The buyback and burn mechanism has long been recognized as a successful strategy in the crypto space, driving token price appreciation and maintaining scarcity. However, with the rise of Decentralized Finance (DeFi) and Automated Market Makers (AMMs), a new approach has emerged. This approach combines the core benefits of buyback and burn with the added advantage of deeper liquidity, known as buyback and liquidity provision.
In this model, rather than burning tokens, they are utilized to provide liquidity for the token on the primary AMM market. This strategy enhances the token's liquidity, making it more accessible and tradable for users.
We have opted not to pursue the traditional buyback and burn mechanism. Instead, we believe in leveraging buyback and liquidity provision to enhance the overall ecosystem's health and stability. By providing deeper liquidity, we ensure a more robust and efficient market for our token, benefiting our users and ecosystem as a whole.
What is buyback?
A buyback in the crypto space is a process where a project or company repurchases its own tokens from the market. This is similar to stock buybacks in traditional finance.
Purpose:
Increase Value: By reducing the circulating supply of tokens, buybacks can help increase the value of the remaining tokens.
Signal Confidence: It signals to investors that the project team has confidence in the long-term value of their tokens.
Support Price: Helps in stabilizing or increasing the token price by creating buying pressure.
Execution:
Tokens are bought back from exchanges or liquidity pools using project funds, which can be from profits, reserves, or specific allocations for buybacks.
What is Liquidity Pool?
A liquidity pool is a collection of funds locked in a smart contract to provide liquidity for trading pairs on decentralized exchanges (DEXs).
Purpose:
Facilitate Trading: Allows for the seamless swapping of tokens without the need for a traditional order book.
Reduce Slippage: With sufficient liquidity, large trades can be executed with minimal impact on the token price.
Earn Fees: Liquidity providers earn transaction fees from trades that occur within the pool, providing an incentive to contribute liquidity.
How it Works:
Users deposit pairs of tokens into the liquidity pool. For example, in an ETH/DAI pool, a user would deposit an equal value of ETH and DAI.
In return, they receive liquidity provider (LP) tokens representing their share of the pool.
When trades happen, a small fee is taken from each trade and distributed proportionally to all LP token holders.
Integration of Buyback and Liquidity Pool (B&LP)
Synergy:
Buybacks Supporting Liquidity: CBC use buybacks to purchase tokens from the market and then add those tokens to the liquidity pool. This can improve liquidity and provide better trading conditions.
Sustaining Value: Regular buybacks can support token price, which indirectly benefits liquidity by ensuring the pool remains valuable and attractive to liquidity providers.
Example Mechanism:
Buyback Execution: CBC allocates a portion of its revenue or profits to regularly buy back its tokens from the open market.
Adding to Liquidity Pool: The bought-back tokens can be paired with another asset (like FLR) and added to a liquidity pool on a DEX.
Continuous Cycle: This cycle can be repeated regularly, ensuring continuous support for both token price and liquidity.
Benefits of B&LP
Price Support and Stability:
Regular buybacks can help maintain or increase token price by reducing supply.
Enhanced liquidity provides stability and reduces the likelihood of large price swings during trades.
Investor Confidence:
Demonstrates the project’s commitment to maintaining token value and liquidity.
Attracts more investors and traders, knowing there is a mechanism in place to support token value.
Earnings for Liquidity Providers:
By adding bought-back tokens to liquidity pools, projects can ensure that liquidity providers are adequately compensated with trading fees.
The Buyback and Liquidity Pool (B&LP) strategy is a powerful tool for DeFi projects to manage their token economics effectively. By strategically buying back tokens and enhancing liquidity, projects can create a more stable and attractive environment for investors and users, fostering long-term growth and sustainability.
Since the above operations can be costly, CBC will batch the B&LP operations (rather than execute them with each transaction) in order to keep them economically feasible.
In the case of CBC, 10% of all fees collected will be used as funds for B&LP prior to contributing toward the Distribution Mechanism
