This uses a gradient texture to change the color of an object smoothly.

default
{
 state_entry()
 {

 llSetTexture("a84eefad-f8b7-7f6a-4ab1-1d9714553e70",ALL_SIDES);
 llSetTextureAnim(ANIM_ON | SMOOTH | LOOP , ALL_SIDES, 16, 1, 0, 16, 1);

 }

}