Token buyback makes a comeback

Author: Ekko an and Ryan Yoon

The repurchase that stagnated in 2022 due to pressure from the U.S. Securities and Exchange Commission has once again become the focus. This report, written by Tiger Research, analyzes how this mechanism, once deemed unfeasible, has re-entered the market.

Key Points Summary

• Hyperliquid 99% buyback and Uniswap buyback restart discussion have made buybacks a focal point of attention again.
• Repurchases, once thought to be unfeasible, have now become possible due to the introduction of the “Crypto Projects” by the U.S. Securities and Exchange Commission and the “Clarity Act.”
• However, not all buyback structures are feasible, which confirms that the core requirement of decentralization remains crucial.

1. Buyback returns after three years

The buyback that disappeared from the crypto market after 2022 reappears in 2025.

In 2022, the U.S. Securities and Exchange Commission considered buybacks to be activities subject to securities regulation. When a protocol uses its revenue to buy back its own tokens, the SEC views this as providing economic benefits to token holders, essentially equivalent to dividends. Since dividend distribution is a core feature of securities, any tokens that engage in buybacks could be classified as securities.

Therefore, major projects like Uniswap have either delayed their buyback plans or completely stopped the discussions. There is no reason to take on direct regulatory risks.

However, by 2025, the situation changed.

Uniswap has reopened its buyback discussions, and several protocols including Hyperliquid and Pump.fun have executed buyback plans. Things that were considered unfeasible a few years ago have now become a trend. So, what has changed?

This report explores why buybacks have been halted, how regulations and structural models have evolved, and how the buyback methods of each protocol differ today.

2. Why Buybacks Disappeared: SEC's Securities Explanation

The disappearance of buybacks is directly related to the SEC's view on securities. From 2021 to 2024, the regulatory uncertainty in the entire cryptocurrency sector is exceptionally high.

The Howey Test is a framework used by the SEC to determine whether a particular action constitutes a security. It consists of four elements, and an asset that meets all of these elements qualifies as an investment contract.

Based on this test, the SEC repeatedly claims that many crypto assets fall under the category of investment contracts. Buybacks are also interpreted under the same logic. As regulatory pressure increases across the market, most protocols have no choice but to abandon their plans for implementing buybacks.

The SEC does not view buybacks as a simple token economic mechanism. In most models, the protocol uses its revenue to buy back tokens and then distributes the value to token holders or ecosystem contributors. In the SEC's view, this is similar to dividends or shareholder distributions after a company buyback.

As the four elements of the Howey test align with this structure, the interpretation of “repurchase = investment contract” has become increasingly entrenched. This pressure is most severe for large agreements in the United States.

Uniswap and Compound, operated by American teams, have both faced direct regulatory scrutiny. Therefore, they must exercise extreme caution when designing token economics and any form of revenue distribution. For example, the fee switch for Uniswap has remained inactive since 2021.

Due to regulatory risks, major protocols avoid any mechanisms that directly distribute income to token holders or could have a substantial impact on token prices. Terms like “price appreciation” or “profit sharing” have also been removed from public communications and marketing.

3. SEC's Change of Perspective: Crypto Projects

Strictly speaking, the SEC did not “approve” the buyback in 2025. What changed is its interpretation of the composition of securities.

• Gensler: Based on results and behavior (How are tokens sold? Does the foundation directly allocate value?)
• Atkins: Based on Structure and Control (Is the system decentralized? Who actually controls it?)

Under Gensler's leadership in 2022, the SEC emphasized outcomes and behaviors. If revenue is shared, the token tends to be viewed as a security. If the foundation intervenes in a way that affects the price, it will also be considered a security.

By 2025, under the leadership of Atkins, the framework shifted towards structure and control. The focus shifted to who governs the system, and whether operations rely on human decision-making or automated code. In short, the SEC began to assess the actual degree of decentralization.

Source: United States District Court for the Southern District of New York

The Ripple (XRP) lawsuit has become a key precedent.

