The Rise of Rebase Tokens in DeFi

Ever since rebase tokens came to the forefront with OlympusDAO, there have been many forks and projects that are using this clever Defi mechanism. This space has grown so much, to the extent that Coingecko has a separate category for rebase tokens.

We decided it would be worth looking into this interesting part of the Defi ecosystem.

OHM Forks Rebase and Bonding Mechanisms Overview – Top 10 Token Projects

In understanding the prospective tokens that may end up defining the further exploration of the Defi 2.0 ecosystem, this list comprehensively approaches the examination and review of these projects from the angle of rebase and bonding mechanisms.

1. OlympusDAO Rebase Mechanism- User-controlled Network

Talk about a Defi that grows and impacts based on every participant’s input; the Olympus token project is participation based. Users stake their OHM and benefit from a network that grows in line with OHM emissions.

When the “index” increases at every rebase, the sOHM and gOHM supply and distribution vary.

The Olympus token project rebase mechanism (as illustrated below) entails users staking their OHM for a reward to earn them eligibility in navigating the network.

The Olympus token project is better explored by understanding the staking and the reward rate.

We look at the relationship between staking and reward rate to understand better how the Olympus project is faring and what users stand to gain as they stake, considering the rebase and bonding mechanisms.

Relationship Between Staking and Reward Rate

In understanding the level of OHM staking rewards, users play by the navigation of the reward rate. There is no manipulation; the reward rate is codified by eligible participants who make up the community.

The level of OHM staking rewards is determined by actively participating individuals (via the OIP-18 vote).

The reward yield is among significant elements of the token’s mechanism as it revolves around users’ participation. In simpler terms, the Olympus project reward depends on how many other individuals stake their OHM.

It gets interesting. When a more significant number of participants stake their OHM, the reward yield declines, and the opposite occurs when more users stake, causing an increase in the yield.

This expresses a unified network system, and the platform supports the growth process, presenting the current sOHM (staked OHM) as an illustrative annual percentage yield (APY).

This is logical considering the steady daily rebase nature of sOHM (about every 8 hours). It further aligns with the interest-oriented nature of the Olympus DAO rebase mechanism.

Let’s get practical. The diagram above further explains the APYs of the Olympus token project, supporting the project’s emphasis on rebase rate, number of stakers and existing supply as part of its growth mechanism.

However, as is with every token, users should keep in mind that calculations are floating and current rebase rates are not a guarantee of stake returns.

Since a rebase occurs three times daily, users’ reward raises to the power of 1095,  following the annual percentage yield.

Participants of the network will find it exciting and anticipate yields of a process that requires a merger of results from the number of OHM distributed to the staking contract and OHM total supply, as illustrated in the equation below:

2. Ampleforth Rebase Mechanism- Elastic Protocol

The Ampleforth project comes as an OHM Fork whose rebase mechanism is sends a sparkle. The AMPL is based on contraction and expansion.

The protocol flows with price and targets the CPI adjusted 2019 US dollar, deciding the number of tokens in user wallets based on price fluctuations.

AMPL, as its short form, we acknowledge its slight similarity to Bitcoin, with the only exception being that the number of tokens in user wallets increases as demand rises and decreases when there’s less demand.

A look into the token project’s expansion and contraction protocol helps to understand this better. Let’s look into it:

AMPL Expansion

Users are mandated to keep an eye on the token’s target as it is its major deciding factor for market prices.

It is simple; when the price exchange rate of the token rises over 2019 USD, it signifies higher demand than supply in the market.

In response and as is of a typical interactive DeFi system, the AMPL protocol automatically and proportionally calculates the amount of tokens in the user wallet, impacting the token’s worth.

AMPL Contraction

The AMPL’s contraction protocol has the price per AMPL returning to the CPI adjusted 2019 dollar when the market signals excess or limited supply, this presents the difference between the two as users’ experience of the AMPL’s deviation.

This scenario is unlike the expansion, having holders of the token experiencing supply volatility.

However, despite this unpredictable yet intriguing scenario, contracts denominated using AMPL will be stable long-term.

Instead of eliminating demand volatility, the Ampleforth protocol transfers it. Consequently, it offers holders unique benefits of not requiring collateral, treasury, market-maker or buyer-of-last-resort to fall back to its long-run target. It is among OHM Forks with a rebase mechanism for future DAOs.

3. Redacted Cartel – Innovative Bonding Model

The Redacted Cartel OHM Fork has one of the most interesting rebase mechanisms. It entails users being introduced to a new bonding mechanism based on taxes.

There is no hint of the possibility of potential users doubting this innovation that provides a new model of PCV accumulation that solely utilizes taxes.

The blockchain-oriented tax model brings to light the DAO’s shift from the traditional bonding mechanism. It revolves around governance, in similarity to the OlympusDAO project.

Moving away to the new mechanism in the second half of this year, PCV accumulation will be based on Harberger taxes, improving the allocation efficiency of assets.

It gets interesting. But it is what potential explorers will know and agree to; paying a higher tax (for an asset) than its current owner. In this case, the current owner is forced to sell to the highest bidder.

