They are building upon the limitations of rebase tokens by eliminating APYs altogether. Remember, looking at price charts is not going to be all that helpful, since the number of tokens you hold will change after rebases occurs.” According to Binance, “Elastic supply tokens are highly risky and extremely dangerous investments. Once it has a larger treasury, it can make more profits in a day and send out more tokens to those stakers as rewards. Staking rewards is a profit distribution mechanism that the rebase token uses, which simply means any profits that the treasury makes are distributed to the stakers. However, the same $1 backed tokens are sold into the open market for market-value, thus putting heavy downward selling pressure on the underlying token price.

What they are saying is the price data of rebase tokens are not so important. Obviously, Olympus DAO, OHM is the most popular rebase token with most rebase tokens being forks of Olympus DAO, but most staking rewards work and operate just like this. The majority of rebase tokens are run by Decentralized Autonomous Organizations (DAOs) – a DAO is an entity with no central leadership. At the time of rebasing, the market capitalization of the rebase tokens increases. Deflation would occur in the circulating supply and investors would receive less tokens in order to bring that price back up to the $1.

China

Instead of being backed by dollars, UST was designed to keep its peg by linking it with another Terra network token, LUNA. Stablecoins are now mainly used for buying or selling cryptoassets, and for making cross-border payments. Insights, news and analysis of the crypto market straight to your inbox

• This obviously builds up the rebase DAO treasury, which in turn builds up the investor’s rewards.
• Whatever the treasury makes in profit is what is distributed amongst the stakers, and generally the main goal of rebase DAOs is to improve the treasury.
• This will create a passive yield generating currency, with an ever-increasing floor price.
• Commodity-backed stablecoins are stablecoins that claim to be backed by commodities.

Lack of reserve transparency

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Abandoned stablecoin projects

Due to monetary policies of these countries, average citizens are often unable to obtain foreign currencies through formal financial services. The fall in the price of LUNA caused validators to sell their stakes, allowing malign actors to become dominant validators. The collapse wiped out almost $45 billion of market capitalization over the course of a week. In May 2022, UST broke its peg with its price plunging to 10 cents, while LUNA fell to “virtually zero”, down from an all-time high of $119.51. Correspondingly, if UST traded higher than $1, market actors could mint new UST by locking in $1 of LUNA and then sell the new UST on the market for a profit. If UST lost its peg and traded below $1, an arbitrager could purchase it on the secondary market and redeem it for $1 worth of LUNA.

Contagion risk on financial market

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The capital out flow is caused by risk aversion of individuals within the developing countries against sudden sharp currency depreciation. However, this mechanism assumes there is sufficient market demand for UST and LUNA, making the stablecoin inherently fragile. Algorithmic stablecoins are vulnerable to a de-pegging process known as “death spiral”, in which an external event, such as the tightening of global liquidity, led to heavy redemption of the stablecoin. Some major examples of algorithmic stablecoins are Celo Dollar, Tron’s USDD and Kava’s USDX. Commodity-backed stablecoins are stablecoins that claim to be backed by commodities.

• In June 2024, the Central Bank of the UAE established the Payment Token Services Regulations to regulate the use of stablecoins in the UAE.
• As cryptocurrency investors, we are often pulled into the hype, and promises of exponential gains.
• These sophisticated digital instruments, with their inherent ability to adapt and self-regulate, underscore a future where financial systems are increasingly dynamic and algorithmically driven.
• By tricking victims into investing in cryptocurrency, the scammers are then able to transfer the money and attempt to hide their trail using stablecoins.
• Due to monetary policies of these countries, average citizens are often unable to obtain foreign currencies through formal financial services.

The European Central Bank suggests that algorithmic stablecoins should be treated as unbacked crypto-assets. Algorithmic stablecoins, sometimes called seigniorage-style stablecoin, are stablecoins with no reserve assets or only partial reserve assets. Cryptocurrency-backed stablecoins are stablecoins using other cryptocurrencies as collateral.