In 2023, the court ruled that XRP sold to institutional investors qualifies as a security, while XRP traded by retail investors on exchanges does not fall under securities. The same token may belong to different classifications depending on its method of sale. This reinforces an interpretation that the status of a security does not depend on the token itself, but rather on the method of sale and operational structure, a viewpoint that directly impacts the assessment of buyback models.

These changes were later integrated under an initiative called “Crypto Project.” After the “Crypto Project,” the core issues of the SEC changed:

Who actually controls the network? Are decisions made by the foundation or governed by a DAO? Is the revenue distribution and token burning done manually on a schedule, or is it executed automatically by code?

In other words, the SEC has begun to examine substantial decentralization rather than just superficial structures. Two shifts in perspective have become particularly crucial.

1. Lifecycle
2. Functional Decentralization

3.1. Lifecycle

The first transformation is the introduction of the perspective of the token lifecycle.

The SEC no longer views tokens as permanent securities or permanent non-securities. Instead, it recognizes that the legal characteristics of tokens may change over time.

For example, in the early stages of a project, the team sells tokens to raise funds, and investors purchase tokens with the expectation that the team’s strong execution will increase the value of the tokens. At this point, the structure heavily relies on the efforts of the team, making this sale functionally similar to a traditional investment contract.

As the network begins to see practical use, governance becomes more decentralized, and the protocol operates reliably without direct intervention from the team, the explanations also change. Price formation and system operation no longer rely on the team's capabilities or ongoing efforts. A key element in the SEC assessment—“reliance on the efforts of others”—has been weakened. The SEC describes this period as a transitional phase.

Ultimately, when the network reaches a mature stage, the characteristics of tokens are significantly different compared to their early stages. Demand is driven more by actual usage rather than speculation, and the functions of tokens resemble that of network commodities. At this point, applying traditional securities logic becomes challenging.

In short, the SEC's lifecycle perspective acknowledges that tokens may resemble investment contracts in their early stages, but as the network becomes decentralized and self-sustaining, it becomes more difficult to classify them as securities.

3.2. Functional Decentralization

The second is functional decentralization. This perspective focuses not on how many nodes exist, but on who actually holds the control.

For example, a protocol may be running ten thousand nodes globally, with its DAO tokens distributed among tens of thousands of holders. On the surface, it seems to be completely decentralized.

However, if the upgrade authority of the smart contract is held by a multi-signature wallet of a three-person foundation, if the treasury is controlled by the foundation's wallet, and if the fee parameters can be directly modified by the foundation, then the SEC does not consider this to be decentralized. In fact, the foundation controls the entire system.

In contrast, even if a network operates with only a hundred nodes, if all major decisions require DAO voting, if the results are executed automatically by code, and if the foundation cannot intervene arbitrarily, then the SEC may consider it to be more decentralized.

4. Clarity Act

Another factor that allows repurchase discussions to re-emerge in 2025 is the “Clarity Act,” a legislative initiative proposed by the U.S. Congress. The bill aims to redefine how tokens should be classified under the law.

While the SEC's “crypto project” focuses on determining which tokens qualify as securities, the Clarity Act raises a more fundamental question: what are tokens as a legal asset?

The core principle is simple: a token will not permanently become a security just because it is sold under an investment contract. This concept is similar to the SEC's lifecycle approach, but applied differently.

According to previous explanations by the SEC, if a token is sold as part of an ICO investment contract, then the token itself may be indefinitely considered as a security.

The “Clarity Act” separates these elements. If a token is sold under an investment contract at the time of issuance, it is considered an “investment contract asset” at that moment. However, once it enters the secondary market and is traded by retail users, it is reclassified as a “digital commodity.”

In simple terms, a token may be a security when it is issued, but once it is fully distributed and actively traded, it becomes an ordinary digital asset.

This classification is important because it changes the regulatory authority. Initial sales fall under the jurisdiction of the SEC, while secondary market activities fall under the jurisdiction of the CFTC. With the shift in regulation, the constraints related to securities regulation that protocols face when designing their economic structures are reduced.

