TL;DR
Tokens with an elastic supply have a variable supply. The theory goes that through processes known as rebases, the token supply fluctuates instead of price fluctuations.
Consider a scenario where the Bitcoin protocol might modify the quantity of bitcoins held by users to hit a desired price. Right now, you have 1 BTC. The value of each of your two Bitcoins has decreased by 50% as of the time of your next awakening. A rebase mechanism operates in this manner.

Introduction

The term "deadline" refers to the process of obtaining a license to operate a vehicle. Yield farming, tokenized Bitcoin on Ethereum, Uniswap, and flash loans have all already been covered. Elastic supply tokens, also known as rebase tokens, are another area of the cryptocurrency market that has been fascinating to observe.
Numerous experiments are possible thanks to the novel process that underlies them. See how these tokens function now.

An elastic supply token is what?

The circulating supply of an elastic supply (or rebase) token fluctuates in response to changes in the token price. A process known as rebasing is used to achieve this increase or decrease in supply. When a rebase happens, the token's supply is algorithmically increased or lowered based on each token's current price.
Elastic supply tokens and stablecoins resemble one other in certain respects. These rebase mechanics make it easier for them to reach their target pricing. Rebasing tokens try to achieve it with a fluctuating (elastic) supply, which is the main distinction.
But don't many cryptocurrencies have a fluctuating supply? Yes, in a way. Currently, each block produces 6.25 new bitcoins. This will be cut in half, to 3.125 per block, after 2024. Since the rate is predictable, we can predict how much Bitcoin will be left after the next halving or in a year.
The operation of supply-elastic tokens varies. As previously explained, the rebasing method regularly modifies the supply of tokens in circulation. Consider an elastic supply token with a target value of one dollar. Rebasing reduces the value of each token if the price is more than one US dollar. In contrast, if the price falls below $1 USD, the rebase will reduce the supply, increasing the value of each token.
What does this imply practically speaking? If a rebase happens, the number of tokens in user wallets changes. You have 100 Rebase USD (rUSD), a fictitious token with a target price of 1 USD, safely stored in your hardware wallet. Say the cost falls below $1 USD. You will only have 96 rUSD left in your wallet after the rebase, but each will be proportionally worth more than it was before.
Your holdings should remain unchanged following the rebase, according to the theory. Even if the quantity of coins in your wallet has changed, if you held 1% of the supply prior to the rebase, you should still have 1% after it. In essence, regardless of the cost, you keep your piece of the network.

Examples of rebasing tokens

Ampleforth

One of the first coins to utilize an elastic supply was ampleforth. The price of 1 AMPL, the synthetic commodity that Ampleforth seeks to be, is set at 1 USD. There is one rebase every 24 hours.
The idea didn't get much traction until the launch of the Geyser liquidity mining campaign. The length of this program is particularly intriguing. Over a ten-year period, it distributes tokens for participants. A great illustration of how liquidity incentives can help a DeFi initiative gain substantial traction is Geyser.
Despite being a stablecoin in theory, the AMPL price chart demonstrates the extreme volatility of elastic supply tokens.

Despite having a $1 objective, the AMPL price can still be highly unstable.

Remember that this price chart only depicts the cost of individual AMPL tokens and ignores variations in supply. Ampleforth is still very volatile, making it a dangerous coin to experiment with.
Charting elastic supply tokens according to market capitalisation might make more sense. The market cap can be a more accurate indicator of the network's growth and traction because the price of individual units is less important.

Graph of the market capitalization of AMPL.

Yam Finance

One other elastic supply token initiative that has gotten some interest is Yam Finance. The overall structure of the Yam protocol is a hybrid of the elastic supply of Ampleforth, the staking system of Synthetix, and the fair launch of yearn.finance. YAMs also has a $1 USD price target that it wants to hit.
Due to the fact that all tokens were allocated by liquidity mining, YAM is an entirely community-owned experiment. Through a yield farming mechanism, everyone had an equal opportunity to obtain these tokens since there was no premine or founder allocation.
Yam had 600 million dollars of value secured in its staking pools in less than two days despite being a brand-new and unproven product. The fact that YAM farming was especially going after owners of some of the most well-known DeFi currencies may have drawn a lot of liquidity. These were the Uniswap LP tokens COMP, LEND, LINK, MKR, SNX, ETH, YFI, and ETH-AMPL.
However, significantly more supply was minted as intended due to a flaw in the rebasing procedure. Ultimately, a community-funded audit and collaborative effort allowed the project to be relaunched and transferred on a new token contract. Holders of YAM now have complete control over the future of Yam.

The dangers of tokens with an elastic supply
Tokens with an elastic supply are extremely hazardous investments. Only if you are certain that you are doing everything correctly should you invest in them. Keep in mind that looking at price charts won't be all that helpful because following rebases, the number of tokens you hold will fluctuate.
Yes, this can increase your gains, but it can also increase your losses. If rebases take place as the price of the token is falling, you will not only lose money as the price of the token falls, but you will also possess fewer and fewer tokens after each rebase!
Most traders will probably lose money if they invest in rebasing tokens because they are difficult to understand. If you thoroughly understand the workings of elastic supply tokens, only invest in them. If not, you won't be in charge of your investment and won't be able to make good choices.

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Concluding remarks

One of the developments in DeFi to keep an eye on is elastic supply tokens. These are coins and tokens that, as we've seen, can algorithmically change their supply in order to try to hit a target price.
Are elastic supply tokens just a fun experiment, or will they take off and find their place in the market? It's challenging to say, but new DeFi protocol designs that try to advance this concept are undoubtedly in development.