Solana's Pump.fun has been reevaluating its business model, which previously dedicated 100% of revenue to buying and burning its native token, PUMP. The constant reduction in token supply was intended to support the token's value and tie it to the platform's performance.
However, after a nine-month review, the company has decided to adopt a new approach. Pump.fun will now allocate half of its net revenue from its core products - the Pump.fun bonding curve, PumpSwap, and Terminal - towards buying and burning PUMP tokens on the open market.
The remaining half will be retained by the company to invest in product development, hiring, marketing, and potential acquisitions. This strategic shift aims to strike a balance between token value and business sustainability. 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 emphasized the need for this change, citing the importance of investing in the business to ensure its longevity.
The price chart of PUMP has been trading sideways below its launch valuation, despite the previous 100% revenue allocation to token buybacks. The new strategy is expected to have a significant impact on the token's supply and demand dynamics.
While there are bearish concerns regarding the cyclical nature of memecoin launchpad volume, the bull case focuses on the math behind the remaining tokens. Burning a substantial portion of the circulating supply and locking 50% of future revenue into burns could lead to a meaningful reduction in supply, potentially creating a bullish setup for the token.