Who should holders choose? Buyback and burn or dividends to initiate a new game of token appreciation

Author: Nancy, PANews

On November 11th, leading DEX Uniswap proposed a buyback and burn mechanism, sparking widespread discussion and turning the spotlight on methods of token value capture, including public statements from executives at Curve, Solana, and others expressing their respective positions.

In traditional stock markets, buybacks, cancellations, and dividends are common capital management strategies. Especially during periods of market downturns and pressured profit expectations, such measures are often viewed as “stabilizers.” Currently, these market capitalization management tools are gaining popularity in the crypto space, with more projects using them to enhance token value, boost holder confidence, and establish positive feedback loops.

Buybacks become a popular strategy, with effectiveness depending on transparent execution and market conditions

A buyback involves a company using its available funds to purchase its own shares on the open market, reducing the total share count and signaling confidence to the market.

Apple has been a prominent example of stock buybacks in recent years. Over the past decade, Apple has repurchased approximately $704 billion worth of its stock, a figure that exceeds the market capitalization of most companies in the S&P 500. Such massive buyback programs have become a core method for maintaining shareholder returns. However, this financial engineering strategy is considered insufficient to support future growth.

The surge in crypto buybacks is also accelerating, especially in DeFi, providing projects with flexible tools to manage tokenomics and optimize ecosystem incentives. According to CoinGecko’s October report on 2025 token buybacks, this year, 28 token projects have collectively repurchased over $1.4 billion, averaging about $146 million per month. However, the scale of buybacks varies significantly among projects, with the top ten accounting for 92% of the total, led by Hyperliquid, which contributed 46%. In contrast, most other projects have buyback amounts in the hundreds of thousands to a few million dollars.

Nevertheless, market reactions to token buyback strategies are not always positive; many projects’ token prices have not significantly increased as a result. The reasons include multiple factors: while buybacks can reduce circulating supply and create scarcity, most projects lack intrinsic demand, and prices are more driven by market sentiment, liquidity, and narratives.

Furthermore, the effectiveness of buybacks often depends on the project’s revenue sustainability and fundamental business health. Many projects have limited or cyclical income, making long-term support difficult. For example, Hyperliquid has stable revenue streams, allowing its buybacks to effectively boost the token price; whereas Pump.fun’s revenue is heavily influenced by meme hype, so buybacks only cause short-term price fluctuations.

Keyrock’s research director Amir Hajian also commented that the crypto buyback craze is testing the industry’s financial maturity. While buybacks aim to signal confidence by reducing circulating supply, most expenditures come from treasuries rather than recurring income, which could deplete future operational capacity. To achieve true maturity, protocols should go beyond speculative spending, adopting disciplined approaches linked to valuation metrics, cash flow, and market conditions—such as trigger-based or options-based mechanisms. He suggests that buybacks should only occur when revenues are stable, treasuries are ample, and tokens are undervalued, emphasizing discipline over the buyback policy itself.

“Buybacks are fairer for every holder because everyone benefits from the spot price. They are also more tax-efficient for most investors and easier for retail to understand and communicate. However, not all buybacks are equal. For example, Fluid and Lido (proposed) only trigger buybacks when income exceeds certain thresholds, protecting treasuries during bear markets and maintaining sustainability, without depleting reserves. Research also shows that buybacks have a stronger impact on prices when liquidity is thin (though this effect may be offset when traders sell after buybacks). Maker and Lido go further by pairing buyback tokens with ETH or stablecoins in liquidity pools, increasing liquidity and reducing supply,” noted DeFi researcher Ignas.

Buybacks are not enough; burn mechanisms drive deflation narratives

However, many projects lack transparency in buyback operations, with mechanisms such as trigger conditions, buyback amounts, funding sources, and usage unclear, making the authenticity and purpose of buybacks difficult to verify. Especially for buybacks without a burn mechanism, tokens may re-enter the market shortly after buyback through sales or incentives. For example, Binance-initiated buybacks of tokens like Movement and MyShell recently saw the reintroduction of repurchased assets into exchanges.

