A price-elastic token is one where the project’s total token supply is not fixed, but instead automatically adjusts on a routine basis. These token supply adjustments are called rebases.
Rebase take place per market demand and are done in such a way that users’ proportional holdings ultimately don’t change and thus aren’t diluted. Rebases are performed per a specific target price, with the idea being that a token’s nominal price will steadily be moved over time toward its target, e.g. $1 USD.
The Xdef protocol seeks to reflect demand changes in quantity rather than price.
Let's walk through a simple example: ( Positive rebase.)
Imagine Jeff purchases 1 Xdef for $1.
Demand suddenly increases, and he now has 1 Xdef worth $2.
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.)
Imagine Jeff has 2 Xdef each worth $1.
Demand suddenly decreases, and he now has 2 Xdef each worth $0.50.
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
The Xdef Protocol will have a 24 hour rebase frequency.
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.