One of the most misunderstood algorithmic stablecoins is the rebase token. The nature of a rebase token can be boiled down to its simplest elements: elastic supply and target price. All rebase tokens have a target price (called the “peg”), and at regular intervals the backend rebase function will adjust the supply elastically, shrinking or expanding,to move the coins’ price closer to the peg. If the target price is above the peg, then the supply will be increased and the price will be proportionately decreased (and vice-versa).
Market Cap = Price * Supply is the governing equation for rebase tokens. Market Cap (MC) can only be increased by new money coming in, and it can only be decreased when people sell out. So as someone buys more, the price increases while the supply stays constant until the next rebase, therefore the Market Cap increases. If someone sells, the opposite happens: MC goes down and the price must follow. When you buy, you’re buying a portion of the MC, or market share. . The most important statistic when buying into a rebase coin is your percentage of the market cap at that moment. Think about it like buying a slice of pie. If the pie gets bigger, so does your slice. So, if MC goes up (since your % of market share is always the same) the value of your slice goes up.
Enter rdUSD, the FIRST rebasing token on the Matic Network. In rdUSD’s case, the peg is $1 and rebases can happen only as often as every 30 minutes, but must be manually called by anyone. The timer resets for another 30 minutes once the rebase function is utilized. If the price is above the peg, the rebase function will mint more tokens, changing the AMM pool ratio to account for the decrease in value, decreasing price. Rebasing occurs on a lag timer (also known as a smoothing function) of 10 cycles by default, which means that if the price was $1.40, it will rebase the price in steps like: $1.36, $1.32, … , $1.04, until it reaches $1, assuming no new change in MC occurred along the way. This smoothing function partially resets each time the MC significantly changes, so it’s possible to maintain a price above $1 constantly as long as the MC continues to grow.
The key point is this: It does NOT matter how many rdUSD you buy or at what price you buy them, or even when in the rebase cycle you buy them. All that matters is the amount of value you put into rdUSD, and what the Market Cap is at that time. Right now, if you put in $10k and the Market Cap is $4M, your market share % is 10k/4m=0.25% — — so for the rest of the life of rdUSD, your rdUSD stack is worth: current_Market_Cap * 0.25%. The incentive to buy rdUSD now versus later is speculation that the MC will grow, and you can get a larger market share for cheaper the earlier you buy.
Q: When in the rebase cycle should I buy in? I want to time it perfectly.
A: Timing does NOT matter. You are buying Market Share. All you care about is how much of the overall Market Cap you are buying. It doesn’t matter if you buy before, after, or during a rebase.
Q: Should I buy above or below the peg?
A: Purchase price does NOT matter. Whether the coin is above $1 or below $1, your focus should be on your % of market share, not the price at a given moment. If you buy below the peg and a rebase is called, then you will lose some rdUSD tokens, but they will have a higher individual value. In contrast, if you buy above the peg, you will gain some rdUSD tokens at the next rebase, but they will individually be worth less.
Q: Why isn’t the price of rdUSD $1? I thought the peg was a dollar.
A: The rebase function targets $1, but it does not instantly make the price $1 at rebase. It works on a lag timer so as not to shock the market.
Q: If the price goes up, shouldn’t I make money?
A: If the price goes up from an increase in MC, yes. But if the price goes up because of a rebase, no — that would mean that the price was below the peg and supply was decreased, so you neither made nor lost money.
Q: How do I cash out my rdUSD? I’m worried about tanking the market cap
A: You can exchange rdUSD out for dUSD at a 1:1 ratio via contract on dark.build. If you want to sell your rdUSD, you can swap it out via any L2 exchange.
Q: Why would I buy rdUSD instead of dUSD?
A: rdUSD market share will increase in value as the ecosystem brings more money in. dUSD is designed to always be valued at 1$ within DB DEX. Keep in mind your rdUSD can be converted to dUSD, but dUSD can not be converted to rdUSD, however, you will have the option to burn DB and claim a portion of the dUSD swapped rdUSD.
Q: What happens to dUSD when rdUSD rebases?
A: Nothing. If rdUSD negatively rebases from $1.06 to $1.04, it may become more attractive to arbitrage out of rdUSD into dUSD when rdUSD is below 1$, , but the price of dUSD will not be affected.