Edgy - The DeFi Edge 🗡️

I so desperately want to end the psyop that buybacks don't work: 1. Mechanically speaking, buybacks make the price go up 2. Crypto is not TradFi, there is a different social contract > The Mechanical Value of Buybacks First there's a large number of studies that confirm basic intuitions: * Market Underreaction to Open Market Share Repurchases NBER (1995) - Buybacks create long term value, especially for underpriced stocks * The Nature and Persistence of Buyback Anomalies (2009) - Reaffirms buybacks create persistent abnormal positive returns. They have an especially positive effect smoothing over price dips when the market overreacts to bad new * Actual Share Repurchases, Price Efficiency, and the Information Content of Stock Prices (2017) - Reaffirms the findings of the 2009 paper. Buybacks improve pricing efficiency, liquidity, and are especially positive during market declines * Pavilion Global Markets Buybacks Drive S&P 500 Returns (2023) - Buybacks can drive up to 43% of the returns in a single stock tldr: buybacks make the number go up. obviously they work better when your stock is at a lower p/e because of under appreciation or market downturns unrelated to the core business, but nonetheless they are positive on the stock THIS SHOULD BE REALLY OBVIOUS, you don't even need to read any of the papers above to understand the basic intuitions of why they work: * Price is a function of supply and demand. When buybacks take supply off the market, price goes up all else held equal * When shares get taken off the market, the shares you hold represent a larger share of the business meaning you benefit from EPS growth even if revenue isn't growing (let alone if it is) * Businesses providing constant single sided buys on their own shares has a smoothing effect on liquidity making deeps shallower and setting higher price floors in the long run (more shares are repurchased on a fixed buying program when price is lower) Some specific examples: * about 51% of Apple's EPS growth is credited to their legendary buyback program retiring so many outstanding shares * Autozone has bought back like 90% of their shares - the stock has had double the annualized returns of the SP for the last 2 decades * Home Depot is similar to Autozone What crypto people get uncomfortable is that buybacks take a long time to compound. This is totally fine in the stock market where there's many businesses you can forecast out in to the future for a decade+. In crypto I understand this rightfully makes people nervous One prime example of this would be PONS. It kinda doesn't matter how much %of supply was bought back by PONS if their business never recovers. The entire trade/business may end up being too much a flash-in-the-pan for the long term effect of buybacks to have compounded But we're now seeing a few crypto businesses start to cross the chasm into multi-cycle success stories. We can & should expect the businesses to implement long durable buyback programs that will compound excess positive returns for the years to come > The importance of buybacks in crypto I don't know if any of you noticed this, but you have no legal protections as token holders. It's also not even on any government roadmap to fix this Regulators are just now getting around to setting some guidelines for crypto projects to not get sued - but even then, none of those guidelines relate to you. You do not have voting rights. You do not have legal recourse. In fact most times you don't even own equity in the underlying businesses which actually collect the revenues IF token holders had legal rights. IF I could sue Compound or Aave for what they've done to token holders, I'd be far more sympathetic to the argument that teams should wait for buybacks. At the end of the day, I know I'd be able to pursue legal recourse & pressure with like minded token holders to force them to return capital when the time is right Unfortunately, you have none of these abilities. You have nothing but the promises of the team. IN FACT, a team that likely ran a points program or other to WIN YOUR BUSINESS by trading some of their equity. I'd argue they have a moral responsibility to you to show they're aligned in the long term with you even in the lack of regulatory requirements