PANews on Oct. 7 published an opinion article by danny titled “Why I’m Not Optimistic About Protocols That Spend Most of Their Revenue on Buybacks and Burns,” taking aim at a common claim in crypto markets: that sending most protocol revenue into token repurchases is inherently good for holders.
The article opens with a traditional corporate example. On April 23, 2023, U.S. home goods retailer Bed Bath & Beyond filed for bankruptcy protection and said it had secured about $240 million in debtor-in-possession financing to support the wind-down of its business and related proceedings. At that point, the company needed cash above all else to keep paying creditors.
The irony, the author writes, is that not long before that filing, Bed Bath & Beyond had been spending heavily on buybacks. In the fiscal year ended Feb. 26, 2022, the company used about $589 million in cash for stock repurchases, while net cash generated from operating activities was only about $17.85 million. It also needed about $354 million in capital expenditures that year. In other words, operating cash flow did not even cover capex, yet the buybacks continued.
At the time, the company was remodeling stores, upgrading digital channels and supply chains, and pushing private-label brands. Those efforts had not yet proved capable of turning the business around, but large sums were still being returned to the stock market. By the summer of 2022, some suppliers were demanding stricter payment terms, including prepayment, rather than extending trade credit on previous terms. The article does not argue that buybacks alone caused the bankruptcy. It says the company also had problems in merchandise strategy, competition, supply chain management, and execution. The point is narrower and more practical: all of those pressures sat on the same balance sheet. Money spent here could not be spent there. Buying back stock did not buy back customers, nor did it make suppliers more willing to extend credit.
Competitive advantages require ongoing spending
That is the lens the author brings to crypto. Whenever a protocol says it will use 80%, 90%, or even all of its revenue to buy back and burn its own token, the article says the market tends to focus on the shrinking token count and the visible source of demand. The harder question is what remains after the buyback: how much capacity does the protocol still have to keep building the business?
Citing Michael Porter’s Competitive Advantage, the piece argues that a business can only earn returns above peers over time if it becomes harder to replace. Users stay because liquidity is deeper, trades are cheaper, products fit better, or switching costs are higher. Monopoly is the most comfortable position for a company, oligopoly comes next, and at a minimum a business needs some edge that others cannot easily copy. The author’s view is that excess profits do not last in undifferentiated businesses.
Building and deepening that edge costs money. A trading protocol needs to maintain liquidity depth, expand distribution, and absorb research, development, and security costs. A platform that wants to move from being a tool to becoming infrastructure also has to fund an ecosystem so outside developers have reason to build around it. Spending does not guarantee success; Bed Bath & Beyond is presented as a reminder of that. But when productive investment opportunities do exist, buybacks have a cost as well. They can crowd out the next product, a critical channel, or the extra runway needed to survive the next downturn.
The attraction of buybacks is obvious because they are easy to see. How much was spent, how many tokens were bought, and how much supply was burned can all be verified on-chain. Communities can turn that into graphics the same day. Product improvements and channel expansion take longer and may fail. That dynamic, the author says, can train teams to prioritize what earns applause fastest rather than what strengthens the protocol two years later.
Buybacks need conditions, not just a high ratio
The article then addresses a common comparison: Apple. If Apple can buy back stock at scale, why can’t a decentralized protocol, launchpad, or PerpDex do the same?
In the figures cited in the piece, Apple used about $94.95 billion in cash for buybacks in fiscal 2024. In the same year, it recorded $31.37 billion in R&D expense and $9.45 billion in capital expenditures. After subtracting capex from operating cash flow, its free cash flow was about $108.81 billion, with buybacks equal to roughly 87.3% of that amount. The ratio is high, but the author argues that this is not the same as a protocol taking 90% of fee income off the top.
