Rebasing, reflection, and debasing tokens use code to change the token supply based on conditions defined by the token creators to achieve specific outcomes. The most common reason is to stabilize the token's price by reducing the supply.
These tokens will have code that adjusts the token supply at specific times or with every transaction. Some tokens are triggered manually by the token creators, while others use algorithms to make automatic changes.
With these changes the token's price will change. The price change creates a change in the balance of tokens each holder has in their wallet.
Usually, these tokens will have a price goal that locks in the per-token price.
How do these tokens work?
Rebasing and reflection tokens use smart contracts that enable the creators to control the token supply in response to price changes.
Smart contracts allow token creators to set rules that automate a price-stabilizing function.
Many cryptocurrencies, such as Bitcoin (BTC), Litecoin (LTC), or Zcash (ZEC), have their supply determined at creation. This creates variations in prices based on the demand for those tokens. Conversely, rebasing tokens keep stable prices by changing the number of tokens in circulation.
If demand increases during a cycle and drives the price upwards, the rebase will increase the supply by an equal amount to maintain the price peg. If demand decreases, the smart contract will burn a proportional amount of tokens in the next rebase to decrease the supply.
For example, if the demand for a rebasing token increases by 5% since the last rebase, its supply will increase by 5% to ensure its value remains stable.
Reflection tokens are essentially the same as rebasing tokens. The key difference is that they also charge a transfer fee and distribute these fees based on the token setup.
Debasing tokens lower the intrinsic value of a wallet's holdings by lowering your token balance. Like rebase and reflection tokens, this stabilizes the price of the token by adjusting the supply.
These token types don't always show an accurate balance in your wallet. That is because there are not events in the code that allow wallets to track balance changes.
You can always find your token balance by selecting the token from the dropdown menu of a blockchain explorer while viewing your wallet.