1/ Buy-and-burn is becoming the default ‘capital return’ strategy in crypto. I think this is a big mistake.
Profitable protocols shouldn’t shrink their balance sheets when they can do productive things instead.
2/ No early stage startup would take its profits and hand them out instead of:
- reinvesting in growth
- attracting partnerships
- extending runway
Yet markets reward protocols for doing exactly that.
Think about how insane this is.
3/ Buy-and-burns are payouts that limit growth
That might make sense for a mature business.
It makes much less sense for protocols that are still early, still competing, and still have huge room to expand.
4/ The reason NOT to do buy-and-burn is simple:
Cash is optionality.
It lets a protocol invest harder, survive longer, and play offense when everyone else is cutting back.
Burning that optionality is not obviously “tokenholder friendly.”
5/ A lot of tokenomics confusion comes from Bitcoin.
Bitcoin was designed to be hard money with fixed supply.
Network tokens are entirely different. They are often valued on cashflows, so they would benefit from greater flexibility, but they copied the fixed supply model of Bitcoin instead.
Crypto kept the cap and forgot the purpose.
6/ Because of Bitcoin’s precedent, DeFi protocols are being run with the financial structure of a currency when they should be run like growth-stage startups.
If a network has profits, the default should be: reinvest, build, extend runway, strengthen the moat.
Engineering token scarcity is not a growth strategy.
7/ Network tokens should not be locked into fixed supplies forever.
No startup in history has ever “run out of equity.”
So why should a token valued on cash flows be stuck with a capital structure it can’t adapt?
8/ Markets are rewarding fixed supplies and buy-and-burn partly because holders are starved for fundamentals.
Weak disclosures and too many rugs have made people desperate for any signal that value might flow back to them.
That is a market structure problem, not a reason for protocols to misallocate capital.
9/ And if a protocol is going to distribute cash flows, they should be programmatic.
Many buyback programs are discretionary. A team, DAO, or dev company decides when and how much to buy.
Those aren’t real cash flows. They’re ad hoc decisions subject to whims.
10/ Crypto is maturing, and protocols are getting repriced on fundamentals.
Token design needs to catch up.
The winners won’t be the ones burning treasuries to look mature.
They’ll be the ones who take growth seriously and compound capital.
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Guy Wuollet is a General Partner on the a16z crypto investment team.
This post was originally an X thread.
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