Use cases and potential advantages of stablecoin

In March 2023, the price of Circle’s USDC de-pegged temporarily during the banking crisis in the United States in which Signature Bank, Silvergate Bank, and Silicon Valley Bank collapsed. A report by Standard Chartered warned that the prevalence of US dollar denominated stablecoins could potentially cause $1 trillion from developing countries to flow to stablecoins, causing loss of bank deposits. Humanitarian NGOs told media that stablecoins help them get around regulatory holdups and wastage of donor funds on exorbitant banking fees. Since some stablecoins could maintain a relatively steady value against specific assets such as the US dollar, they are used as a hedge against hyperinflation. Since stablecoins can be sent using a smartphone, they can facilitate faster cross-border transactions for individuals with limited access to financial institutions.

Cryptocurrency-backed

On 16 November 2023, the regulator approved Paxos Digital and StraitsX as stablecoin issuers. The bill was passed in May 2025 with the first stablecoin issuance licenses expected in early 2026. The bill is expected to generate greater demand for US Treasuries by stablecoin issuers. In January 2024, the United Nations Office on Drugs and Crime (UNODC) published a report, directly linking USDT to cyberfraud and money laundering. According to media reports, official announcements, and academic research, Tether’s USDT is the preferred stablecoin of these criminals.

If you’re new here, please make sure to read the sub rules and reference the FAQs as needed before posting. The legislation is expected to require issuers to maintain asset reserves, govern redemption policies, implement risk management frameworks, and protect personal information of Canadians. The comments by Bailey drawn criticism from stablecoin issuer for constraining investment in the UK. In October 2025, Andrew Bailey, governor of the Bank of England, announced that the Bank of England will publish a consultation paper on the UK’s stablecoin regulation. In June 2022, Japan’s Financial Services Agency launched the Regulatory Framework for Crypto-assets and Stablecoins.

High Rebase Reward

According to supply and demand, the protocol can change its circulating supply daily to achieve less volatility. By having frequent epochs these rebases compound rapidly and can lead to returns up to 30,000% p.a. For these projects, rebases are allocated at the end of each epoch (or unit of time), which is usually every 8 hours. In the case of Olympus DAO, staked OHM (their native token) becomes gOHM and for Wonderland. Olympus DAO and its countless forks, such as Wonderland, have utilized a specific distribution method in the form of rebase.

For Euro pegged stablecoins, major examples include Circle’s EURC, EUR Tether, and Stasis EUR. Major examples of US dollar pegged stablecoins are Tether’s USDT, Circle’s USDC, and Binance’s BUSD. The value of a fiat-backed stablecoin is based on the value of the backing currency, which is supposedly held by a third party custodian.

If the market price deviates, the algorithm initiates a \”rebase event\” to adjust the supply, thus influencing the price back towards its peg. Instead of experiencing price fluctuations, the actual quantity of tokens held in a user’s digital wallet changes automatically. When interacting with the blockchain ecosystem, one might encounter a unique class of digital assets known as rebasing stablecoins.

This scenario causes a downward selling pressure as the tokens are minted and pegged to $1 by its treasury. For instance, let’s say we have an elastic supply token (i.e. rebase token) that wants the value to remain at $1 (price target). There is a history of de-pegged stablecoins and stablecoin projects that have been abandoned by the issuer. In particular, guidelines require stablecoin issuers to have strict rules on anti-money laundering, risk management, and corporate governance. The regulation became applicable to asset-referenced tokens and e-money tokens on 30 June 2024. By providing stablecoins for liquidity on decentralized platforms, holders of stablecoins can get a share of the fees paid by liquidity takers.

Their objective is to grow its treasury and use the funds to effectively expand the value of ORCL, its native token. The fact is that they can manipulate the price data any way they want because they have total control over the circulating supply. Whatever the treasury makes in profit is what is distributed amongst the stakers, and generally the main goal of rebase DAOs is to improve the treasury. There are several ways a project can distribute staking rewards to investors.

Oracle Finance have stepped away from the inflationary $1 backing per token. Oracle Finance have set out to create value for their investors by developing several unique investment channels within their platform. We are seeing projects with unique value propositions that sit on sustainable growth strategies in any market condition.