The Xdef protocol seeks to reflect demand changes in quantity rather than price.
In the case above, the system will seek a price-supply equilibrium, such that Jeff ends up with 2 Xdef each worth $1.
And the opposite is true when demand decreases.
Continuing from the example above: ( Negative rebase.)
Similarly in this case, the system will seek a price-supply equilibrium such that Jeff ends up with 1 Xdef worth $1. Now you may be asking, why bother? Whether Jeff holds 1 Xdef worth $2, or 2 Xdef each worth $1, makes no difference in terms of net balance since (1 x $2) = (2 x $1). But there are two key benefits to seeking price-supply equilibrium:
It applies countercyclical pressures
It encourages a stable unit price
To begin calculating the change in supply in a rebase, you can determine how far from the peg the current price is: (Current Price - TargetPrice) / Target Price = Deviation From Peg
Example: If Current Price is $1.10 and Target Price is $1, the deviation from the peg is (1.10 - 1) / 1 = 0.10.
If the current supply is 5,000,000, then the change in supply will be 5,000,000 * 0.10 = 500,000.
The new total supply would then be 5M + 500,000 = 5,500,000.