Don’t destroy, create - The benefits of buy-back and build
Feb. 24, 2021
A look at the stock market
Stock buybacks have become increasingly popular over the last few years, with companies moving away from providing dividends as a way to reward shareholders. Dividends are a constant drain on a company’s books and are almost always the first things to get cut in an economic downturn. Stock buy-backs allow companies to invest in themselves, while reducing circulating supply which rewards shareholders. This changing landscape is even more relevant in the crypto world, where rather than seeking to generate profits, we are intent on creating flourishing ecosystems that reward their communities.
The ‘buy back and burn’ model has become a popular method of creating demand within various ecosystems in the crypto space in recent years, and has been shown to create supply, and therefore price, pressure.
Here we look at how this model can, and will be improved by Mute Switch (Mute’s upcoming ZK-Rollup DEX) and the ecosystems smart treasury.
Buy-back and burn explained
Normally, the buy-back and burn model is implemented by an ecosystem charging transaction fees which are then used to buy the native token from the open market and burn them. This reduces overall supply of the token, which in turn increases demand and therefore price.
While this model has proven successful in its main aim (increasing demand and price), value is actually being removed from the ecosystem. Rather than existing value being put to good use to benefit the ecosystem and its community, the value in this model is simply removed. If the price of the token does not immediately grow at the same rate as the burn (which is most of the time) burning actually decreases the overall market cap of the network. It also reduces the ability for the ecosystem to invest in itself, taking the short term win instead creating more long term value.
A better way, buy-back and build
Rather than destroy value, Mute plans to utilise it for the good of the ecosystem and its community of holders and participants. All, while still maintaining the pressure on supply which create demand and price increases for its native tokens.
Mute will achieve this through a buy-back and build model. Transaction fees will be charged and used to buy native tokens on the open market, but rather than burn them, they will be moved to a smart treasury. As these tokens are now not in circulation, the supply pressure is the same as in the buy-back and burn model. However, the ecosystem now has an ever growing treasury which can be used for added functionality for the ecosystem such as integrating DeFi vaults or funding the creation of new DApps for the ecosystem, all decided through the community governance.
Every trade, every wallet move goes towards adding more value to the ecosystem while also driving price.
It’s a beautiful thing.
So take a seat and strap yourself in, it’s going to be one helluva ride…