This transformation directly affects the interpretation of buybacks. If a token is classified as a digital commodity in the secondary market, then buybacks are no longer viewed as “dividends similar to securities.” Instead, it can be interpreted as supply management, similar to monetary policy in a commodity-based system. It becomes a mechanism for operating the token economy, rather than distributing profits to investors.

Ultimately, the “Clear Act” formalizes the idea that the legal characteristics of tokens may change depending on the context, which reduces the structural regulatory burden associated with buyback designs.

5. Turn to Buyback and Burn

In 2025, a combination of buyback and automatic destruction mechanisms will reappear. In this model, the income is not directly distributed to token holders, the foundation has no control over the price or supply, and the destruction process is executed algorithmically. Therefore, this structure further distances itself from the elements previously marked by regulators.

The “Unified Proposal” announced by Uniswap in November 2025 clearly outlines this transition.

In this mode, a portion of the transaction fees is automatically allocated to the DAO treasury, but no income is directly distributed to UNI holders. Instead, a smart contract purchases UNI on the open market and destroys it, thereby reducing supply and indirectly supporting value. All decisions governing this process are made through DAO voting, with no intervention from the Uniswap Foundation.

The key change lies in the interpretation of this behavior.

Early buybacks were seen as a form of “profit distribution” to investors. The model in 2025 redefines this mechanism as supply adjustment, operating as part of network policy rather than intentionally impacting prices.

This structure does not conflict with the SEC's position in 2022 and aligns with the definition of “digital commodities” in the Clarity Act. Once a token is considered a commodity rather than a security, supply adjustments are akin to a monetary policy tool, rather than a payment similar to dividends.

The Uniswap Foundation stated in its proposal that “this environment has changed” and that “regulatory clarity in the U.S. is evolving.” The key insight here is that regulators have not explicitly authorized buybacks. Instead, clearer regulatory boundaries allow the protocol to design models that meet compliance expectations.

In the past, any form of buyback was seen as a regulatory risk. By 2025, the question shifted from “whether buybacks are allowed” to “whether their design can avoid triggering securities concerns.”

This shift opens up space for the implementation of buybacks within the compliance framework.

6. Agreement for Buyback Implementation

The representative protocol for the repurchase and destruction mechanism to be implemented in 2025 is Hyperliquid. Its structure illustrates several decisive characteristics:

• Automated Mechanism: The buyback and destruction operate based on protocol rules, rather than at the discretion of the foundation.
• Non-foundation revenue streams: Revenue does not flow into wallets controlled by the foundation, or even if it does, the foundation cannot use it to influence prices.
• No Direct Fee Sharing: Revenue is not paid to token holders. It is only used for supply adjustments or network operating costs.

The key point is that this model no longer promises direct economic benefits to token holders. It serves as the supply policy of the network. This mechanism has been redesigned to fit within the boundaries that regulators are willing to accept.

However, this does not mean that all buybacks are safe.

Although buybacks have regained momentum, not every implementation carries the same regulatory risks. The regulatory shift in 2025 has opened the door for structurally compliant buybacks, rather than for discretionary, one-time, or foundation-driven plans.

The SEC's logic remains consistent:

• If the foundation decides on the timing of market purchases, it will reinforce the interpretation of “intentionally supporting prices.”
• Even with DAO voting, if the upgrade or execution rights ultimately rest with the foundation, it does not meet the requirements for decentralization.
• If value accumulation is given to specific holders rather than being destroyed, it is similar to dividends.
• If income flows from the foundation to the market for purchases, leading to price appreciation, it will strengthen investors' expectations and align with the elements of the Howey test.

In short, buybacks that are discretionary, occasional, or controlled by the foundation still cannot escape securities scrutiny.

It is also important to note that buybacks do not guarantee price appreciation. Burning will reduce supply, but it is merely a long-term token economic mechanism. Burning cannot make weak projects strong; on the contrary, strong projects can strengthen their fundamentals through well-designed burning systems.