Pump.fun, a Solana-based token issuance launchpad, has been operating under a straightforward model where every dollar of revenue was utilized to purchase and burn its native token, PUMP. Theoretically, this constant reduction in supply was intended to steadily support the token's price and align its value with the platform's success. However, this approach is now being revised following a review that revealed it was not entirely beneficial to the company.
In a recent announcement, the firm stated that it would adopt a 50/50 revenue split, where half of the net revenue from its core products - Pump.fun bonding curve, PumpSwap, and Terminal - will be allocated to an irreversible smart contract for buying and burning PUMP tokens over the next year. The remaining half will be retained by the company for investing in products, hiring, marketing, and potential acquisitions.
This new strategy replaces the previous policy of allocating 100% of revenue to buybacks. 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.
The decision to change the strategy was explained by co-founder Alon Cohen, who emphasized the need for the company to retain half of its revenue for operational purposes to ensure the long-term sustainability of Pump.fun. The price chart of PUMP has been trading sideways below its launch valuation despite the previous buyback strategy, prompting the need for a change. The new approach is expected to have both positive and negative implications, with the bull case being the reduction in token supply and the bear case being the potential decline in revenue.
The market has responded positively to the announcement, with PUMP rising 6.9% in the 24 hours following the news.