Understanding “Buyback” in just 3 minutes – The ₿log

In terms of marketing, there is a promotional technique where a company will offer its consumers to buy back its product at the purchase price after a certain period (5 years, 10 years, etc.). Be aware that there is a relatively similar process in the crypto ecosystem, it is Buyback.

But what exactly are we talking about behind this term? How does it work? What is the point ? So many questions that we will answer to better understand this mechanism.

What exactly is Buyback?

“Buyback” is an English term that can be translated as “repurchase”. DIn the crypto environment, Buyback simply consists of the creators of a crypto project buying back their cryptocurrency. The goal behind this initiative is obviously to increase the value of the asset by reducing the number of tokens in circulation.

This technique is also found in traditional financial markets when a listed company decides to buy back its own shares at market price to reduce the total number of shares available.

How does it work?

Once the Buyback operation has been set up, there are two main possibilities that can appear to limit token emissions:

  • Either “burn the tokens” (Burning process) by transferring them to a “Dead Wallet”. That is to say a wallet without a private key on which it will never be possible to recover the tokens.
  • Either redistribute the tokens in the form of rewards or “airdrop” for example.

To fully understand the choice that could be made, it is necessary to refer to the tokenomics of the project or the targeted cryptocurrency.

For example, the CAKE of Pancake Swap will favor the “Burning” of tokens while the Celsius Network will rather tend to return these tokens in the form of earnings to users to retain them.

What is Buyback for?

To better understand, we can take the example of the project VeChain. The latter announced in 2019 that a massive token redemption plan was going to be put in place over a period of one year and for a total amount of 25 million dollars.

A initiative that aimed to allow a better development of the ecosystem in driving demand for this token vet. It should be understood that large buy orders on the market will tend to greatly increase demand and therefore the valuation of the asset. But $25 million buyout doesn’t mean $25 million more capitalization…it’s a lot more actually.

Read also Understand “crypto wallets” in just 3 minutes

A few months earlier, it was the TRON project which had announced that it wanted to carry out a Buyback of 20 million dollars.

The distinction between “buyback” and “burning”

These two mechanisms with terminology specific to cryptos are very widespread and ultimately have relatively similar objectives. The distinction operates above all on the price of the token.

  • Buybackas seen previously, consists for a company or a project of buy back its tokens from holders at the market price. Once redeemed, these tokens are stored in a wallet of the entity. In the end, they are not intended to be put back into circulation shortly or to be destroyed.
  • Burningis a more “hard-core” process since there will be a real token destruction. This takes the form of a permanent withdrawal of the tokens in circulation. They are placed on a “dead wallet”, i.e. a storage wallet without a private key. It is therefore no longer possible to retransfer these tokens in the future… they are definitively lost and “out of order”.

Conclusion: a process from marketing

This mechanism is relatively common in the cryptocurrency ecosystem. This promotional technique from marketing aims to increase the value of a crypto asset through the redemption of tokens.

If this theoretically allows the value of the token to grow over time, some believe that it is ultimately only a technique of artificially inflating a tokenoften to hide the weakness of the project which is last and which struggles to federate.

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Understanding “Buyback” in just 3 minutes – The ₿log

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