The Solana-based token issuance platform, Pump.fun, has been operating under a straightforward model where every dollar of revenue generated was used to purchase and burn its native token, PUMP. Theoretically, this continuous reduction in supply was intended to support the token's price and align its value with the platform's success. However, after reviewing the previous nine-month period of 100% buybacks, the company has determined that this approach was not entirely beneficial. In a recent announcement, Pump.fun revealed that it would adopt a new strategy, dividing its future net revenue equally between buying back and burning PUMP tokens and funding operational costs.
Half of the revenue from the platform's core products - the Pump.fun bonding curve, PumpSwap, and Terminal - will be allocated to an irreversible smart contract that automatically purchases PUMP on the open market and burns it over the next year. The remaining half will be retained by the company to invest in product development, hiring, marketing, and potential acquisitions. Over the past nine months, Pump.fun has burned approximately 36% of PUMP's circulating supply, which is one of the largest single-event supply reductions in crypto history. Co-founder Alon Cohen explained that the change in strategy is necessary to ensure the long-term viability of the platform, stating that the business requires the other half of the revenue for investments and growth.
The price chart of PUMP has been trading sideways below its launch valuation despite the 100% buyback strategy, prompting the need for a new approach. The shift in strategy has both bullish and bearish implications. On one hand, the reduction in supply could lead to a price increase if demand remains steady. On the other hand, the decrease in revenue due to cyclical and mean-reverting memecoin launchpad volume may result in smaller burns.
Despite this, locking 50% of future revenue into burns means that more tokens will be permanently destroyed every week, which could lead to a bullish setup for the token. Following the announcement, PUMP's price rose by 6.9% within 24 hours, with the platform generating significant cash flows at scale, according to DefiLlama data.