarly to stablecoins. However, there are some fundamental differences observed among the two. Speaking of the basis of stablecoins, it is a fixed exchange rate principle that maintains a constant value by linking the price of a coin to another physical asset.

 

On the other hand, if we talk about elastic supply tokens, it maintains the target for a target price by time-varying token supply. Further, the total supply of the project is fully adjusted to bring the corresponding increase in supply with the price increase. Once the supply increases, with it, the value of each token starts to decrease. With a decrease in price in this process, the total supply of the project is accordingly reduced to raise the price.

 

Is Elastic Supply Token a hazard?

 

Talking about the risk in elastic-priced tokens, yes investing in them can be risky. You may need to be careful if you are considering investing in it as the chances of losing money are high. Although of course, there is also the possibility of making a good profit in this, you may also have to face losses as well.

 

Also when you invest in this token and its price goes down during or after that, there is a rebase at that time, due to which you can face a huge risk. With each of these releases, you will have fewer and fewer tokens. Elastic supply tokens, on the other hand, are an experimental asset, which is also one of the reasons why investing in them can be more prone to risk. Because it makes projects more likely to have bugs in their smart contract code.

 

Conclusion

 

Since the Elastic Supply token project is still new, it is gaining in popularity as well as could usher in new use cases in the DeFi space. In addition, in the times to come, tokens with elastic prices may also emerge as an alternative to stablecoins.