Hyperliquid, Uniswap, and Aave are using a portion of their protocol revenues to buy back or destroy their own tokens. According to Matt Hougan, director of investments at Bitwise, this change has not yet been reflected in token prices. Hyperliquid's model is the most direct, with over 97% of its fees going towards buying back HYPE tokens through its Assistance Fund. Uniswap has also adopted a similar mechanism with its 'UNIfication' reform, where a portion of its fees is used to destroy UNI tokens. Aave is also buying back its tokens on the market, with its program allowing the DAO to acquire over 205,000 AAVE tokens in ten months.
Token Buyback Mechanisms
These mechanisms are changing the way crypto assets are evaluated. Investors can now compare a protocol's revenue to its token value and measure the portion of revenue used to reduce supply or support buybacks. Hougan estimates that this evolution could generalize to decentralized applications and layer 1 blockchains over the next 12 to 24 months. If protocols redirect their revenues towards their tokens, some valuations could at least double.
Market Impact
However, this comparison with traditional stocks has significant limitations. Token holders generally do not have any legal rights to protocol revenue, and buybacks and destructions often rely on governance decisions that can be modified or suspended. The impact on token price is also not automatic, as token unlocks can put more units into circulation than buybacks remove.
