What is a token buyback?

The cryptocurrency market continues to adopt mechanisms from traditional finance, adapting them to its own infrastructure. One of the most widely discussed trends of 2025–2026 has been token buybacks* — the practice of a protocol repurchasing its own digital assets on the open market using revenue generated from its operations.

* Buyback refers to the repurchase of securities or tokens by the issuing entity from the open market.

Until recently, this practice was associated almost exclusively with publicly traded companies, which traditionally return excess capital to shareholders through share buyback programs. Today, however, dozens of decentralized platforms — from lending protocols to derivatives exchanges — are implementing similar mechanisms, seeking to convert operating revenue into sustained demand for their native token.

In this article, we will examine why protocols repurchase their own tokens, which models have already been tested in practice, what criticisms this approach has received, and how it fundamentally differs from the token-burn mechanism employed by Binance for its native token, BNB.

Why protocols return value to token holders

Every successful blockchain project eventually faces the same question: what should it do with accumulated profits? Traditional options include reinvesting funds into product development, allocating capital to a reserve fund, or distributing value to the community. Token buybacks offer a third approach: removing part of the circulating supply* from the market, thereby reducing the number of tokens available for trading and potentially supporting the asset's price.

* Circulating supply refers to the number of tokens that are actually available on the market and can be freely traded, as opposed to the total or maximum supply, portions of which may remain locked or otherwise unavailable.

The logic closely resembles traditional corporate share repurchases. If a business generates a stable cash flow and management believes the market undervalues its shares, buying back stock is considered a rational use of capital. In the cryptocurrency industry, the role of "management" is typically performed by a decentralized autonomous organization (DAO), which votes on the parameters of the buyback program, including the amount of capital allocated, the frequency of purchases, and the ultimate disposition of the repurchased tokens.

Models for managing repurchased tokens

Experience over the past two years demonstrates that blockchain protocols generally choose one of several approaches for handling repurchased assets.

Token burning

The most radical option is to permanently destroy the purchased tokens, irreversibly reducing the total supply of the asset. This approach mirrors the retirement of shares in traditional corporate buyback programs and is generally viewed as the most aggressive method of creating artificial scarcity.

A notable example is the Sky protocol (formerly MakerDAO). Since February 2025, its DAO has allocated a portion of the protocol's surplus each day to repurchase and permanently burn SKY tokens, initially committing approximately one million U.S. dollars' worth of the USDS stablecoin for this purpose.

Treasury accumulation

An alternative strategy is to retain repurchased tokens within the protocol's treasury rather than burning them, leaving the community free to determine their future use. These tokens may later be deployed to enhance staking rewards, finance protocol development, or support other ecosystem initiatives.

The lending protocol Aave follows this model. Its weekly purchases of AAVE tokens are transferred to the protocol treasury, and according to analytics firm Token Logic, the DAO has already accumulated approximately 70,000 AAVE tokens.

Staking repurchased tokens

A separate approach is illustrated by the buyback program introduced by the decentralized derivatives exchange protocol dYdX during the first quarter of 2025. Under this model, 25% of the protocol's net fee revenue is converted into DYDX tokens each month, after which all acquired tokens are staked* to strengthen the validator set securing the project's proprietary blockchain.

* Staking refers to locking tokens within a blockchain network to help secure it and earn rewards. The verb to stake is widely used throughout the cryptocurrency industry.

Automated support fund

Perhaps the most illustrative example is the derivatives exchange Hyperliquid and its Assistance Fund. Virtually all of the platform's fee revenue — various estimates place the figure between 97% and 99% — is automatically used to purchase HYPE tokens directly on the open market.

* Assistance Fund is the proprietary name of Hyperliquid's automated smart contract that converts trading fee revenue into purchases of HYPE tokens on the open market.

By mid-2025, the fund had accumulated more than 20 million HYPE tokens (worth approximately $386 million and representing around 6.2% of the circulating supply). By the first quarter of 2026, the fund's holdings had increased to approximately 45.65 million HYPE tokens valued at roughly $3.19 billion.

Quarterly buybacks totaled approximately $317 million, $255 million, and $192 million during the third quarter of 2025, the fourth quarter of 2025, and the first quarter of 2026, respectively — an extraordinary pace by cryptocurrency industry standards.

