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Token Buybacks vs Growth - Protocols or traders benefit?
Why buybacks do protocols pump prices by tightening circulating supply, and why that same shortcut may be costing protocols long-term growth.
Eugene Le
January 07, 2026
TL;DR BOX
Token buybacks boost price by tightening circulating supply, but they don’t create real growth on their own. They work because they generate immediate demand and shrink available supply, which often leads to fast price reactions. That’s why holders like them. Buybacks make it feel like protocol revenue is finally flowing back to token holders, even when actual usage or adoption hasn’t changed.
The downside is opportunity cost. Every dollar spent on buybacks is a dollar not spent on product development, distribution, or acquisitions. Those paths are slower and riskier, but they’re what drive long-term adoption and durable revenue. The real question isn’t whether buybacks work, but whether a protocol is using them as a thoughtful, late-stage capital allocation tool or as a shortcut to avoid harder growth decisions.
Key points
Fact: Buybacks mainly affect circulating supply, not product quality or user growth.
Mistake: Treating buybacks as a growth strategy instead of a capital allocation tool.
Action: Buybacks make more sense for mature, cash-rich protocols.
Critical insight
Strong protocols use buybacks after growth slows, not to compensate for growth they never built.
Table of Contents
đź’š Why People Love Buybacks?
In crypto, holding a token is not the same thing as holding equity. Because tokens don’t represent ownership, their value is far more sensitive to changes in demand and circulating supply than to the company’s actual business performance.
Most of the time, you’re holding a utility asset that exists to power a protocol, pay fees, or enable governance.
In fact, token buybacks give you three things:
First, immediate demand: The protocol becomes a guaranteed buyer in the market. Especially in sideways or down markets where organic demand is weak.
Second, supply reduction: When tokens are bought and burned, circulating supply drops, instantly tightening market float and accelerating scarcity narratives.
Third, price reflexivity: Rising prices attract attention → Attention attracts liquidity → Liquidity reinforces price.
For example, you trade on Hyperliquid, and you pay fees in $HYPE ( â–Ľ 3.22% ) . As usage grows, demand for HYPE grows too. But user growth takes time, execution, and real product work. Buybacks shortcut that process as protocols take revenue, buy their own token on the open market, and shrink circulating supply.
Demand rises mechanically → circulating supply tightens → price often reacts fast.
But without buybacks, that demand only impacts price gradually, since circulating supply remains largely unchanged in the short term.
That’s why users love buybacks. They’re visible, and they make holders feel like value is finally flowing back.
🏦 The Opportunity Cost of Token Buybacks
Protocols have more options than just buybacks.
They can invest in new products and features, creating fresh use cases that solve real problems, attract new users, and earn revenue.
They can push harder on business development and marketing, expanding distribution and pulling in new demand.
Or they can acquire existing products and teams, absorbing active user bases into their ecosystem.
Over the long run, these paths tend to drive far more innovation and sustainable growth than token buybacks ever could. The trade-off is that none of them are guaranteed. They’re slower, riskier, and much harder to execute well.
Buybacks, by contrast, work immediately. They support price quickly but they’re fundamentally a short-term lever and rarely as powerful as building something users genuinely want.
If Apple $AAPL ( â–Ľ 0.5% ) spends cash buying back shares, it creates short-term demand for the stock with relatively low risk. If it spends that same cash building a breakthrough product, the payoff takes longer and carries more uncertainty, but the upside is far more durable.
That tension, between easy short-term wins and harder long-term growth, is what we gotta discuss. Buybacks primarily optimize circulating supply, while product, BD, and acquisitions expand the demand side of the equation.
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🧠Our Perspective
Yes, crypto has probably leaned too hard into buybacks lately. And yes, there are plenty of protocols that would be better off putting excess cash toward product development, distribution, or acquisitions instead of chasing short-term price support.
The real issue is when buybacks are used?
Token buybacks shouldn’t be the first or only lever a team pulls. They should be the final one. A tool reserved for protocols that are already mature, cash-generative, and genuinely running out of high-return growth opportunities.
That’s how buybacks work in traditional markets. Only companies that are too large to grow exponentially rely on them heavily.
So the debate isn’t about whether buybacks are good or bad. It’s about whether they’re being used as a thoughtful capital allocation strategy or as a shortcut to avoid harder work.
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