The article also notes that Apple held about $156.65 billion in cash, cash equivalents, and marketable securities at year-end. That figure is not net of debt and is not all unrestricted cash, so it cannot be treated as a freely spendable number. Still, it serves as a reminder that buyback ratios do not exist outside the rest of the balance sheet. Quoting the $94.95 billion spent on buybacks while skipping R&D, capex, and financial resources means copying the move of a mature company without understanding the conditions that made the move possible.
For the author, Apple first sells products and services, absorbs those investments, and still generates profit and free cash flow. Only then does it make sense to debate how the cash should be distributed. A younger protocol that earns a surge of fee income in one market cycle, before proving whether users will stay, is not in the same place. What it skips over is the hardest part of the business journey: converting cyclical or temporary revenue into durable earning power.
The article says explosive cash flow is not the same as mature profitability. Bed Bath & Beyond is used again to show that even a company with a long operating history does not remain permanently stable. Competitive advantages can erode, customers can leave, and when reinvestment becomes necessary, management has to be willing to keep cash inside the business.
Protocol comparisons look different once the details are included
The article then turns to named examples.
- PONS states in its V1 documentation that 80% of protocol fees will be used to buy back and burn PONS, with the remaining 20% reserved for infrastructure and team expansion. The author’s question is whether that remaining share is enough to support operations and withstand risk.
- Pump.fun currently has an official target of 50%, and from April 28, 2026, it arranged a one-year programmatic buyback-and-burn plan.
- Raydium’s CLMM and CPMM pools direct 84% of total trading fees to liquidity providers, 12% to RAY buybacks, and 4% to the treasury. On the surface, only 12% goes to buybacks. But after accounting for the LP share, the protocol keeps just 16% of total fees, and three-quarters of that amount is converted into its own token.
- PancakeSwap v2 has a similar structure. Using protocol revenue as the denominator, the article says the buyback-and-burn share is about 71.9%.
The author stresses that these figures are official fee-split ratios and only describe fee flow, not profit. Raydium keeps the repurchased tokens on protocol balance sheets, while Pendle uses repurchased tokens for staking rewards. More important, the article says, the “$6, $4, and $9” shown in such tables have not become profit yet. They may still have to pay for development, operations, and security.
That is why the piece rejects buyback leaderboards as a standalone metric. Protocol fees, foundation assets, and the cash of a development company may belong to different entities. A wallet that keeps buying tokens does not prove the broader ecosystem has no money left for development. On the other hand, a team may hold a large amount of its own token without holding equivalent cash that can immediately cover payroll or invoices. Only by looking across the relevant accounts together, the article argues, can investors tell whether buybacks are using profit, surplus reserves, or money that may be needed later.
Cyclicality can turn a high buyback ratio into a fragile promise
The piece places heavy emphasis on industry cyclicality. As one example, Coinbase trading revenue fell from about $6.837 billion in 2021 to $2.356 billion in 2022, a drop of roughly 65.5% in a single year.
Decentralized protocols can swing even harder. Using dYdX as an example, the article says that when the buyback allocation was 25% in 2025, the average monthly buyback budget was about $339,000. In the first half of 2026, after the allocation ratio was raised to 75%, the average monthly budget fell to about $183,000 instead. The ratio tripled, yet the amount spent on buybacks dropped about 46%, because related net protocol revenue declined about 80%.
The article also points to recent PONS data as a warning against annualizing peak periods. According to DeFiLlama data cited for Oct. 5, its combined protocol revenue was about $22.7 million over the last 30 days and about $1.68 million over the last seven days. On a daily basis, that works out to roughly $757,000 and $240,000, with the recent seven-day daily average about 68% below the 30-day average. Multiplying the hottest month by 12 and presenting the result as a stable annualized buyback capacity, the author argues, ignores volatility and can mislead teams about their own durability.
The article returns once more to the Bed Bath & Beyond example: once money gets tight, suppliers can tighten payment terms further, forcing a company to pay earlier to get inventory. Crypto protocols face similar stress. Revenue can fall 70%, while many costs do not fall with it and can become more demanding. The author adds that customer acquisition costs for a project with a $1 billion FDV are not remotely comparable to those for a project with a $10 million FDV.
