Rebase System

What is Rebasing?

Rebasing is the automatic adjustment of the COS token supply to influence its price. In Cosmos DAO, the rebasing mechanism keeps the COS token price within ±20% of its 30-day moving average. By increasing or decreasing the total supply of COS tokens, the system stabilizes the token’s value in response to market fluctuations.

How the Rebasing System Works

The rebasing system operates on a daily cycle, comparing the COS token price to its 30-day moving average. Supply adjustments occur as follows:

• If the COS price is >20% above the 30-day moving average:

  • The system increases the total supply of COS tokens to bring the price down toward the target range.

• If the COS price is <20% below the 30-day moving average:

  • The system decreases the total supply of COS tokens to push the price up toward the target range.

• If the COS price is within ±20% of the 30-day moving average:

  • No adjustment is made to the supply.

These adjustments ensure the COS token’s price remains stable over time, creating a reliable store of value within the Cosmos DAO ecosystem.

How Rebase Works

• Staking and xCOS: When users stake their COS tokens, they are converted into xCOS (staked COS). The xCOS balance increases periodically through the protocol’s interest reward mechanism.

• Epoch: Rebase occurs at fixed intervals (e.g., every 8 hours). During each epoch, the protocol issues new COS tokens based on the total supply (COS_totalSupply) and the reward rate (rewardRate).

• Compounding Effect: Newly issued COS tokens are primarily distributed to xCOS holders, increasing their xCOS balance automatically for a compounding effect. Interest accrues at 0.3957% per rebase.

• Price Stability: The COS token is backed by a minimum value of 1 DAI (or other assets). If the market price falls below this threshold, the protocol buys back and burns tokens to defend the price.