Why Can't Buybacks Save Decentralized Finance?

Author: OXStill, BitPush

2025 will not be an easy year for DeFi project teams, but they have indeed learned a trick from Wall Street: using buybacks to express confidence.

According to a report by crypto market maker Keyrock, the top 12 DeFi protocols spent about $800 million on buybacks and dividends in 2025, a 400% increase from early 2024.

Analyst Amir Hajian wrote in the report: “Just like publicly traded companies use buybacks to convey long-term commitment, DeFi teams also hope to demonstrate that they are profitable, have cash flow, and a future.”

But in a market with liquidity shortages and low risk appetite, are these actions of “rewarding token holders” a return to value or just futile money burning?

Who is participating in the buyback wave?

This round of buybacks, from Aave and MakerDAO at the beginning of the year to later PancakeSwap, Synthetix, Hyperliquid, and Ether.fi — almost covering all major DeFi sectors.

Aave (AAVE) is one of the early leading projects to initiate systematic buybacks.

Since April 2025, Aave DAO has been using protocol revenue to buy back about $1 million worth of AAVE weekly, and in October discussed making this mechanism “standard,” with an annual budget of up to $50 million.

On the day the proposal was approved, AAVE briefly rose 13%, but after a six-month pilot, the book profit was negative.

MakerDAO (MKR) launched the Smart Burn Engine in 2023, using DAI surplus to regularly buy back and burn MKR. In the first week of the mechanism’s launch, MKR rebounded 28%, hailed as a “cash flow reward for token holders” example.

However, a year later, the market presents a paradox of “confidence recovery, valuation lag.”

Despite strong fundamentals (MakerDAO continuously increases DAI reserves through real-world assets, RWA), MKR’s price (around $1,800 by the end of October 2025) remains only one-third of its 2021 bull market peak (about $6,292).

Ethereum’s liquidity staking protocol Ether.fi (ETHFI) recently proposed a plan that has undoubtedly become one of the most watched “big moves.” The DAO authorized up to $50 million to buy back ETHFI in batches below $3, via Snapshot quick voting, aiming to “stabilize the token price and restore confidence.”

However, the market remains cautious: if the funds mainly come from treasury reserves rather than sustainable income, this “market-support buyback” may ultimately lack follow-through.

PancakeSwap (CAKE) chose the most programmatic approach. Its “Buyback & Burn” mechanism is integrated into the token model, with monthly disclosures of net inflation data. In April 2025, CAKE’s net supply shrank by 0.61%, entering a continuous deflation state.

But the price still hovers just above $2, far below the $44 high in 2021 — supply improvements bring stability, not premiums.

Synthetix (SNX) and GMX are also using protocol fees to buy back and burn tokens.

Synthetix included a buyback module in its 2024 version update, while GMX automatically directs part of trading fees into buyback pools.

Both experienced rebounds of 30% to 40% during the buyback peak in 2024, but when stablecoin pegs were under pressure and fees declined, they paused buybacks and shifted funds to risk reserves.

The true “outsider winner” is perpetual futures platform Hyperliquid (HYPE).

It treats buybacks as part of its business narrative: a portion of protocol revenue automatically enters the secondary market buyback pool.

Dune data shows Hyperliquid has invested a total of $645 million over the past year, accounting for 46% of the entire industry, and its HYPE token has risen 500% since its issuance in November 2024.

But HYPE’s success relies not only on buybacks but also on revenue and user growth — daily trading volume has tripled over the past year.

Why do buybacks often “fail”?

From a traditional finance perspective, buybacks are highly favored mainly for three reasons:

First, they promise to increase value per share. The protocol uses real money to buy back and burn tokens, reducing circulation and giving each token a higher future earnings claim.

Second, they convey governance confidence. Willingness to initiate buybacks indicates the protocol’s profitability, financial flexibility, and governance efficiency. This is seen as an important sign of DeFi moving from “burning money through subsidies” to “operating with dividends.”

Third, they create scarcity expectations. When combined with mechanisms like locking and reducing issuance, buybacks can create deflationary effects on the supply side, optimizing the token economic model.

However, perfect theory does not always translate into practical feasibility.

One issue is timing often being counterproductive. Most DAOs spend generously during bull markets but cut back in bear markets, creating an awkward situation of “buying high and watching low,” contradicting the original intent of value investing.

Funding sources are also often problematic. Many projects use treasury reserves rather than sustainable profits, so if income declines, buybacks become unsustainable “faking prosperity.”

Another concern is opportunity cost. Every dollar spent on buybacks could have been invested in product development and ecosystem growth. Market maker Keyrock issued a warning in October: “Overbuying may be one of the least efficient capital allocations.”

Even when buybacks are executed, their effects are easily diluted by ongoing unlocking and new token issuance. When supply-side pressure persists, limited buybacks are like a drop in the bucket.

Messari researcher Sunny Shi pointed out:

“We haven’t seen the market sustain higher valuations solely because of buybacks; prices are still driven by growth and narratives.”

Additionally, the overall macro liquidity structure of the DeFi market has changed. Although total value locked (TVL) has rebounded strongly to a three-year high (around $1600 billion), it still lags behind the peak during the 2021 bull run (about $1800 billion). More importantly, despite high protocol revenue and capital utilization, secondary market trading volume and speculative inflows still need time to fully recover to the “euphoria” of the previous cycle.

In a tight liquidity environment, even generous buybacks cannot offset the structural demand issues.

Confidence can be bought temporarily, but only genuine capital inflows and growth cycles can enable DeFi to become self-sustaining again.