Decentralised finance protocols are passing on revenue to holders of their tokens at a record rate as they work to earn investors’ trust, but it could be a waste of money.That’s according to a new report from crypto market maker Keyrock, which looked at token buybacks, one of the most popular ways for protocols to tie their success to the price of the tokens they issue.Keyrock found that the top 12 revenue-distributing protocols spent almost $800 million on token buybacks and other revenue-sharing activities in July, a more than 400% increase since the start of 2024. “Much like public companies that use buybacks to signal long-term commitment and instill investor trust, crypto teams leverage them to enhance token value and communicate conviction in the project’s future,” Amir Hajian, the Keyrock researcher who wrote the report, said. Token buybacks have become increasingly popular in recent months.The idea is that buybacks — paid for with fees generated from the protocol’s users — will tie the value of a token to the success of its associated DeFi protocol, regardless of how the broader crypto market trades.In other words, the more profit a protocol generates, the more it will spend buying back its token, increasing its market value.Poor use of capital? It’s not clear how effective token buybacks are, however.“Buybacks are broken, but can be improved,” Hajian said in the report, adding that many programmes overspend when prices are high and underspend in downturns, when they matter most.Buybacks can also be inefficient because they may divert funds from marketing and growth initiatives, Hajian added.It’s not just Keyrock making that case. In March, a report from crypto research firm Messari also argued that buybacks are a poor use of capital. “Our analysis finds no clear evidence that the market rewards these initiatives, as token performance remains driven by metrics growth and narrative formation,” Sunny Shi, the report’s author, said.Still, the perception that buybacks help shore up token prices is powerful. Perpetual futures exchange Hyperliquid has made token buybacks an integral part of its strategy. Many investors equate Hyperliquid’s buyback programme with the strong performance of its HYPE token, which has soared 500% since its November 2024 launch. Seeing this success, others, such as the top lending protocol Aave, are also implementing buyback programmes. Uncertain valueWhile DeFi tokens soared in 2021 as excitement around the sector peaked, many have since underperformed as the hype died down and investors began to question their high valuations. Even the tokens of successful DeFi protocols, like liquid staking protocol Lido and credit protocol Sky, are trading well below their 2021 highs, despite their revenues increasing significantly since then.“Tokens do not guarantee dividends, confer legal rights, or offer the clarity of earnings metrics,” the Keyrock report said. “The link between protocol performance and tokenholder value is therefore indirect and often uncertain.”Buybacks are an attempt to ground token valuation in something tangible, such as a percentage of the protocol’s total revenue.Despite their issues, the data shows buybacks aren’t a bad idea altogether, according to the Keyrock report.“Disciplined programmes, grounded in revenue stability, treasury strength, and valuation awareness, can reinforce alignment and credibility,” Hajian said.Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.Decentralised finance protocols are passing on revenue to holders of their tokens at a record rate as they work to earn investors’ trust, but it could be a waste of money.That’s according to a new report from crypto market maker Keyrock, which looked at token buybacks, one of the most popular ways for protocols to tie their success to the price of the tokens they issue.Keyrock found that the top 12 revenue-distributing protocols spent almost $800 million on token buybacks and other revenue-sharing activities in July, a more than 400% increase since the start of 2024. “Much like public companies that use buybacks to signal long-term commitment and instill investor trust, crypto teams leverage them to enhance token value and communicate conviction in the project’s future,” Amir Hajian, the Keyrock researcher who wrote the report, said. Token buybacks have become increasingly popular in recent months.The idea is that buybacks — paid for with fees generated from the protocol’s users — will tie the value of a token to the success of its associated DeFi protocol, regardless of how the broader crypto market trades.In other words, the more profit a protocol generates, the more it will spend buying back its token, increasing its market value.Poor use of capital? It’s not clear how effective token buybacks are, however.“Buybacks are broken, but can be improved,” Hajian said in the report, adding that many programmes overspend when prices are high and underspend in downturns, when they matter most.Buybacks can also be inefficient because they may divert funds from marketing and growth initiatives, Hajian added.It’s not just Keyrock making that case. In March, a report from crypto research firm Messari also argued that buybacks are a poor use of capital. “Our analysis finds no clear evidence that the market rewards these initiatives, as token performance remains driven by metrics growth and narrative formation,” Sunny Shi, the report’s author, said.Still, the perception that buybacks help shore up token prices is powerful. Perpetual futures exchange Hyperliquid has made token buybacks an integral part of its strategy. Many investors equate Hyperliquid’s buyback programme with the strong performance of its HYPE token, which has soared 500% since its November 2024 launch. Seeing this success, others, such as the top lending protocol Aave, are also implementing buyback programmes. Uncertain valueWhile DeFi tokens soared in 2021 as excitement around the sector peaked, many have since underperformed as the hype died down and investors began to question their high valuations. Even the tokens of successful DeFi protocols, like liquid staking protocol Lido and credit protocol Sky, are trading well below their 2021 highs, despite their revenues increasing significantly since then.“Tokens do not guarantee dividends, confer legal rights, or offer the clarity of earnings metrics,” the Keyrock report said. “The link between protocol performance and tokenholder value is therefore indirect and often uncertain.”Buybacks are an attempt to ground token valuation in something tangible, such as a percentage of the protocol’s total revenue.Despite their issues, the data shows buybacks aren’t a bad idea altogether, according to the Keyrock report.“Disciplined programmes, grounded in revenue stability, treasury strength, and valuation awareness, can reinforce alignment and credibility,” Hajian said.Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.