Rebase tokens, first popped up during the DeFi hype around 2021, these tokens introduced a novel concept: token balances that increase over time, independent of the holder's direct actions, like trading or staking.
Initially, such mechanisms were simple schemes, offering ever-increasing token balances without a clear underlying value. This was the golden ponzi time.
A turning point came with the introduction of stETH by @LidoFinance, a rebase token backed by Ethereum yields. This development marked a significant evolution from the early, simpler forms of rebase tokens. stETH offers a rebasing mechanism with underlying value, specifically, the yield generated from staking Ethereum.
This approach provided a more sustainable and value-driven model for rebase tokens, moving away from the baseless inflation of token balances.
Recently, the concept of rebase tokens has further evolved with the launch of @Blast_L2 (backed by @paradigm and @PopPunkOnChain) and their native yield tokens, such as USDB.
USDB's rebase mechanism is tethered to the yield generated from DAI. This means if you own USDB on base, you own a promise to get your DAI back.
Initially, such mechanisms were simple schemes, offering ever-increasing token balances without a clear underlying value. This was the golden ponzi time.
A turning point came with the introduction of stETH by @LidoFinance, a rebase token backed by Ethereum yields. This development marked a significant evolution from the early, simpler forms of rebase tokens. stETH offers a rebasing mechanism with underlying value, specifically, the yield generated from staking Ethereum.
This approach provided a more sustainable and value-driven model for rebase tokens, moving away from the baseless inflation of token balances.
Recently, the concept of rebase tokens has further evolved with the launch of @Blast_L2 (backed by @paradigm and @PopPunkOnChain) and their native yield tokens, such as USDB.
USDB's rebase mechanism is tethered to the yield generated from DAI. This means if you own USDB on base, you own a promise to get your DAI back.
This will raise several issues:
Dependency on External Assets:
For tokens like USDB, the underlying assets (e.g., DAI) are sitting in MakerDAO. This arrangement means that holders of the rebase token do not have direct ownership or control over the actual stablecoins generating the yield, introducing a layer of dependency and potential risk.
Transparency and Trust Issues:
A crucial concern with rebase tokens is the authenticity of the yield generation process. Without transparent mechanisms and audits, there's a risk that the rebasing could be artificially inflated, undermining the token's value proposition.
Smart Contract Vulnerabilities:
The mechanism of rebasing, particularly the frequency and triggers for value addition through functions like addValue, could be susceptible to frontrunning. This vulnerability could allow actors to anticipate and benefit from price increases.
Code Walkthrough
The core logic of USDB involves a few essential steps:
Initial Price Setting: Upon deployment, the token's initial price is established, serving as a baseline for future adjustments.
Dependency on External Assets:
For tokens like USDB, the underlying assets (e.g., DAI) are sitting in MakerDAO. This arrangement means that holders of the rebase token do not have direct ownership or control over the actual stablecoins generating the yield, introducing a layer of dependency and potential risk.
Transparency and Trust Issues:
A crucial concern with rebase tokens is the authenticity of the yield generation process. Without transparent mechanisms and audits, there's a risk that the rebasing could be artificially inflated, undermining the token's value proposition.
Smart Contract Vulnerabilities:
The mechanism of rebasing, particularly the frequency and triggers for value addition through functions like addValue, could be susceptible to frontrunning. This vulnerability could allow actors to anticipate and benefit from price increases.
Code Walkthrough
The core logic of USDB involves a few essential steps:
Initial Price Setting: Upon deployment, the token's initial price is established, serving as a baseline for future adjustments.
Value Addition: Through a mechanism (e.g., a function like addValue), the token's price is periodically increased. Ideally, this increase is based on actual yield generated from the underlying assets or strategies, reflecting true value growth.
Balance Adjustment: As the token's price increases, so does the value of each holder's share. This is reflected as an increase in token balance, giving the impression of a naturally appreciating asset.
Link to the article
https://twitter.com/CharlesWangP/status/1774440596586844390
