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Interpreting the Cryptocurrency Project Buyback Craze: Why Doesn't the Price Reflect It?

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Stock Buyback can create scarcity, but scarcity does not necessarily equate to attractiveness.

Original Article Title: Do Token Buybacks Work?

Original Article Author: RichKing | RPS AI

Original Article Translation: DeepTech TechFlow

During discussions with developers, we found that for early-stage teams, there is a lack of simple guides on on-chain liquidity management. As liquidity providers (LPs) and on-chain market makers, we often see common mistakes being overlooked until they evolve into costly issues. Most centralized exchange (CEX) market makers also seem to not provide much guidance on managing on-chain liquidity.

The Heavendex AMM (Automated Market Maker) has established a mechanism where all transaction fees are used for token buybacks. Heavendex's token $LIGHT also participates in these buyback systems.

TLDR: Scarcity ≠ Attractiveness

Token buybacks reduce the token's supply. After a supply reduction, people may expect an increase in demand, driving up the value. However, many cryptocurrency tokens do not have intrinsic demand. Most demand comes from attention and awareness, which is often the primary focus of most projects.

As the industry matures, projects with stronger fundamentals will make the buyback mechanism more effective in the long term. We have seen some projects starting to explore the "flywheel effect" (a protocol-level buyback mechanism), which aims to link fundamental revenue to token value. Whether these attempts will be successful remains to be seen. Meanwhile, buybacks are often used to mitigate negative sentiment or create short-term price volatility, with varying degrees of success.

What Can Token Buybacks Really Achieve?

Before delving into buybacks in the cryptocurrency space, let's first look at some cases of Web2 companies.

In traditional public markets, buybacks are often used for the following purposes:

· Boosting stock prices

· Creating scarcity

· Rewarding shareholders

· Utilizing excess cash

Apple Inc. is a typical example—since 2012, Apple has spent over $650 billion on buybacks, reducing the number of shares outstanding by about 40%. This strategy has been successful due to Apple's continued earnings growth. In contrast, buybacks by companies like General Electric (GE), IBM, or some oil giants have not stopped stock price declines as their fundamentals gradually deteriorated.

From 2010 to 2019, Apple reduced its outstanding shares by over 50% through a series of aggressive share buyback programs. During the same period, its stock price rose from $11 per share to $40 per share, a 300% increase.

Why Stock Buybacks Signal More than Token Buybacks?

Will the cryptocurrency space begin adopting Earnings Per Share (EPS) as a method to evaluate token value?

Stock buybacks directly boost Earnings Per Share (EPS) by reducing the number of outstanding shares. Investors closely monitor EPS and valuation multiples.

However, the cryptocurrency space lacks a similar EPS metric. Prices are more influenced by attention, liquidity, and narrative rather than financial comparisons.

Additionally, programmable buybacks in cryptocurrency face a challenge: revenue is cyclical and often fluctuates with bull and bear markets.

Founder's Buyback Decision Checklist: Should You Buy Back?

Does your protocol have a stable source of income? (Or are you depleting your treasury funds?)

Is your treasury strong enough to support buybacks without hindering growth?

Are you combining buybacks with fundamentals, such as product releases, partnerships, or user growth?

Is your goal price support or merely creating a surface-level effect?

If the answer leans towards a "surface-level effect," you may have just triggered a pump-and-dump.

Types of Token Buybacks

Different buyback approaches apply to different scenarios.

The Full Cycle of Buybacks: Pre, During, Post

· Announcing the Buyback Plan: Sometimes, market reactions are solely based on the buyback plan announcement ("pre-pricing" news).

· Executing the Buyback: In some cases, the execution of the buyback may trigger selling—providing liquidity for holders looking to exit.

· Programmatic Buyback: Considered the most optimal, but exhibits instability during revenue cyclical fluctuations. For example, Raydium has burned over $175 million worth of RAY, but its price still fluctuates with market attention cycles.

· Overpayment: Executing buybacks at a high valuation consumes more of the treasury reserve. Adopting an algorithmic or volume-weighted approach can help smooth out this process.

Case Study

Hyperliquid ($HYPE): 97% of its decentralized exchange (DEX) revenue is used for a daily buyback of around $3 million, with an expected annual revenue of $650 million. With strong revenue and a bold buyback plan, $HYPE is often hailed as the most successful buyback project. (The next question is when or if the foundation will sell off?)

$HYPE's buyback scale is akin to Web2's Microsoft, with a Market Cap/Fully Diluted Valuation (MCAP/FDV) buyback ratio of 82x, making the annual buyback scale very significant compared to the circulating supply.

· Pumpfun ($PUMP): On-chain buyback and burn of 118,351 SOL led to a 20% price increase, but the price fell back within a day. Scarcity did not translate into attractiveness—competitor BONK continued to gain attention. (As of August 22, 2025, Pumpfun has regained market share leadership, but $PUMP has yet to respond.)

· Raydium ($RAY): Programmatic buyback combined with a unilateral SOL liquidity experiment. The latter, by creating a price floor rather than chasing price pumps, took a healthier approach.

Unilateral liquidity created significant passive buybacks at a $2.89 price level.

· BNB Burn: The crypto industry's largest and most stable buyback/burn model (programmatic burn based on centralized exchange revenue, totaling $35 billion in BNB burned). The success of this model is attributed to Binance generating billions in revenue annually through fees, providing sustainable funding support.

· MakerDAO Surplus Auction & Burn: Protocol revenue used to purchase and burn MKR.

A buyback may become unprofitable due to a market downturn, hence the need for an effective fund management system to optimize Return on Investment (ROI).

Investor Perspective: Where Does the Buyback Money Come From?

Smart money looks beyond the surface to the essence. The strength level of a buyback signal is as follows:

· Supported by recurring revenue → Strong Signal

· Programmatic buyback, linked to fees → Moderate Signal

· Opportunistic buyback, supported by fund reserve → Weak Signal

· One-time burn, depleting fund reserve → Bearish Signal

A buyback supported by protocol revenue is a positive signal, while a buyback depleting the fund reserve is a risky signal.

For example, a Solana project with a fully diluted valuation (FDV) of $5 million had a manual buyback plan (each orange line represents a 0.5% buyback of the total token supply). Through the buyback, the project's portfolio value quadrupled, leveraging this growth to actively manage liquidity.

Three Key Rules for Effective Token Buybacks

1. Must be supported by sustainable revenue (not one-time fund reserve depletion).

2. Must be combined with fundamentals (e.g., product launches, partnerships, or user growth).

3. Must be transparent and predictable to build holder confidence, rather than sell-off in short-term price fluctuations.

In Conclusion: In the stock market, buybacks amplify fundamentals. In the crypto space, buybacks can create scarcity—but scarcity does not equate to attractiveness. Unless a protocol can establish stickiness, recurring revenue, and demand-side utility, buybacks are mostly a narrative tool. When combined with real fundamentals, a buyback can be a powerful signal; if only used for surface effects, it only aids others' exits.

Other Examples:

$RAY Buyback and Price Trend from July 2022 to July 2025