Security reserves may look inefficient until the day they matter
Another core argument in the article is that crypto carries a security burden that cannot be ignored. Citing Chainalysis, the author says funds stolen from crypto services were about $2.2 billion in 2024, about $3.4 billion in 2025, and about $5 billion in the first half of 2026. The article singles out the Bybit incident in 2025, which alone accounted for about $1.5 billion in stolen funds.
For a protocol, the point of a security reserve is not to match average losses. It is to survive the one event that can wipe out the treasury. The article uses Ronin as an example. In the 2022 incident, 173,600 ETH and $25.5 million in USDC were stolen. When the bridge resumed, official disclosures said the user-related shortfall, after accounting for the Axie DAO portion, stood at 117,600 ETH and $25.5 million in USDC.
Users want ETH and USDC back, the article says. They do not care how many native tokens had been burned in the past. A security reserve may look inefficient in normal times because it does not create market demand or reduce supply. But it preserves a protocol’s ability to repair the business and restore confidence. Once trust is damaged, raising money by issuing or selling the native token can become far harsher than in a bull market.
Aave is presented as a more flexible model
The article says this is why it pays closer attention to a different type of capital allocation. In Aave’s 2026 financial post, the protocol disclosed that in roughly 10 months after buybacks began, it had allocated $42 million and bought more than 205,000 AAVE.
But with borrowing fees down about 25% from their peak and service-provider costs and other growth needs rising, the same discussion proposed cutting the annual buyback budget from $50 million to $30 million, a 40% reduction. The article notes that this was only a proposal, not a confirmed implementation.
It also notes that Aave does not permanently burn the repurchased tokens. They move into ecosystem reserves for rewards and other spending. Even so, the author sees value in the message behind the proposal: when operating conditions change, buybacks should give way. A follow-up post dated April 22 said buybacks had been paused from April 19 because of the rsETH cross-chain bridge incident, specifically to preserve treasury capacity for potential losses.
The reverse case worries the author more. If a team cannot reduce buybacks because doing so would damage the token’s biggest selling point, then capital allocation has started to constrain the business instead of serving it. The business needs cash, but the market demands a steady stream of token demand. To keep that promise, the protocol may end up leaning on financing, foundation token sales, or another round of incentives.
The article sums that up bluntly: what is marketed as returning value to token holders may instead be drawing down future competitive strength and risk capacity.
Complex buyback mechanics can muddy what is really happening
The piece also examines structures that do more than a simple buyback-and-burn.
Aster, after an upgrade on June 17, 2026, sends 99% of daily platform fees into ASTER buybacks. Those tokens are then distributed to veASTER holders. The protocol separately burns an equal amount of tokens from reserves, prioritizing team allocations until total supply falls to 3 billion. In the author’s reading, that combines market purchases, reward distribution, and inventory destruction in one package.
PancakeSwap is another case. The protocol has proposed a target of at least about 4% annual net deflation while also running incentive issuance. For secondary-market traders, the article says, that makes it hard to tell whether supply is really rising or falling.
Burning team inventory can reduce future overhang, which the article acknowledges has long-term value, but the author says this approach fits mature projects better. If bought-back tokens are redistributed, they can re-enter circulation. Looking only at total supply while ignoring circulating supply and the cash spent to engineer the change can blur three separate positives into a single message that nobody fully understands. For a still-growing decentralized protocol, the author sees that as unnecessary drag.
High buyback promises can shift the business toward selling the token
By this stage, the article says the concern is no longer only about how money is split up. It is also about whether the project’s operating objective gets pulled toward making the token easier to sell and more liquid, instead of making the business stronger. Protocols that lean on high buyback ratios as a central selling point, while leaving reinvestment plans and risk reserves vague, are treated by the author as business models oriented around token distribution.
