From a price perspective, the short-term boosting effect is obvious. In the long run, it is not a panacea.

Written by: 1912212.eth, Foresight News

Since the beginning of this year, token buybacks have gradually become a common strategy for cryptocurrency projects to cope with market volatility. Especially at the beginning of 2025, with global economic uncertainty and an overall adjustment in the crypto market, many token prices have significantly dropped, even reaching historical lows. Against this backdrop, several projects have announced or implemented large-scale buyback plans, attempting to stabilize prices and boost investor confidence by reducing circulating supply.

Recently, DeFi projects like dYdX and Jupiter announced buyback plans, and even the co-founder of the new public chain Berachain announced efforts to buy back tokens from the seed round and Series A. So, why are many VC tokens that have been abandoned by the market frequently announcing buyback plans recently? Is it a newfound conscience or a response to the situation? Does buyback really support token prices?

Token Prices Under Pressure, Projects Initiate Self-Rescue

The crypto market at the beginning of 2025 is not calm. Global macroeconomic uncertainty, regulatory pressure, and a decline in investor risk appetite have led to a severe correction in altcoins, with some tokens dropping more than 80%. Projects are facing dual challenges of community skepticism and pressure on their funding chains, making token buybacks a self-rescue measure to alleviate selling pressure by reducing circulation and signaling long-term value to the market. This strategy draws on the logic of stock buybacks in traditional finance—companies buy back stocks to indicate that the stock price is undervalued and to enhance earnings per share.

In the crypto market, Binance set a benchmark for the industry with its successful buyback and burn of BNB. Recently, at a time when VC tokens were experiencing widespread declines and facing criticism from retail investors, some projects finally moved from silence to a hesitant acknowledgment, eventually proposing initiatives and even directly announcing that a portion of protocol revenue would be used for buybacks.

In March of this year, dYdX announced it would use 25% of the protocol's net fees each month to buy back DYDX tokens from the open market. The founder of AAVE also announced on Twitter the launch of a new proposal for a new Aave staking module to facilitate AAVE buybacks and fee conversions. The Arbitrum development team, Offchain Labs, also announced the initiation of a strategic purchasing plan to increase its holdings of ARB in the open market and through other trading methods. Even contributors from the Solana ecosystem project Jito Foundation have started discussions about token buybacks and rewards.

In January of this year, Jupiter announced that 50% of its fee revenue would be used for JUP buybacks, and subsequently announced that the repurchased JUP would be locked for three years, having repurchased over $9 million worth of tokens by the end of March.

Under the pressure of the market, many projects have finally realized that the mindset of "token prices don't matter" is incorrect; the long-term stagnation of project token prices will eventually lead community members to lose confidence and choose to leave.

Buybacks Are Not a Panacea

As an economic tool, buybacks have multidimensional effects. From a price perspective, the short-term boosting effect is evident. According to the principle of supply and demand, reducing circulating supply while demand remains unchanged will push prices up, and many projects have indeed seen a temporary increase in token prices after announcing buybacks. On March 24, the day the DYDX buyback plan was announced, the token price rose from $0.65 to a peak of $0.76. On January 26, after the Jupiter buyback plan was announced, the daily low of $0.89 rose to a peak of $1.28.

However, this effect is often fleeting, especially in a sluggish market where external selling pressure can quickly offset gains. In the long run, price trends depend more on the project's fundamentals rather than merely on supply reduction. For example, projects like GMX invested millions of dollars in token buybacks, yet the price still fell below the buyback cost, indicating that buybacks are not a cure-all.

For project ecosystems, buybacks are a double-edged sword. They require the use of protocol revenue or treasury reserves, which may crowd out funding for product development and ecosystem expansion. If small and medium-sized projects overly rely on buybacks, they may even weaken their long-term competitiveness. However, some projects choose to reinject the repurchased tokens back into the ecosystem, such as using them to reward users or support liquidity pools. This "buyback and reuse" strategy is more sustainable compared to the traditional "buyback and burn."

Investor confidence is another key dimension of buybacks. Buybacks are often seen as a sign of the project team's confidence in the future, especially in a sluggish market, as they can alleviate community panic. However, if buybacks fail to deliver on promises or yield poor results, they may instead trigger a crisis of trust. Historically, some projects have been accused of creating false prosperity through buybacks, even transferring tokens to controllable wallets instead of burning them, severely damaging community trust. Therefore, transparency and execution are crucial.

Buybacks also come with risks. Frequent or opaque buybacks may raise suspicions of market manipulation, especially in the crypto market where regulatory frameworks are lacking, and regulators like the U.S. SEC may intervene for scrutiny. Excessive buybacks may also lead to a too-low circulating supply, affecting trading activity and market depth, and even threatening liquidity. If a project's revenue sources are singular or the market remains sluggish, the financial sustainability of buybacks will also be tested.

Looking ahead, buyback strategies may evolve. Decentralized governance may allow communities to participate in decision-making through DAOs, enhancing transparency; dynamic buyback mechanisms could utilize smart contracts to automatically adjust the pace based on market conditions; models combining staking rewards may also create positive cycles. For project teams, successful buybacks require public disclosure of funding sources and execution details, balancing short-term interests with long-term development while focusing on product innovation and user growth. For investors, in the face of the buyback frenzy, it is essential to remain rational and focus on project fundamentals rather than chasing short-term fluctuations.

Conclusion

The recent wave of token buybacks in crypto projects is both an emergency response to market sluggishness and a proactive attempt to optimize token economics. It can boost prices and confidence in the short term, but the long-term effects depend on execution and market conditions. Buybacks are not a panacea; their success ultimately hinges on whether projects can find sustainable development paths amid turmoil. As the industry becomes more standardized and technology advances, this strategy may become more diversified, injecting new vitality into the crypto ecosystem.

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