Web3 Tokenomics: Buyback and Burn, Explained

Introduction: What Is Token Buyback and Burn All About?

The buyback and burn mechanism is widely used in tokenomics. Inspired by traditional finance but uniquely adapted for crypto, this method allows Web3 projects to regulate token supply, manage price stability and signal strength to crypto investors.

By reducing the amount of circulating tokens through strategic repurchases and permanent destruction, buyback and burn schemes are fast becoming tools for shaping token value and ecosystem sustainability.

This involves two core steps:

Buyback: The project uses a portion of its revenues or treasury profits to repurchase tokens from the open market (increase demand)

Burn: These tokens are sent to a burn address inaccessible by any private key. Once there, they are permanently removed from circulation (reduce supply).

This combination of financial repricing and cryptographic finality makes token burns irreversible and publicly verifiable on-chain.

The Two Types of Buyback and Burn

Buyback and burn mechanisms can be designed to run in two main ways:

Manual triggers

Decisions are initiated by the core team or through DAO governance, allowing flexibility to respond to changing market conditions.

Automated triggers

Smart contracts manage the process autonomously, executing buybacks and burns according to preset rules—ensuring consistency and removing the need for human intervention. Triggers can be based on a range of criteria, such as:

Scheduled intervals: Burns occur at regular times (i.e. every six months), offering predictability for the community

Profit-based thresholds: A portion of revenue is automatically allocated to buyback and burn, linking tokenomics directly to the project’s performance

Milestone events: Burns can be triggered by specific achievements, like reaching a user target or completing a major roadmap item—turning growth into a symbol of value creation

Impact on Token Value and Market Dynamics

The buyback and burn mechanism can strongly influence token markets through:

Supporting token value: By permanently reducing the circulating supply, this could boost the value of the remaining tokens, benefitting existing holders and increasing appeal to new investors

Strengthening investor confidence: Buybacks signal that the project is committed to long-term sustainability and financial health. Because all burn transactions are verifiable on-chain, the process builds trust through transparency and accountability.

Controlling token inflation: In Web3 AI ecosystems with ongoing token emissions, buyback and burn help counteract inflation. By removing tokens as new ones are issued, it maintains or reduces total supply, minimising dilution and supporting price stability.

Conclusion

Token buybacks and burns are powerful levers in tokenomics. But like any other tool, they’re only as good as the strategy behind them. As Web3 and AI communities continue to grow, mastering mechanisms like this to achieve balances will be essential to building sustainable ecosystems.

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*Disclaimer: The information provided on this blog does not constitute investment advice, financial advice, trading advice, or any other form of professional advice. aelf makes no guarantees or warranties about the accuracy, completeness, or timeliness of the information on this blog. You should not make any investment decisions based solely on the information provided on this blog. You should always consult with a qualified financial or legal advisor before making any investment decisions.

What's aelf Ventures?

aelf Ventures is the investment arm of aelf, a high-performance Layer 1 AI blockchain platform that offers builders and users advanced AI functionalities and cutting-edge infrastructure. With a dedicated fund of $50 million, aelf Ventures is focused on empowering Layer 1 blockchain projects and various aspects of the Web3 ecosystem, such as DeFi, GameFi, NFT, and those looking to make the transition from Web2 to Web3.

Till date, aelf Ventures has invested in projects such Crystal Fun and Confiction Labs (pka. Mythic Protocol), and is actively incubating promising ventures within the ecosystem such as Portkey, eBridge, Forest NFT Marketplace, AwakenSwap, eWell, and BeanGoTown.

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Tool/Platform	What's it about
ChainGPT	An AI-powered assistant for the blockchain and crypto industry, specializing in content creation, language translation, smart contract coding, and more.
aelf	A high-performance, customisable multi-chain blockchain framework with AI-powered smart contracts and a developer-friendly environment.
Quick Intel	An AI-powered crypto security platform that helps investors avoid scams, rug pulls, and honeypots by analysing smart contracts, social sentiment, and on-chain data.
Cogwise AI News Aggregator	An AI-powered news aggregator that analyses real-time news and global trends to predict market movements in the crypto market.
OpenAI Codex	An AI system that transforms natural language into code, automating code creation for smart contracts, blockchain applications, and other development tasks.
QnA3	An AI-powered Web3 knowledge hub that provides real-time information and insights on cryptocurrencies, blockchain projects, and the broader Web3 ecosystem, with unique Solana Actions integrations.
Fetch.ai	A platform that combines AI and blockchain to create autonomous economic agents (AEAs) for various applications, including supply chain optimisation and smart city management.
Octavia	A decentralised digital identity (DID) platform for creating and managing self-sovereign digital identities, empowering users to control their data and online presence.
TensorFlow	A versatile open-source machine learning framework used for building AI models that can analyse blockchain data, enhance security, and predict market trends.
Alethea	A platform that creates 'Intelligent NFTs' (iNFTs) with unique personalities and the ability to engage in conversations, powered by AI and blockchain technology.

Chain	URL	Explorer
AELF	https://aelf-test-node.aelf.io/	https://explorer-test.aelf.io/
tDVW	https://tdvw-test-node.aelf.io/	https://explorer-test-side02.aelf.io/

Feature	Description
Inheritance	ERC-404 inherits from the interfaces IERC-404, IERC721 Receiver, and IERC165, implementing functions specified in these interfaces, behaving as both ERC20 and ERC721.
Data Structures	Mappings track balances, allowances, approvals, and ownership of tokens. Double-ended queue stores ERC721 token IDs. Data for managing ownership and indices of ERC721 tokens.
Constructor	Initialises token name, symbol, decimals, and other necessary variables for ERC20 and ERC721 tokens.
Token Minting and Burning	_mintERC20 function for minting ERC20 tokens. _retrieveOrMintERC721 function for minting ERC721 tokens and retrieving from a bank. _withdrawAndStoreERC721 function for depositing ERC721 tokens into the bank.
Transfers	Functions for transferring ERC20 and ERC271 tokens between addresses. Distinguishes between token types based on ID. _transferERC20WithERC721 function handles transfers involving both types.
ERC20 and ERC721 Interactions	Approve function handles approvals for both token types. Functions like transferFrom, safeTransferFrom, and permit handle transfers and approvals.
EIP-2612 Support	Supports EIP-2612 permit functionality for ERC20 tokens.
Interface Compatibility	Implements necessary functions for ERC-404 and ERC165 interfaces, indicating compatibility with ERC20 and ERC721 standards.

Role	Max Number
BP	2N+1, N starts from 8 in 2022
Candidate node	5*(2N+1)
Voter	No limit

Benefits	Description
Makes smart contracts 'smarter'	AI-driven smart contracts can autonomously modify terms based on predefined conditions and real-time data input, ensuring that the contracts are not just automated but also intelligent and self-improving over time.
Levelled up data analysis	Data is the new oil, and AI is the machinery that refines it. It is possible for AI to reduce large-volume blockchain data analysis time by up to 90%.
Boosts security	Through machine learning models, AI can prevent frauds and detect security threats in real time. It can identify potential breaches, predict future threats, and adapt to evolving security measures.
Lowers carbon footprint	AI algorithms help optimise energy consumption in blockchain operations, given the flak drawn by activities like Bitcoin mining.

What Is Token Buyback and Burn? | aelf Ventures