🧵 Staking seems pretty clearly better for value accrual than buyback and burn, even with capital efficiency considerations taken into account.
Here's why the structural incentives matter more than the surface-level tax benefits.
1/11
The standard argument: Token burns reduce circulating supply, driving price appreciation that's taxed as capital gains rather than dividend income.
This works well for traditional corporations with limited share issuance capacity.
2/11
However, protocols with large DAO treasuries face a structural challenge: burning tokens simultaneously increases the value of treasury holdings, creating economic incentives for future spending.
3/11
All DAO spending now directly counteracts the value capture of buyback and burn. Every treasury token release offsets the deflationary effects of burning, creating a zero-sum dynamic.
4/11
The tax efficiency benefit depends on maintaining deflationary pressure over time. With DAO governance, supply expansion is always possible through voting mechanisms.
Token holders are essentially betting on sustained treasury discipline.
5/11
Corporate buybacks face significant procedural barriers to reversal. DAO token releases require only governance approval, making the supply restriction inherently conditional rather than permanent.
6/11
Better alternative: Protocols could spend their revenue (not native tokens) to fund growth initiatives. This drives protocol expansion without supply dilution.
Isn't revenue-funded growth better for token price than burning capital?
7/11
If DAOs really wanted supply constriction, they'd be better off burning portions of their treasuries and keeping their revenue for growth.
But that would require actual commitment to deflationary tokenomics. 🤔
8/11
Staking mechanisms offer superior structural incentives:
• Protocol revenue flows directly to committed participants
• No treasury accumulation creating spending pressure
• Concentrated returns for stakers
• Predictable reward distribution
9/11
Key difference: Staking distributes value without intermediary treasury accumulation AND is better for protocol growth since you can use staking specifically for protocol growth initiatives.
You're actually spending on growth → the right way to do it.
10/11
Protocols should leave the door open to do both, but they should seriously consider how buyback and burn operates in practice vs theory.
Effective token design aligns long-term incentives and creates durable value distribution.
cc: @milesjennings @lex_node
11/11
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