Are Token Buybacks Still a Floor in Downturns?

In their simplest form, protocols repurchase their own tokens from the open market, reducing circulating float. In some cases, those tokens are subsequently burned, permanently shrinking supply over time. 

In both configurations, the objective is the same: support price action by tightening the supply float. 

But recent market action has made it clear that buybacks are not an automatic safety net. 

While some tokens with aggressive repurchase programs have held up relatively well, others have collapsed more than the market, highlighting that what can act as structural support in an uptrend is often insufficient to stabilize prices once the market unwinds. 

“Deploying more capital - steady lads,” Do Kwon, founder of Terraform Labs, once wrote. 

The quote has since become infamous - a shorthand for one of the ecosystem’s most traumatic failures. A reminder that, at times, deploying more capital is not the solution. 

During the Terra collapse, the Luna Foundation Guard (LFG) attempted to defend the UST peg by aggressively deploying reserves into the market. In total, slightly more than 80,000 BTC alongside ~$50mn in stablecoins were used in the effort (roughly $2.8bn) according to a LFG audit report. 

Buying pressure became exit liquidity, and the defense itself turned into part of the collapse.

And this is frequently the case. The lesson isn't that buybacks or price defenses are useless - it was that capital deployment without structural alignment does not create a floor. 

Not all buybacks are born equal

Today’s token buyback landscape is far more nuanced than during previous cycles.  

Protocols differ widely in how buybacks are funded, timed, and structured, and those differences materially affect outcomes. 

What ultimately matters is the net buying pressure, not the existence of a buyback headline. 

A protocol that repurchases tokens can still face persistent downside because of a fundamental distinction: tokenomics. This defines how supply enters the market over time, through emissions, incentives, vesting schedules and unlocks. 

Buybacks only influence price if they meaningfully outweigh that flow, and the gap is even more pronounced in weak market conditions, as both trading activity and discretionary buyback capacity tend to contract. 

In other words, buybacks must be evaluated relative to supply expansion, not in isolation. 

This is where much of the structural weakness emerges. In several cases, buyback programs coexist with heavy unlock schedules, meaning the protocol is effectively buying into its own dilution. The market may briefly react to the signal, but the price ultimately reflects net flows. 

Buybacks in practice: What the landscape reveals 

Across the sample, buybacks have delivered mixed results - and the dispersion is telling. 

Sky stands out as the only protocol that has relatively outperformed the broader market. By contrast, Jupiter, Hyperliquid, Aave, and Pump are all meaningfully lower over the period, despite active buyback programs. 

Buybacks - regardless of size - amounted to little more than a glass of water poured onto a burning forest. 

Hyperliquid and Pump represent the most extreme cases. Both protocols direct an overwhelming share of their revenue toward buybacks: 97% for HYPE and effectively 100% for PUMP. 

Yet even among the most aggressive, revenue-funded buyback programs in the stack, unlock dynamics quickly overwhelmed buying pressure. Once the unlocks are entered, net flows - not buyback optics - dictate the price action. 

For Hyperliquid, the impact was immediate. Unlocks appeared in November–December, flipping net flows decisively negative. From that point, HYPE closed the year down roughly 43.7%, despite continued buyback activity.

Pump illustrates the same dynamic, amplified by scale and sentiment. Following its July TGE, billions of dollars’ worth of supply was distributed across different types of stakeholders, generating sustained selling pressure through late summer. Even after that initial wave, ongoing unlocks continued to outpace buybacks. 

Compounding the issue, sentiment deteriorated sharply. The absence of DAO governance and the complex legal context of value extraction - including SOL sales - eroded trust. 

Over the period, PUMP gave back more than three-quarters of its valuation, underscoring how buybacks offer little defense when sentiment breaks down. 

Jupiter provides a cleaner numerical example of the same limitation. Over the period, $26.4mn in buybacks failed to offset $69.9mn in token unlocks, resulting in a 63% drawdown in JUP.

The takeaway is straightforward: in a market characterized by high emissions, ongoing vesting, and structural selling pressure, conventional buyback strategies become less effective. 

The imbalance became pronounced enough that leading figures from the protocol publicly debated whether buybacks should even continue.

At best, buybacks reduced volatility at the margin. They did not change direction.

(Source: TradingView)

Two cases stand apart: Aave and Sky.

Both protocols share a critical feature that is largely absent elsewhere: unlock cycles are largely behind them. With supply fully diluted or close to it, buybacks are no longer competing with fresh issuance.

Where they differ is scale.

Over the period, Sky’s average buyback-to-market-cap ratio reached ~0.42%, rising from ~0.19% in September to ~0.62% in November and December, driven by an increase in tokens repurchased and improving fundamentals. 

Aave, by contrast, posted a much lower average ratio of ~0.13%. While buybacks increased modestly, the absolute impact remained limited relative to Aave’s size. For a protocol of that scale, repurchases amounted to a drop in the ocean, offering stability but little upside impulse.

Governance turbulence around Aave further complicated the picture, reinforcing a broader theme. 

Market sentiment ultimately dominates buyback mechanics, as illustrated by Pump's buybacks, which average roughly 2.38% of market capitalization.

What's coming next? 

Token buybacks are not inherently flawed. When implemented thoughtfully, they remain one of the most credible ways to return value to token holders and to anchor token prices to tangible economic activity - namely protocol revenue and sustained usage.

The issue lies in how buybacks are often deployed in practice.  

In many cases, repurchase programs are introduced under the least constructive conditions. They are launched near market peaks or during periods of elevated hype, serving more as a psychological support mechanism than a structural one. 

Frequently, they operate alongside sizable token unlocks, effectively turning buyback flows into soft exit liquidity for vested supply, improving the distribution outcome for insiders.

Buybacks would be far more impactful if they were deployed under stricter conditions after the majority of unlocks have fully vested (i.e., AAVE or SKY) or when meaningful price thresholds are breached, for instance. Under those circumstances, buybacks become a genuine mechanism of value accrual rather than a cosmetic one.

This pattern is visible across multiple recent token launches. When buybacks are used to offset ongoing dilution rather than reduce it, the implied fair value of the token is materially lower than headline metrics suggest. Price may temporarily stabilize, but net supply dynamics ultimately reassert themselves.

A more productive use of capital may lie elsewhere. Redirecting funds toward protocol development, ecosystem incentives, or real yield for users, funded directly by revenue rather than inflation, strengthens fundamentals without distorting supply dynamics.

Unlike indiscriminate buybacks, revenue-backed incentives compound growth rather than burning capital into an already grown pile of ashes.