Token buyback, making a comeback

Written by: Ekko an and Ryan Yoon

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

Key Points Summary

Hyperliquid's 99% buyback and the discussion of Uniswap's buyback restart have brought buybacks back into focus.

Once considered unfeasible, buybacks have now become possible due to the U.S. Securities and Exchange Commission's “crypto project” and the introduction of the Clarity Act.

However, not all repurchase structures are feasible, which confirms that the core requirement of decentralization remains crucial.

1. The 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 as 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 token that conducts a buyback may be classified as a security.

As a result, major projects like Uniswap have either postponed their buyback plans or completely stopped discussions. There is no reason to take on direct regulatory risks.

However, by 2025, the situation changed.

Uniswap has reopened its repurchase discussions, and several protocols, including Hyperliquid and Pump.fun, have implemented repurchase plans. What was once considered unfeasible a few years ago has now become a trend. So, what has changed?

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

2. Why Buybacks Disappear: SEC's Securities Interpretation

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

The Howey Test is a framework used by the SEC to determine whether a particular activity constitutes a security. It consists of four elements, and an asset that meets all the 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 to implement 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 great caution when designing token economics and any form of revenue distribution. For example, Uniswap's fee switch has remained inactive since 2021.

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

3. Change in SEC's Perspective: Cryptocurrency Projects

Strictly speaking, the SEC did not “approve” the buyback in 2025. What changed was 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 results and behavior. If the revenue is shared, the token tends to be regarded as a security. If the foundation intervenes in a way that affects the price, it will also be regarded as a security.

By 2025, under Atkins' leadership, 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 the category of securities. The same token may belong to different classifications based 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 perspective that directly impacts the assessment of buyback models.

These changes were later integrated under the initiative called “Crypto Projects.” After the “Crypto Projects,” the SEC's core issues changed:

Who actually controls the network? Are decisions made by the foundation or through DAO governance? Is income 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 the superficial structure. Two shifts in perspective have become particularly critical.

life cycle

Functional Decentralization

3.1. Life Cycle

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 buy 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, which makes this sale functionally similar to a traditional investment contract.

As the network begins to see real-world usage, governance becomes more decentralized, and protocols operate reliably without direct intervention from teams, the explanations also change. Price formation and system operation no longer depend on the capabilities or continuous efforts of the team. 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 the tokens are significantly different from their early stages. Demand is driven more by actual usage rather than speculation, and the function of the tokens resembles that of a network commodity. At this point, it becomes difficult to apply traditional securities logic.

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 operate with ten thousand nodes globally, with its DAO tokens distributed among tens of thousands of holders. At first glance, it appears to be completely decentralized.

However, if the upgrade permissions of the smart contract are 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 one hundred nodes, if all major decisions require DAO voting, if the results are executed automatically by code, and if the foundation cannot intervene at will, then the SEC may consider it to be more decentralized.

4. Clarity Act

Another factor that could lead to the re-emergence of buyback discussions 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 projects” focus on determining which tokens qualify as securities, the Clear 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 the SEC's previous explanation, if a token is sold as part of an ICO investment contract, then the token itself may be indefinitely considered a security.

The “Clear 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 at the time of issuance, but once it is sufficiently distributed and actively traded, it becomes a regular digital asset.

This classification is important because it changes the regulatory authorities. 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 shift directly affects the interpretation of buybacks. If a token is categorized as a digital commodity in the secondary market, then buybacks are no longer seen as “dividends similar to securities.” Instead, they can be interpreted as supply management, akin to monetary policy in a commodity-based system. It becomes a mechanism for operating token economics rather than distributing profits to investors.

Ultimately, the “Clarity 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. Transition to Buyback and Burn

In 2025, the combination of buyback and automatic destruction mechanisms will reappear. In this model, income is not directly distributed to token holders, and the foundation has no control over price or supply; the destruction process is executed through algorithms. Therefore, this structure moves further away from the elements previously marked by regulatory agencies.

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 revenue 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 regarding the management of 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 influencing prices.

This structure does not conflict with the SEC's views from 2022 and aligns with the definition of “digital commodities” as outlined in the Clear Act. Once a token is regarded as a commodity rather than a security, adjusting the supply is 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 “the 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 “can their design avoid triggering securities concerns.”

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

6. Agreement for Implementation of Buyback

The representative agreement for the repurchase and destruction mechanism implemented in 2025 is Hyperliquid. Its structure illustrates several decisive features:

Automated mechanism: Repurchase and destruction operate based on protocol rules, rather than at the discretion of the foundation.

Non-foundation income stream: Income does not flow into wallets controlled by the foundation, or even if it does flow in, 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 a supply policy for 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.

Despite the resurgence of buybacks, not every implementation carries the same regulatory risks. The regulatory shift in 2025 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 the timing of market purchases, it will strengthen the interpretation of “intentionally supporting the price.”

Even with DAO voting, if the upgrade or execution rights ultimately rest in the hands of the foundation, it does not meet the requirements of decentralization.

If value accumulation is given to specific holders instead of being destroyed, it is similar to dividends.

If the income flows from the foundation to the market for purchases, leading to a price increase, it will strengthen investors' expectations and align with the elements of the Howey test.

In short, discretionary, incidental, or foundation-controlled buybacks 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 only a long-term token economic mechanism. Burning cannot make weak projects stronger; conversely, strong projects can strengthen their fundamentals through well-designed burning systems.