Token buybacks are poison? The lack of equity is the real problem the crypto industry urgently needs to solve.

The crypto industry has long struggled to build amid ambiguous regulatory gray areas. Now, after enduring years of restrictive SEC oversight, it finally has a chance to establish a solid footing. Regulatory uncertainty has forced many projects to adopt unconventional capital structures.

Without clear guidance, organizations have had to ask: Are tokens securities? If so, how should they be registered? Many have had to chart their own course. Uniswap is a prime early example—they had to create a firewall between their equity-holding lab entity and the foundation managing their governance token. Frankly, the governance token was essentially useless, since the SEC never explained how to compliantly structure a blockchain token entity.

Now, with the CLARITY Act set to pass, the industry may finally get definitive legal guidance for compliant crypto token operations. This could be the moment when the industry “comes of age.”

I’m not criticizing projects forced to separate equity and tokens. Under Gary Gensler’s aggressive legal actions, they had no choice and no compliant path to follow.

This environment has produced a wave of “down-only” altcoins. These tokens lack equity features, yet have become tools for crypto venture capital to mark illiquid assets to market. As these so-called “fundamental” tokens struggle, meme coins and Pumpfun have become the only “fair” game in the market.

At least you know: what you’re trading was never meant to have value.

But things are changing. Market divergence is accelerating—90% of tokens continue to decline, while the remaining 10% have found strong buy-side support.

This top 10% of tokens has held up for two reasons: first, their token supply structures are healthy, with little VC or investor selling pressure; second, they mostly come from projects that actually generate profits. This marks a dramatic shift for the industry. People are slowly accepting that “crypto projects can actually make money.”

These “revenue tokens” now stand at the leading edge of the industry’s path to maturity. As companies begin generating revenue, cash flow analysis becomes viable, and how to allocate profits is now a hot topic. We’ve come full circle to the world of corporate finance and capital structure decisions. This has caught many by surprise—after all, not everyone paid close attention in corporate finance class.

Hyperliquid is driving the “revenue token” trend. They have begun programmatically buying back tokens at any price, allocating 100% of the exchange’s revenue to buybacks.

In crypto, buybacks are often seen simply as “reducing supply to drive up token price.” While true, this view misses a deeper question: how much revenue should a company actually use for buybacks?

To understand this, think of buybacks as a form of dividend. Mechanically, buybacks have always been a more tax-efficient dividend.

In traditional finance, profit distribution typically works like this:

The company earns annual net profit, pays out a portion as dividends, and retains the rest as “retained earnings” on the balance sheet.

From retained earnings, the company can choose to repay debt, fund maintenance capex, reinvest in internal growth, or buy back its own stock.

In recent years, large companies have favored buybacks because they’re a more tax-efficient dividend. Buybacks increase earnings per share, which theoretically boosts stock price—similar to a dividend, but shareholders aren’t taxed immediately.

If a company’s return on invested capital (ROIC) exceeds its weighted average cost of capital (WACC), reinvesting profits in growth is the smarter choice. If the net present value of internal reinvestment is negative, returning capital to shareholders makes more sense.

Mature companies lacking high-return investment opportunities are better off returning cash to shareholders through dividends or buybacks.

In essence, buybacks are an “upgraded dividend.”

But ask yourself: Has any early-stage growth company in history ever made “paying out most revenue (not even profit!) as dividends” its core strategy?

Of course not. It’s fundamentally illogical.

The core reason: equity holders typically believe reinvesting profits will generate higher returns than taking dividends and seeking new investments. If you hold a company’s equity, you likely believe in its growth potential—otherwise, why invest?

So, setting a programmatic, indiscriminate high buyback ratio makes no sense.

The buyback ratio should be a tailored decision, based on:

• The balance between ROIC and WACC
• The company’s stage of development
• Current market valuation

For ultra-early-stage companies (which make up 99.9% of the crypto industry), a reasonable buyback ratio should be close to zero. As an equity holder, your job is to trust the founders and let them focus on building.

This issue is less pronounced in traditional finance because equity rights are clear: shareholders have a well-defined legal claim to a company’s residual value and ongoing cash flows.

The problem in crypto is that most tokens lack strong equity characteristics.

In this rights vacuum, anxious investors and project teams have latched onto “buybacks” as a lifeline, because it provides the illusion of equity rights. But this approach is clumsy and inefficient, and it actually stifles a company’s growth potential.

If we could establish clear token equity rights, investors would have the confidence to let founders reinvest profits, knowing they have a legal claim to the company’s ultimate value. For now, everyone clings to buybacks because they seem like the only option.

Resolving equity rights is essential for the industry to truly mature.

That’s why, combined with the positive momentum I’m seeing, I remain highly optimistic about the future of the crypto industry.

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