Other notable examples

The list of protocols that have implemented token buyback programs continues to grow. Participants include Jito, Lido, Raydium, GMX, Meteora, Pump.fun, LayerZero, Jupiter, World Liberty Financial, and many others.

According to calculations by analytics platform Tokenomist, since January 2026, eight projects — including Meteora, Pump.fun, GMX, Raydium (RLB), Metaplex (MPLX), HYPE, LIT, and AAVE — have repurchased a greater volume of tokens than the increase in their circulating supply over the same period.

Meteora recorded the strongest relative performance, repurchasing tokens equivalent to 71% of its January free float*, while Hyperliquid led in absolute terms, buying back approximately $283 million worth of tokens while reducing its circulating supply by 11%.

* Free float refers to the portion of an asset that is freely available for trading on the market, as opposed to tokens that are locked, reserved, or otherwise unavailable.

According to estimates by analytics platform AInvest, total spending on token buyback programs across the cryptocurrency industry exceeded $880 million in 2025. While substantial by crypto market standards, this figure remains insignificant compared with the more than $1 trillion that publicly traded companies worldwide spent on traditional share buyback programs during the same period.

The main criticism of the buyback mechanism

Despite the apparent appeal of the "earn — repurchase — reduce supply" model, analysts have identified several important weaknesses.

Buybacks cannot rescue a weak business model

A study conducted by Bill Hsu, which examined ten major tokens with active buyback programs, found that only three — AAVE, HYPE, and SKY — outperformed Bitcoin over the duration of their respective buyback initiatives.

In other words, approximately 70% of projects implementing buyback programs failed to generate positive excess returns relative to Bitcoin. Buybacks do not create fundamental value out of thin air; they merely amplify growth that already exists. They cannot compensate for structural weaknesses within a protocol's business model.

Token issuance often outpaces buybacks

One of the primary criticisms concerns the so-called buyback coverage ratio* — the relationship between the volume of token buybacks and the volume of newly unlocked or newly issued tokens.

* Buyback coverage ratio refers to the ratio of the volume of token repurchases to the volume of newly issued or unlocked tokens during the same period.

According to some estimates, Hyperliquid's ratio is approximately 10x, meaning that for every 10 tokens repurchased, roughly 100 newly unlocked tokens enter the market, effectively offsetting much of the intended scarcity effect.

For several projects, including Ethena and Optimism, the issuance-to-buyback ratio exceeds 13x. Critics describe this as a "race to the bottom," arguing that buybacks merely offset a portion of token dilution rather than serving as a genuine long-term price catalyst.

Limited transparency of certain buyback programs

Not all buyback programs are funded through transparent operating revenue.

Some initiatives rely on over-the-counter treasury transactions whose details remain unavailable to the broader community. This lack of transparency undermines confidence and turns highly publicized buyback announcements into little more than marketing tools.

This concern is particularly relevant for smaller projects, where simply announcing a "buyback" often generates considerable attention across social media despite the absence of meaningful economic substance behind the program.

No direct financial benefit for token holders

Even in successful examples such as Hyperliquid, token holders do not receive direct financial distributions.

The value generated by buybacks is treated as a benefit to holders only indirectly, since the purchased tokens remain within the protocol's internal fund rather than being distributed to investors.

This represents a fundamental distinction between cryptocurrency buyback programs and traditional dividend distributions in public equity markets.

Regulatory uncertainty

Buyback programs financed through protocol-generated revenue closely resemble profit distributions from an economic perspective.

As a result, they may attract increased regulatory scrutiny from authorities that view certain digital assets as being economically comparable to securities.

At present, however, no jurisdiction has established a comprehensive regulatory framework specifically governing token buyback programs.

Comparison with Binance's token burn mechanism

A comparison between token buybacks and Binance's long-established BNB burn mechanism* deserves separate consideration.

* Token burning refers to the permanent removal of tokens from circulation by sending them to an address that no one controls. Once transferred, these tokens become permanently inaccessible. Because the process is recorded on the blockchain, every burn transaction can be independently verified by the public.

Unlike most decentralized finance (DeFi) protocols, Binance does not repurchase BNB on the open market in real time using current trading fee revenue. Instead, it employs a formalized Auto-Burn mechanism.