By “assets”, we look at stable protocols utilising Convex Finance (CVX) for governance power.

Long overdue for the DeFi ecosystem, this project has a productive model that allows a different growth mechanism for PCV.

Replacing the bonding mechanism with exotic yield markets, a more competitive system comes alive and is oriented around “staking slots” for people to explore Curve ecosystem tokens.

Conceptually, ownership over the Redacted treasury involves staking slots. A system where those holding BTRFLY maintain a digital common’s governance and build up PCV and the Redacted treasury from proceeds of purchased staking slots.

As is typical of a mechanism, details are subject to change. However, the dominating logic is to bring about a two-week voting period where the DAO will solely navigate and define the Pulse Height and other numbers, as illustrated in the image below.

It’s practically interesting as users are expected to stay on the Pulse Height and watch the starting block reward of the pulse to know when it is met.

Once met, users can then begin to own empty staking slots with burn rate, incentive rate and price/BTRFLY, as the image below illustrates.

For the Pulse duration, staking slots will always be available for acquisition by other users. However, as is with this model, slots are acquired by anyone willing to pay a higher burn rate than the current slot owner. The image below gives an illustrative angle.

For the entire Pulse duration, staking slot owners get their OHM emissions which facilitates quick PCV provision by quadratically dropping within the Pulse duration (2 weeks).

Consequently, slot owners who still hold their stakes at the conclusion of the Pulse period will receive first slots in the coming round. The image below illustrates this governance mechanism further.

Meanwhile, you will notice that there is no explicit mention of a defined rebase mechanism for this project. However, we see reasons to assume that it is similar to the Olympus DAO in their joint exploration of a people-centric governance model.

4. Wonderland – Risky, But Proactive Treasury Management System

Coming as the first project to warrant cautious advice to potential users, the Wonderland token project deploys capital at the very early stages of projects.

Users may want to be cautious, but will find its advanced treasury management strategies fascinating in the DeFi ecosystem.

The project explores a cross-chain reserve currency protocol to introduce a new currency exchange system in the DeFi ecosystem. This presents it as more active, although riskier than its counterparts.

We look to an advanced and innovative treasury management system that empowers crypto and web3.0 protocols while maximising capital growth and fostering wealth generation. It’s not all risky after all.

Users’ actions are described by minting and not bonding. The Wonderland website Mint page allows users to mint their TIME tokens to profitably sell assets in return for discounts on TIME tokens.

However, as some others in the DeFi ecosystem view it, the Wonderland minting process maintains significant similarity to a bond purchase on the unique and market-leading Olympus DAO.

5. TempleDAO Rebase Mechanism- Intrinsic Value Growth

TempleDAO Rebase Mechanism

The project has TempleDAO project the Safe Harvest process at its core and targets value growth in its rebase mechanism.

Safe Harvest entails minting new Temple tokens while maintaining intrinsic value growth.

We find this interesting, though. Because the strategy remains amusing; where the system causes a growth spike in the intrinsic value by minting less than it can mint.

This evolves as new FRAX emerge in the treasury. The Temple then periodically calculates to to create a dilution and decide the number of mints and resultantly grow the intrinsic value.

Let’s get practical; Say the treasury holds $1000, and Temple has a fully-diluted supply of 1000. In line with its rebase mechanism, this goes to say the intrinsic value of the token is $1000/1000, or $1.

Switch the narrative; say the Temple is worth $5, and a buyer just brought in $100 of FRAX to the treasury. Since $100 equals $5, 20 Temple (100/5) is minted and awarded to the buyer.

Having $80 left, if it decides, the treasury can mint additional 80 tokens. However, going beyond this threshold will have the intrinsic value decreasing. Since the less it mints, the higher the intrinsic value, the Temple gains more value by minting less than 80, in this case.

Various pools receive distributions from the minted tokens when a buyer brings a new FRAX. However, the treasury mints 20% less than the maximum it can mint when this purchase occurs. This remains a strategy to fuel a mechanism that offers:

• 43.75% to the staking rewards pool for distribution to stakers over time.
• 12.5% to the bonus rewards pool, to be distributed to Templars participating in FAITH
• 18.75% to be added as liquidity to the LP pool
• 25% to the DAO for funding development

‘Temple Defend’ – Bonding Mechanism

This project further explores the DeFi ecosystem and allows traders to buy with the option of selling their tokens to the protocol at a floor price (IV).

This mechanism entails traders keeping a watch on the token to know when the cool-down period is. Then they stake their tokens with the protocol with the Temple defend in effect.

However, after this activity, traders are allowed and not obligated to sell at the floor price (IV).

The system gives a new life to the bonding system where traders could buy Temple even at lower than the floor price, sell the tokens to the AMM for a deal, yet still retain the grace to redeem the tokens from the Temple protocol after the cool-down period.

They target the Temple’s increase in the short-term, and a win-win situation emerges for the trader and the protocol.

