CEO Sunny Lu – who conducted a marathon eight hour Ask Me Anything session in Chinese and English yesterday – dropped the bombshell towards the end the VeChain Foundation will buyback $25 million worth of VET over the next 12 months.
It represents about 3 billion VET taken off the market, or about 5% of the circulating supply.
It follows on from Tron’s announcement earlier this week it will buy back $20 million TRX this year.
EOS developer Block.one is also repurchasing 10% of its own shares.
VeChain is up 13% since the news, however the bigger price driver this week was its announcement that Walmart China is already using its blockchain to track 23 products in China, with plans to track 100 more.
With VeChain’s supply chain product now in real world, large scale use, the buyback could be a strategy to increase sentiment around the project in the hope of attracting new clients.
The VET price is up by 23% over the week and the Walmart project has seen its blockchain activity overtake Ethereum and Bitcoin on certain days, according to Blocktivity.
However, there has been a mixed response to news of the token buyback.
While it made many in the VeChain subreddit very happy there were some questions.
Tld_org called it an “interesting move” but wondered about the motivation as: “Growth stocks Never buy back stock in the early growth stage. They use their $s to grow.”
(To be fair, VeChain in April also announced a half billion development fund to encourage the use of the network. They clearly have a lot of money to spare.)
The reaction on the Cryptocurrency subreddit, which tends to look on the project with suspicion, was divided.
Many comments suggested the move was a sign of desperation from the company, trying to prop up the VET token price which is well down on the all-time high.
Others said it would make little difference as they believe the VeChain foundation is selling off many more tokens per month than it will be buying.
Earlier this week on June 25, to celebrate a year since the launch of its mainnet, Tron also announced it was buying back $20 million TRX over the course of the year.
Justin Sun, Tron CEO, said it would be ‘industry’s largest’ buyback program with the largest coverage in the secondary market.
That claim lasted less than a week.
It’s important not to judge the impact of coin buybacks simply by comparing it to the market cap.
It’s not as simple as dividing the $500 million VeChain market cap by $25 million and deciding it will equate to a 7% price increase over the year.
Money invested in tokens has an outside effect on the market cap.
That’s because the market cap does not equal the money invested in a coin, it’s simply the current price multiplied by the number of coins in circulation.
To take an extreme example as an illustration: if I have one thousand coins, and manage to sell a coin to you for $1, that cryptocurrency has a theoretical market cap of $1000, despite its net worth remaining $1.
If you then sell that one coin to your friend for $1.50, the market cap rises to $1500.
Good luck actually getting $1500 for your tokens in the real world.
Tron last year also burned 1 billion tokens and it owns about 33 percent of the total supply of 99.4 billion.
The buyback news will do little to dispel criticisms that the project is too centralized after former CTO Lucien Chen claimed that just 27 nodes control the vast majority of the network – and most of those nodes are controlled by TRON.
EOS developers Block.one recently told the community it would be buying back 10% of its own stock. It has previously conducted equity buybacks to resell those shares to new investors it sees as helpful to its business.
In the traditional world of finance, share buybacks are seen as a good thing.
The world’s most famous investor, Warren Buffett (who Justin Sun recently paid $4.6m to have lunch with) only ever buys back his own Berkshire Hathaway shares when he believes they are currently underpriced on the open market.
He has said in the past: “When stock can be bought below a business’s value it is probably the best use of cash.”
Buffett believes its also good from an investor’s point of view. Speaking about Apple’s share price he said: “I’d rather have it go down for one thing … If it goes down 10 percent it means they get to buy 10 percent more shares and my interest will go up 10 percent more for spending that money.”
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