The mechanism consists of two separate components.

First, a portion of transaction fees* generated on BNB Smart Chain is burned in real time under the BEP-95 protocol. The percentage allocated to burning is determined by network validators.

* Transaction fees are payments made to execute blockchain transactions and smart contracts, comparable to processing fees charged in traditional financial systems.

Second, Binance conducts a large quarterly token burn. The amount destroyed is calculated using a publicly available formula that incorporates the average market price of BNB together with the number of blocks produced by the network during the quarter.

As a result, the burn mechanism does not rely on discretionary management decisions or on Binance's corporate profitability.

For example, in April 2026, Binance completed its 35th quarterly burn, permanently removing approximately 2.14 million BNB worth around $1.32 billion from circulation.

In total, more than 62 million BNB have now been destroyed, representing over 30% of the original maximum supply of 200 million tokens.

The long-term objective of the Auto-Burn program is to reduce the total supply to a permanently fixed level of 100 million BNB.

Key differences between the two approaches

The fundamental differences between token buybacks and Binance's token burn mechanism can be summarized as follows.

1. Source of funds.

Buyback programs implemented by DeFi protocols are financed through the operating revenue generated by a specific product, such as trading fees, lending fees, or other protocol income.

By contrast, the BNB burn mechanism is technically decoupled from Binance's corporate profitability. Instead, it relies on objective on-chain metrics* rather than the exchange's financial performance.

* On-chain metrics are measurable indicators recorded directly on the blockchain and independently verifiable by any network participant.

2. Reversibility.

A token buyback does not permanently remove assets from circulation.

Once tokens have been repurchased, the protocol retains full discretion over their future use. They may be sold back into the market, staked to earn rewards, redistributed within the ecosystem, or allocated to future governance decisions.

Token burning, by definition, is irreversible. Burned tokens are transferred to an inaccessible blockchain address from which they can never be recovered or spent again.

3. Predictability.

The Auto-Burn mechanism follows a transparent, publicly available formula whose parameters are known in advance. This significantly reduces the potential for discretionary decision-making or market manipulation.

By contrast, buyback programs typically depend on highly variable operating revenue and on decisions approved by a decentralized autonomous organization (DAO). Consequently, the volume of repurchases may fluctuate substantially from one quarter to another.

4. Regulatory profile.

A formalized token burn mechanism announced in advance generally appears to regulators as a neutral technical process aimed at reducing token supply.

Buybacks funded through operating profits, however, more closely resemble capital returns to investors. Because of this economic similarity to profit distributions, they are more likely to attract regulatory scrutiny, particularly in jurisdictions that evaluate certain digital assets under securities law frameworks.

Taken together, both mechanisms pursue the same overarching objective — reducing token supply and supporting the value of the underlying asset.

However, they rely on fundamentally different architectures: a flexible, discretionary buyback model on the one hand, and a rigid, formula-based token-burn mechanism on the other.

Conclusion

Token buybacks have established themselves as an increasingly important mechanism for returning value to digital asset holders. Borrowed from the toolkit of traditional finance and adapted for blockchain ecosystems, they have become one of the defining trends of the modern cryptocurrency market.

The strongest results have generally been demonstrated by protocols that simultaneously satisfy three conditions: conducting buybacks that are significant relative to their market capitalization, maintaining a stable or declining net token supply, and delivering consistently improving business fundamentals. Hyperliquid, Aave, and — with certain reservations — Sky currently represent some of the clearest examples of this approach.

At the same time, token buybacks remain the subject of well-founded criticism. Excessive token issuance frequently offsets the intended impact of repurchases, the transparency of some programs remains questionable, and ordinary token holders may receive no direct financial benefit whatsoever.

A comparison with Binance's formalized BNB burn mechanism illustrates that a more rigid, predictable, and technically irreversible model can inspire greater confidence within the community, although it also limits a protocol's flexibility in allocating capital.

Ultimately, the choice between token buybacks, token burns, or a hybrid approach is not a universal formula for success but rather a strategic decision. The optimal model depends on the business's maturity, the sustainability of its cash flow, and the community's willingness to sacrifice short-term flexibility for greater long-term predictability in tokenomics.