Once a protocol promises to route most revenue into buybacks, it gives the market a simple reason to buy: the platform earns money every day, buys tokens every day, and keeps reducing supply. That can make buyers more willing to take the other side, which in turn drives trading chatter, social distribution, and attention. In that sense, the article argues, buybacks also function as marketing spend. They create demand while advertising why demand should exist.
The author is careful on one point: “selling” does not necessarily mean the team is directly dumping tokens. It means the mechanism is designed first to make the market more willing to buy, hold, and trade the token. Fees become a buyback budget, buybacks become the reason to buy, and market activity becomes proof of growth. Once price, volume, and discussion become the main scorecard, the line between operating the token and operating the business starts to blur.
The article links that concern to the “high FDV, low float” conversation. The mechanisms are different. High valuation and low float rely on limited circulating supply to shape price and then extend that price into broader venues for liquidity. Buybacks and burns at least may be funded with cash generated by the business. They are not the same thing. Still, if both systems prioritize price support, scarcity optics, and better conditions for the next buyer while durable competitiveness takes a back seat, the author thinks they can end up serving similar interests.
That leads to a simple hierarchy in the article: competitive advantage cannot be purchased directly, but products, security, distribution, and ecosystems usually require continuous investment. Buybacks should not come ahead of those needs, especially when team and early-investor tokens are still unlocking while protocol revenue is being used to buy tokens in the market. In that setup, buybacks supply demand, and the more active market can improve exit conditions for sellers.
Secondary-market excitement is not the same as lasting advantage
The article closes by separating token-market heat from business durability. Someone buying a token because the buyback ratio is high does not mean that person will use the protocol. Even if they do, it does not mean they will stay once incentives fade or the market cools. Users attracted by price action today may leave tomorrow for another token that rises faster. Attention can bring traffic, but not necessarily loyalty, pricing power, or products competitors cannot copy.
The author does acknowledge that price-led attention can have value. It may attract developers, market makers, and distribution partners, leading to deeper liquidity and stronger products and, eventually, a user network that is hard to leave. But every step in that chain requires spending and proof. More convincing evidence, in the author’s framing, would be whether users grow without extra incentives, whether they come back, whether customer acquisition costs decline, and how much cash remains after subsidies. If most of the money keeps going to token demand while little is left to convert attention into products, channels, and customer relationships, then the project is simply paying to sustain buzz.
Risk reserves do not rise automatically just because social media gets louder. Bullish posts do not pay for audits, payroll, or compensation after an incident. In downturns, business revenue, token prices, and market attention can all drop together. A system that depends on buybacks to maintain heat can lose its funding source right when support is most needed. The dYdX example, where a higher buyback ratio coincided with a smaller budget, is presented as a clear warning.
The article is not opposed to returning excess capital to the market. It says that for asset-light protocols with strong market positions, limited reinvestment needs, and ample reserves, high-ratio buybacks can make sense. The standard remains the same: how should capital be used to improve long-term value?
But when the business is not yet firmly established and reserves are not yet sufficient, the author says making most revenue permanently available for token buybacks and burns is not something they are willing to endorse easily.
The final test is whether the business can keep operating
The piece ends where it began, with Bed Bath & Beyond. When the retailer filed for bankruptcy protection, past stock buybacks could not be turned back into operating cash flow, and they could not restore supplier confidence. That does not prove every buyback is wrong. It does, in the author’s view, remind investors that the value a business ultimately leaves to holders depends on whether it can continue operating and whether it can win back customer trust after a downturn.
If a protocol can tell the market every day how many tokens it burned but cannot explain how that attention becomes a harder-to-replace business or a stronger cash reserve, the author says it looks more like a way of selling the token than a reason to hold it for the long term.
Buybacks may help a token find its next buyer. Only the ability to keep operating gives the people who stay a reason not to keep searching for the next one.