Several crypto projects have started to use and explore the concept of token buybacks as a way to transfer value to the community and token holders. Projects are experimenting by introducing their own versions of buybacks and trade-offs. In most buyback token models, a network generates income in a single currency token. Furthermore, the proceeds are used to buy back and burn its own native token. The intention is to grow token value by reducing its supply, as the income generated grows. Buybacks are considered a great option to accomplish that goal.
In the stock market, the buyback of shares works in predictable and known ways but in crypto, buybacks can significantly vary in structures. The article gives a brief overview of how Buybacks work and how they can be applied in cryptocurrencies.
Buyback in Cryptocurrencies
In the equity world, buybacks are hugely popular for large organizations to shoot up their stock prices by buying their own shares. Equity buybacks result in the participation of outstanding shareholders of the organization. Firms buy back shares for many reasons including raising the value of remaining shares, which are available by either taking the supply down or preventing other holders from gaining control.
The ecosystem of cryptocurrencies is mostly associated with the idea of inflation, meaning a noted erosion in value. Price volatility in digital markets is usually higher relative to traditional markets, especially in the current scenario. In a way, investor confidence is lower because DeFi and cryptocurrencies are still untapped. Hence to attract investors and to show them discernible benefits, issuers have to craft a clear, functional, rational, and profitable value proposition that will work well within the system.
Buyback and burn is a concept akin to digital assets, but the idea is almost the same as traditional share repurchase programs. The issuer of buyback can benefit the issuers in several ways:
The buyback concept helps support the growth and stability in the value of the token once listed for secondary trading.
The token becomes more attractive to investors
The buyback also results in surged liquidity
Buyback incentivizes long-term growth. Investors are motivated to HODL the token which helps in strengthening the price stability of the asset.
The BNB token has a buyback and burn program in which Binance uses 20% of its profits to buy back and burn BNB tokens every quarter which ultimately reduces BNB token supply. A major difference between stock buybacks and buybacks in cryptocurrencies is that the latter is automatically executed and guaranteed. When a traditional stock is bought, investors are usually unaware if the company will buy back stocks or pay dividends. But on the other hand, buybacks in cryptocurrencies are executed through pre-defined encoded smart contracts.
Buyback Supports Value Growth of EverRise
EverRise is a hyper-deflationary token that gives rewards to investors for holding tokens. It is credited to be the first cryptocurrency in the entire ecosystem to include the automatic buyback option currently prevalent in stock markets. As discussed earlier, EverRise applies the concept of buyback to make the token more attractive to hold.
EverRise, the pioneers in introducing the buyback principle, will collect a 6% buyback tax on every transaction stored inside the contract. Hence, whenever a sell action takes place, a fragment of the buyback amount will be used automatically to buy tokens from the liquidity pool. Hence, after purchase, the tokens are immediately burned. This offers 3 main advantages:
Increase in value - When the buy action of tokens from the liquidity pools is done, a new BNB amount is added to the pool resulting in a reduction in the amount of the token and an increase in value.
Free BNB - Once the tokens are burnt, it will equal adding free BNB to the pool because there are no tokens to sell in the future.
Strengthens trust - the automatic buyback ensures investors will never see more than 2 sell actions in a row.
EverRise has an increasing number of investors who are joining the network and are confidently putting their resources in the buyback contract. For those who are able to understand the potential in implementing the concept, EverRise is surely making a huge difference. Every single day, as investors witness the code working and the automatic buy and sell action, their numbers are increasing. They are finding value in investing in it and holding tokens.
For more on EverRise and company updates, access to their Twitter is a great way to begin.
Buyback Could Become the De-facto Standard for DeFi
In the long term, the buyback mechanism will be practiced in a more aggressive way. The best part is that there can be no manipulation and investors can surely ask for proof about the burning of tokens. This will surely wipe off any uncertainty for investors thereby giving them the push to support price stability and long-term value growth.
Take a look at the process of how to buy DeFi coins from the comfort of your home without paying a cent in brokerage fees or commissions.