Unlock Looming – TRON’s $20 Million BuyBack Plan

The TRON Foundation has recently announced an ambitious $20 million TRX buyback, one of the biggest in the industry to date.

In a live stream on Twitter, Justin Sun shared more info about the update:

“We will conduct by far the largest #TRX buy-back plan with the widest coverage in the secondary market, which will last for a year and will be conducted in several batches with no less than $20 million”.

Officially, the reason behind the large buy-back is to further increase community activity and promote market stability. Based on more information from the official medium blog post of the Tron foundation,

“In order to promote community activity and market stability, we will conduct by far the largest TRX buy-back plan with the widest coverage in the secondary market, which will last for a year and will be conducted in several batches with no less than $20 million.”

Also according to the blog post, the TRX holding of TRON Foundation will be unlocked on January 1, 2020. There are still no specific plans for this unlocked amount of TRX. However, The Foundation will continue to increase the TRX holding in the secondary market to manifest the company’s confidence in the development of the TRON ecosystem.

The buy-back will be conducted in several batches due to its size and marks TRON’s first “independence day” anniversary celebration—the day when the Foundation completed the TRX token swap from the Ethereum blockchain to its own. Over the next year, the TRON Foundation will spend $20 million repurchasing TRX in different batches in the secondary market at market prices. It is still unclear whether these tokens will be burnt or added to its holding.

It is an open questions as to how much stock buybacks help publicly traded companies — or if they even help at all. For investors it remains unclear whether companies are just blindly participating in the buyback frenzy, or actually being thoughtful about providing value to the community and holders.

In most cases, they are doing the former. A buy-back plan has a simple objective: to “return capital to holders” by spending money in a way that makes the value of the asset go up and holders wealthier as a result.

The primary idea is that buying back existing tokens decreases the supply of outstanding ones, and gives existing holders a bigger piece of the company. However, prominent financial analysts have long warned about the inherent risks that come with this practice. First used by Wall Street firms in an attempt to raise the value of the company’s shares, Warren Buffett believes that stock buybacks destroy shareholder value. Others think it’s a bullish sign when a company is hoarding its own shares.

Martin Hutchinson, former US Treasure Advisor and VP of Citibank and current Chief Investment Strategist at Wall Street Daily, says there are a number of reasons to be slightly bearish on companies that do buybacks. According to him, a buyback is bad for individual shareholders because the individual shareholders get no direct benefit from buyback offers, which are generally made directly to institutions. At the same time, buybacks are a great tool for main shareholders and senior management. Profitable companies a frequently pressured to generate cash returns for stockholders somehow. When dividends are not an option, out comes the buyback plan.

Tron TRX/USD is the 10th largest cryptocurrency by market capitalization is trading at $0.038913 USD (0.41%) at press time. Also the market capitalization at press time according to CoinMarketCap is $2,594,813,797 USD while the 24h traded volume in all trading pair is $994,295,529 USD.

In light of Tron’s buyback announcement, the question now is whether this move will affect the TRX currency status as a security. Deemed as “unregulated security”, the new strategy can potentially draw attention from the US SEC as regulation around tokens continues to tighten.