Author: Nancy, PANews
On November 11, Uniswap, a leading DEX, proposed a buyback and burn mechanism, which sparked heated discussions and made the method of capturing token value a focus of market controversy. Executives from Curve and Solana, among others, publicly expressed their respective positions.
In traditional stock markets, buybacks, cancellations, and dividends are common capital operation methods. Especially during periods of market downturn and pressure on profit expectations, these measures are often seen as "stabilizing valves." Currently, these market capitalization management tools are also becoming increasingly popular in the crypto market, with more and more projects using them to enhance token value, boost holder confidence, and establish a positive incentive cycle.
Buybacks are becoming a popular strategy; their effectiveness depends on transparent execution and market conditions.
A share buyback is when a company uses its available funds to purchase its own outstanding shares on the open market, thereby reducing the total number of shares outstanding and conveying confidence to the market.
Apple is a prime example of stock buybacks in the US stock market in recent years. Over the past decade, Apple has repurchased a total of $704 billion, a figure exceeding the market capitalization of most companies in the S&P 500. This massive scale of buybacks has become a core means of maintaining shareholder returns. However, this financial engineering strategy is considered insufficient to support future growth.
A buyback frenzy is rapidly unfolding in the crypto market, particularly in the DeFi sector, providing projects with tools to flexibly manage token economic models and optimize ecosystem incentives. According to CoinGecko's 2025 token buyback data released in October, 28 token projects have already spent over $1.4 billion on buybacks this year, averaging approximately $146 million per month. However, the scale of buybacks varies significantly among projects. The top ten buyback projects account for 92% of the total, with Hyperliquid alone contributing 46% of the buyback expenditure. In contrast, the buyback amounts of other projects are relatively limited, mostly ranging from hundreds of thousands to millions of dollars.
However, the market's reaction to token buyback strategies is not always positive, and the prices of many projects have not increased significantly as a result. There are several main reasons for this: Firstly, while token buybacks can reduce market circulation and create a sense of scarcity, most projects lack intrinsic demand, and their prices are driven more by market hype, liquidity, and narrative.
On the other hand, the effectiveness of buybacks often depends on the project's revenue sustainability and business fundamentals. However, most projects have limited or highly cyclical revenue, making it difficult to provide long-term support. For example, Hyperliquid has a stable revenue stream, and its buyback activities can effectively drive up the price of its token; while Pump.fun's revenue is significantly affected by the popularity of MEME, and buybacks can only bring short-term price fluctuations.
Keyrock's Head of Research, Amir Hajian, also commented that the crypto buyback craze is testing the industry's financial maturity. While buybacks aim to send a confidence signal by reducing circulating supply, much of the spending comes from treasury rather than recurring revenue, which could deplete future operating capacity. For true maturity, protocols must move beyond hype-driven spending and adopt restraint, linking buybacks to valuation metrics, cash flow strength, and market conditions, such as through trigger- or option-based models. He suggests that buybacks should only be conducted when revenue is stable, treasury is full, and valuations indicate the token is undervalued, emphasizing that the real measure is discipline , not the buyback policy itself.
"Buybacks are fairer to every holder because everyone benefits from the spot price. They're also more tax-efficient for most people and easier for retailers to understand and communicate. However, not all buybacks are created equal. For example, Fluid and Lido (in the proposal stage) only trigger buybacks when revenue exceeds a certain threshold, protecting the treasury during bear markets while keeping buybacks sustainable without depleting reserves. Research also shows that buybacks have a stronger impact on price when liquidity is scarce (this effect is offset when traders sell after a buyback?). Maker and Lido go a step further by pairing the repurchased tokens with ETH or stablecoins (forming liquidity pools), thus increasing liquidity while reducing supply," DeFi researcher Ignas noted in an article.
Buybacks are not enough; destruction drives the deflationary narrative.
However, many projects lack transparency in their buyback operations, with unclear mechanisms (such as triggering conditions, buyback volume, source of funds, and usage), making it difficult to verify the authenticity and purpose of the buybacks. Especially with buybacks lacking a burning mechanism, tokens may re-enter the market through sales or incentives after a short period. For example, Movement and MyShell, which were previously required by Binance to buy back their tokens, recently transferred the repurchased assets back to exchanges.
In the capital market, not all share buybacks truly enhance shareholder value. Among them, cancellation-type buybacks are considered the most valuable. Companies use real money to repurchase shares from the market and then cancel them, permanently reducing the number of outstanding shares and thus increasing earnings per share and shareholder equity . This differs from buybacks used solely for equity incentives or as treasury stock, which often conceal future selling pressure and are unlikely to provide lasting value support.