In capital markets, not all buybacks truly enhance shareholder value. Cancellation-based buybacks are considered the most valuable, as companies use actual cash to repurchase shares and cancel them, permanently reducing the float and increasing earnings per share and shareholder equity. This differs from buybacks used solely for stock incentives or treasury stock, which may hide future selling pressure and fail to create lasting value.

Similarly, in crypto markets, token “burns” are often viewed as a form of “real buyback,” reinforcing market sentiment and boosting price expectations. From an economic perspective, burn mechanisms are inherently deflationary tools, designed to strengthen long-term token value within the economic model.

Crypto influencer @qinbafrank pointed out that for growth assets like tech stocks and cryptocurrencies, buybacks and burns are generally preferable to dividends. When protocol revenue remains unchanged, buybacks and burns effectively increase the intrinsic value of individual tokens, directly injecting positive externalities into the token economy. In contrast, dividends involve cash payouts that may be cashed out and do not necessarily contribute to token value growth. For example, since ICO, Binance Coin (BNB) has conducted 33 quarterly burns, destroying 31% of its tokens, reducing total supply from 200 million to 138 million, with a decline less severe than Bitcoin during bear markets.

Unlike traditional markets, crypto markets are more volatile and sentiment-driven, amplifying the effects of burns: during bull markets, they can catalyze price increases; in bear markets, weak demand limits deflationary impact.

Moreover, burns are often interpreted as positive signals, sparking short-term speculation, but as hype fades, prices can quickly fall back. From a project operations perspective, burns also involve resource reallocation; some projects use them as marketing tools to create scarcity and short-term confidence, but they may not generate sustainable value and could even reduce investments in R&D, ecosystem incentives, or market expansion.

Another overlooked risk is data authenticity. Not all announced burns are verifiable on-chain; some projects may exaggerate, double-count, or even falsely report burns. For example, Crypto.com announced in March this year that it reissued 70 billion CRO tokens previously “permanently burned” in 2021. Investors need to assess the actual impact of burns on circulating supply by examining on-chain data, token distribution changes, and project fund flows.

Dividends open a new era of passive income

In stock markets, dividends are a way for companies to reward shareholders and are often used for market cap management, including cash dividends, stock dividends, and bonus shares. Dividends reflect a company’s profitability and cash flow, serving as key indicators for valuation and attractiveness. However, dividends often cause short-term stock price declines. For growth-oriented companies, high dividends may limit long-term growth potential; for investors seeking capital appreciation, dividend yields may be less attractive than stock price gains.

Unlike traditional dividends, crypto projects typically do not distribute cash directly from profits but provide passive income or rewards through various mechanisms, including token rewards, fee sharing, interest, and airdrops. These mechanisms generate income for investors while supporting network security, liquidity, and user engagement. Keyrock reports that the top 12 DeFi protocols spent about $800 million on buybacks and dividends in 2025, a 400% increase from early 2024.

For example, users can stake tokens to participate in network validation or governance, earning rewards and enhancing network security and consensus efficiency. Additionally, yield farming allows assets to be deposited into liquidity pools, increasing market liquidity and earning rewards. Some projects also share platform transaction fees with token holders, incentivizing long-term holding and active governance participation.

DeFi researcher Ignas prefers staking and locking tokens because non-participants effectively subsidize active participants. For instance, if CRV generates $10 million in revenue, but only 50% is staked, only stakers receive the rewards, while centralized exchange (CEX) holders get nothing. Moreover, locking tokens only temporarily halt circulation; they can be unlocked and re-enter the market later.

Compared to traditional markets, crypto dividend mechanisms offer multiple advantages, including passive income without active trading, staking or locking tokens to gain governance voting rights and community engagement, automatic compounding through protocols, low entry barriers, transparent revenue sources recorded on-chain, and potential asset appreciation of dividend tokens.

However, risks exist, such as smart contract vulnerabilities or protocol centralization leading to theft or fund transfers; impermanent loss when providing liquidity; price volatility causing asset value declines that offset gains or lead to principal loss; collateral liquidation risks during lending if collateral prices fall; opportunity costs from locking tokens, which may miss other investment opportunities. Additionally, since dividend mechanisms are market behaviors, governance token dividends could attract regulatory scrutiny and be classified as securities. For example, the UNI token’s regulatory risks have caused delays or postponements of fee switch proposals.