Why buybacks won’t stem the Dydx token’s 72% bleed out

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GM, Tim here.

Dydx, a perpetual futures trading platform, announced on Monday plans to use 25% of its profits to buy back its governance token.

The protocol says the scheme will “further align protocol success with the $DYDX token.” The DYDX token has fallen some 73% since the crypto market’s all-time high in December.

The idea is that buybacks — paid for with fees generated by 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.

Dydx joins a growing list of DeFi players instituting buybacks.

GMX, Hyperliquid, Arbitrum, Jupiter, and Sky have all in recent months moved forward with plans to buy back their own tokens.

Top DeFi lender Aave is also mulling a proposal to institute its own token buyback scheme.

But are buybacks really a good use of a protocol’s profits?

According to a recent report from DeFi data platform Messari, the answer is a resounding no.

“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.

RAY, GMX, GNS and SNX have programmatically bought back millions in tokens which are now worth way below cost.

This is the programmatic token buyback fallacy:

1. Irrelevant to price action which is driven by revenue growth and narrative formation.

2. When revenues are strong… https://t.co/c16eICFJPL pic.twitter.com/4G6wBFHcgF

— MONK (@defi_monk) March 20, 2025

Shi argues that such buybacks are a poor allocation of a protocol’s capital reserves.

When revenues are strong and token prices are high, Shi said, protocols end up spending cash reserves to buy back tokens at unfavourable prices. Then, when prices and revenue are low and protocols need cash to invest in innovation and restructuring, buybacks mean they lack the excess capital to do so.

In Dydx’s case, there’s also the issue of investor and team member token unlocks.

A whopping 8.33 million DYDX tokens with a market value of just over $6 million are unlocked each month, with unlocks set to continue until July 2026.

Early investors in DeFi protocols are often keen to sell tokens when they can to lock in the gains on their investments.

To put the unlocks into perspective, Dydx made just $1.3 million from fees in February. Using 25% of these fees would only buy back around 325,000 DYDX — or about 4% of the amount of unlocked tokens.

Whether Dydx’s token buybacks will buck the trend and change its fortunes remains to be seen.

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