Similarly, in the crypto market, token "burning" is often seen as a form of "true buyback," reinforcing market sentiment and driving up price expectations. From an economic perspective, the burning mechanism is essentially a deflationary measure and is one of the design elements in a token economic model that strengthens long-term value support.
Crypto KOL @qinbafrank points out that for growth assets (tech stocks, cryptocurrencies), buybacks and burns are generally superior to dividends. With protocol revenue remaining constant, buybacks and burns effectively increase the intrinsic value of individual tokens, directly injecting the positive externality of protocol revenue into the token economy. In contrast, with dividend mechanisms, holders may cash out, failing to reflect growth in the token economy. For example, BNB has conducted 33 quarterly burns since its ICO, burning a cumulative 31% of its tokens, reducing the total supply from 200 million to 138 million, and experiencing a smaller decline than Bitcoin even during bear markets.
Unlike traditional capital markets, the cryptocurrency market is more volatile and emotional, and the effects of burning are often amplified by cycles: in a bull market, it can be a catalyst for price increases; while in a bear market, weak demand makes the deflationary effect relatively limited.
Furthermore, destruction is often interpreted by the market as a positive signal, easily triggering short-term speculation. However, as the hype fades, prices may quickly fall back. From a project operation perspective, destruction also means the redistribution of resources. Some projects use it as a marketing tool, using scarcity to gain short-term confidence, but this may not bring sustainable value and may even reduce investment in technology research and development, ecosystem incentives, or market expansion.
Another overlooked risk lies in data authenticity. Not all announced burns can be verified on-chain; some projects may engage in misrepresentation, double counting, or even "fake burns." For example, Crypto.com announced in March of this year the reissue of 70 billion CRO tokens that it had previously promised to "permanently burn" in 2021. Therefore, investors need to assess the actual impact of burns on circulating supply, making judgments based on multi-dimensional information such as on-chain data, changes in token distribution, and project fund flows.
Dividend opportunities usher in the era of passive income.
In the stock market, dividends are both a way for companies to reward shareholders and a common tool for market capitalization management. Common forms include cash dividends, stock splits, and bonus share issues. Dividends not only reflect a company's profitability and cash flow but also serve as an important reference for investors assessing a company's value and attractiveness. However, dividends often lead to a short-term decline in stock prices. For growth companies, excessively high dividends may limit their long-term growth potential; and for investors seeking capital appreciation, the returns from some companies' dividends may be far less than the gains from rising stock prices.
Unlike traditional stock dividends, crypto projects typically don't distribute cash directly based on company profits. Instead, they provide passive income or rewards to token holders through various mechanisms, including token rewards, fee sharing, interest, and airdrops. These mechanisms not only generate returns for investors but also support network security, liquidity, and user activity. A report by crypto market maker Keyrock indicates that the top 12 DeFi protocols spent approximately $800 million on buybacks and dividends in 2025, a 400% increase from the beginning of 2024.
For example, users can participate in network validation or governance by staking tokens, earning rewards while enhancing network security and consensus efficiency. Simultaneously, users can contribute assets to liquidity pools through yield farming, increasing market liquidity while earning rewards. Furthermore, some projects incentivize token holders to share in the revenue generated from platform transactions or usage through protocol fee sharing, thereby encouraging long-term holding and active participation in governance.
According to DeFi researcher Ignas, he prefers staking and locking because non-participants are essentially subsidizing active participants. For example, if CRV generates $10 million in revenue, but only 50% is staked, only the stakers receive the revenue. Holders on CEXs (centralized exchanges) receive nothing. Moreover, locking tokens only temporarily halts circulation; they can eventually be unlocked and re-enter the market.
Compared to traditional markets, crypto dividend mechanisms offer multiple advantages, including stable returns without active trading; the ability to gain governance voting rights by staking or locking tokens, enhancing community cohesion; automatic reinvestment in many protocols, enabling a snowball effect of compound interest; low entry barriers, allowing participation with minimal capital; transparent revenue sources, with all transaction fees, interest, and protocol revenue recorded on-chain and verifiable in real time; and the inherent potential for asset appreciation in the dividend tokens themselves.
However, risks also exist. For example, smart contract vulnerabilities or centralized protocol issues could lead to the theft or transfer of funds; impermanent loss may occur when providing liquidity; price fluctuations can cause asset value to shrink, offsetting gains or even resulting in principal loss; a decline in collateral prices in lending scenarios may trigger forced liquidation; and lock-up periods also imply opportunity costs, potentially missing out on other investment opportunities. Furthermore, while buybacks and burns are market-driven activities, the dividend mechanism of governance tokens may attract regulatory attention and could be classified as securities. For instance, UNI has repeatedly shelved or delayed its fee on/off proposal due to regulatory risks.
