Buyback and invest rather than burn is what most industry players should adopt
Lisk Foundation recently initiated LSK buyback from exchanges to fund the Lisk Grant program. This is undoubtedly a welcome development as it is not the typical industry practice.
Now and then, we hear projects announcing that they have either initiated a buyback and burn of their token or continued the practice. It is understood that this action of buyback and burn helps to reduce the project’s token circulating supply, thereby contributing an intended long term value of token held by holders. While many consider this a good practice, another school of thought thinks of this as a dangerous practice as it somewhat adds fire to the proponents of the “most tokens are nothing but securities”. After all, token buyback and burn to boost the long term value for holders. The other part is the spectacular argument put forward by Joel Monegro that reducing the supply of shares or tokens over time through burning can discourage capitalization, just like deflationary currencies discourage consumption.
As we see with most crypto projects that continue the practice of buyback and burn, there’s hardly a corresponding shoot up in the price of the rest supply. In fact, for some, the reverse is usually the case as disgruntled token holders, after impatiently waiting for a short time, dump their holdings, even dipping the project token further. So why then do most projects engage in this, especially “governance tokens” as typical of most DeFi projects? Well, if there’s anything we see in the crypto space, many copycats always try to out copy their counterparts. Except in very few cases where we have seen extraordinary successful growth in the case of Binance’s BNB token, which we cannot really ascribe to just their buyback and burn mechanism but a broader strategy execution playbook, most buyback and burn cases continue to be questionable.
This is why Lisk Foundation’s strategy of using interest proceeds from its stablecoins investment with BlockFi to buy back LSK and then use those tokens to fund its grants program is not only a brilliant strategy but a bold move to break away from the industry norm. After the first month of earning interest from its stablecoins investment, Lisk Foundation transferred 10’548.95 USDC to Bitcoin Suisse to purchase LSK tokens for funding the Lisk Grant. The Lisk Grant program offers blockchain developers and entrepreneurs up to 60,000 CHF to adopt Lisk SDK to build atop the Lisk blockchain. This is using value to get value, as it targets several industry categories like Lending, Stablecoins, NFT marketplaces, Collectibles, Predication markets, Social media markets, DAOs, Oracles, Miscellaneous. Both solo and group teams are open to participating in the Lisk Grant program, with rewards doled out upon the achievement of set milestones per the program’s rules.
While buybacks are an acceptable way to socialize profits to capital-token holders, burning of the tokens repurchased limits the network’s ability to reinvest in itself; as argued by Monegro, Lisk is paving the way for industry players to follow in its footstep through funding the Lisk Grant program with repurchased tokens.
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