6. Klima DAO – The Climate Change Positivist

KlimaDAO maintains a primary reward distribution based on staking. It looks to have this method as its primary protocol mechanism for value acquisition.

The protocol mints and distributes tokens to stakers when there is an excess of reserves per token. The reward rate (as was significant with the OlympusDAO), is a controlling factor in the amount to be minted and distributed to stakers.

We call the Reward rate a rebased supply %. However, this development could heavily slow the supply expansion pace of the protocol, with a detrimental backlash.

This is so because when the Carbon Custodied (CC) of the treasury is higher than assets needed as backing for the KLIMA, rapid expansion should be avoided as it causes a price fall.

An sKLIMA rebase occurs to keep both the KLIMA and sKLIMA in line. The development accrues since the treasury deposits KLIMA into the distributor contract, which then deposits it in the staking contract. 

This mechanism brings about more KLIMA than it breeds sKLIMA, causing the need to keep them in parity, as we mentioned.

The user then owns a larger percentage of the portion of rebase since all KLIMA is staked. This reward illustration pictures it further:

This translates to AKR(Annualized KLIMA Rewards):

The DAO seeks to add value to an evolving green treasury and foster liquidity for vital environmental assets, similar to TempleDAO’s win-win situation.

KLIMA DAO – Bonding 

The KLIMA DAO bonding protocol leverages the intrinsic value of KLIMA to give a price quote and further decides each bond’s premium charge:

Although the KLIMA DAO doesn’t match the potential of unique and appealing projects like the Olympus, it gets interesting.

The premium charge depends on two variables: the system’s overall debt and an external controllable variable. This links price to outstanding bond numbers, as seen in the illustration below.

In earnest, demand (more bonds) determines the premium and discount ratio, and this can be vice versa.

Carbon Custodied (CC) refers to the tokenised carbon offsets held in the treasury reserves. For each KLIMA token minted, there are some carbon offsets in the treasury.

Stakers can then look to rebase rewards and expect payment when there are any excess reserves above the 1 tonne/KLIMA Intrinsic Value.

The formula below illustrates expectations from the pool as offsets are bought and sold. This becomes so because an LP share fluctuates in value in terms of offset tonnage.

It becomes logical to mark it down to relay the reality that all the carbon will not be resigned to the pool in the highly volatile market.

Where K is the constant product of the LP pool.

It’s important to know that the KLIMA token is backed by a substantial average of the price and quantity of several carbon assets, resulting in Carbon Custodied.

It’s not serious, but it’s worth the attention because Naked carbon assets representing one tonne of carbon per token (BCT, MCO2etc) contribute a carbon custodied value of 1 tonne per token.

7. Snowbank – Auto-compounding

Shorts for SB, Snowbank was a Wonderland project built on Avalanche blockchain.

The project had achieved a few landmarks, including supporting auto compounding and facilitating cost-effective stable asset swaps.

Among innovations of the SNOB project were Lava,  which brought liquid Avax staking to the blockchain. However, the project failed and went into redistribution.

8. Spartacus Rebase Mechanism – Backing for Intrinsic Value

The Spartacus token project earns a space on the Coingecko list. Emerging in the ember period of 2021, the token comes as one of Olympus forks on fantom.

However, similar to the KLIMA DAO, SPA will also back tokens. It bases governance on treasury growth via bond purchases and liquidity fees that provide backing and offer intrinsic value.

9. Rome – MMORPG Gaming Governance Orientation

Rome DAO maintains a similar mechanism as the Olympus DAO. The project employs a gaming system to serve as a reserve currency.

Exploring gaming for governance, in Rome’s case, staking takes place over Moonriver, the first layer of the Polkadot blockchain on which it is built.

10. Invictus – Dynamic Rebasing

Invictus DAO implements Dynamic Rebasing to create a new systemic approach to having a decentralised reserve currency. Dynamic Rebasing is the rebasing mechanism where every contract block adapts to the treasury size.

Dynamic rebasing occurs rapidly and has a pretty fast adaptation to the treasury development.  When the treasury increases, say you stake  (◎,◎) = (3,3), your staked balance increases almost instantly.

The OHM Fork’s rebasing mechanism continues to be time sensitive as it solves bothering issues like larger holders of the token selling directly after a rebate.

The rebase impacts by putting downward pressure on IN prices in concentrated windows after an 8-hour period. It means rewards get growing contributions across every time frame.

Invictus stalkers will be glad to know and boast of their stakes being processed and auto-compounded almost immediately.

This goes to say staking and compounding the Invictus token will work harder for stakers, contrary to conventional platforms such as the OlympusDAO.

Conclusion

With focus given to OHM Forks rebase and bonding mechanisms, this post gave an overview of the top rebase tokens on Coingecko. It is a further acknowledgment that DAOs are taking the stage pretty fast.

Innovation, uniqueness and appeal are key attractions, and the Olympus DAO remains the most prominent project in this regard. Being the first market mover, most other projects are forks of it.

If you want to learn more about topics such as blockchain, tokenomics, and DeFi make sure to get in touch!

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