How Can a Protocol Use Token Buybacks to Break a Negative Reflexive Loop? ⎊ Path

How Can a Protocol Use Token Buybacks to Break a Negative Reflexive Loop?

A protocol can use its stablecoin reserves to execute large-scale, open-market buybacks of its native token. This demand pressure counters the selling pressure from liquidations, stabilizing the price and breaking the negative feedback loop.

The treasury acts as a 'buyer of last resort,' restoring market confidence and stopping the reflexive death spiral.

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Glossar

Restoring Market Confidence

Action ⎊ Restoring Market Confidence refers to the coordinated actions undertaken by a protocol, exchange, or issuer following a significant financial event, such as a de-peg or a major liquidation cascade, to re-establish investor trust.

Token Buybacks

Mechanism ⎊ Token buybacks, within cryptocurrency markets, represent a capital allocation strategy where an issuer reduces circulating supply by repurchasing its native token from the open market.