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Messari: Why Buybacks Can't Stop Token Prices from Falling Sharply
Written by: AIMan@Golden Finance
Messari analyst DeFi MONK's research found that buybacks cannot prevent token prices from plummeting.
DeFi MONK further analyzed the repurchase data and price performance of RAY, GMX, GNS, and SNX. RAY, GMX, GNS, and SNX have repurchased millions of tokens through programs, and the current value of these tokens is far lower than their value at the time of repurchase.
DeFi MONK continued to analyze the inherent paradox of tokens that cannot be prevented:
The price is unrelated to buybacks; it is driven by revenue growth and narratives.
When the revenue is strong and the prices are good, the project party will ultimately spend more cash reserves to buy back tokens at unfavorable prices.
When both prices and revenues are very poor, and cash is needed to invest in innovation and restructuring, the project party lacks the excess capital to do so. Worse still, the project party is bearing huge unrealized losses, as the net value of the repurchased assets is now far below the cost.
Buybacks are poor capital allocation. The mindset should be to achieve growth at all costs, or to distribute real value to holders in a stable/dominant form (see veAERO or BananaGun).