This DIP is designed based on community demand and feedback from these discussion posts: “Draft for a potential “Smart” Buyback Proposal” ", “4M DRIFT Buyback program” and “DIP-2: Buyback 4,000,000 DRIFT”
Summary:
The DIP details the rationale and structure of the Strategic Buyback & Incentive Proposal. Given the nascent state of DeFi markets, the Drift team considers continued reinvestment in protocol growth essential and views internal growth levers as the most capital-efficient use of funds. The Strategic Buyback & Incentive proposal proposes deploying protocol fees to repurchase DRIFT tokens, which would then be reinvested through a newly established strategic incentive fund, to further align DRIFT with the Drift ecosystem and activate a powerful growth lever. Ultimately, given the Drift Ecosystem is still rapidly growing, buybacks should be approached conservatively.
Reasoning:
The Drift Foundation’s core mandate is to grow and strengthen the Drift ecosystem, with an implicit emphasis on capital efficiency. Token issuance is a cost, and inefficient resource allocation directly harms the ecosystem. Buybacks are ultimately an active decision in capital allocation. The idea behind strategic buybacks is to acquire Drift at cheap (according to the program) prices to be reinvested into the growth of the ecosystem. At this market stage, the foundation believes resources are best directed toward high-impact internal growth levers. Incentives are one of the ecosystem’s most direct growth levers and following the conclusion of the FUEL incentive program, repurchased DRIFT will seed a new Strategic Incentive Fund.
Context:
Drift protocol is a core pillar of Solana DeFi with multiple market-leading products (Perps, Borrow Lend, Amplify and Vaults). Beyond strong market positioning, Drift sits in a position of financial strength. The ecosystem overall is cashflow positive with $33mm in fees earned to date and a large community fund. This gives Drift Foundation flexibility in resource allocation and allows the foundation to invest heavily into growth programs.
Stats:
Protocol Owned holdings: ~$34mm (Grafana )
Annual Revenue: ~$12mm ( Artemis Dashboard )
Community Allocation 43%: (Drift | Perpetual Swaps on Solana )
Alignment:
Beyond its growth impact, the proposed Strategic Buyback & Incentive Program is a powerful alignment mechanism. DRIFT is the core asset which governs the Drift ecosystem. Channeling fees collected from the protocol into systematic strategic buybacks of DRIFT further aligns DRIFT with the Drift ecosystem by tying economic output of the ecosystem to the token. Beyond direct value attribution, this alignment aims to grow holder conviction, amplify community engagement, and fuel a reflexive flywheel which strengthens the Drift community. Community alignment is a growth lever in its own right.
The Strategic Buybacks & Incentive Program solves the dual role of strengthening token alignment, while also acquiring DRIFT in a capital efficient manner to be later reinvested into the growth of the Drift protocol and ecosystem.
Overview:
The process proposed for implementing initial strategic buybacks is the allocation of $1 million USDC from protocol owned assets in order to programmatically buy DRIFT when criteria is met. This proposal pioneers the idea of repurchasing tokens in a “strategic” manner focused on relative strength and fundamentals rather than arbitrary metrics like time or reflexive metrics like revenue. The idea is that acquiring DRIFT when cheap (according to algorithm) is the most capital efficient way to build the Strategic Incentive Fund to fuel future growth.
Execution:
Execution will be done via a program designed by the Drift Labs team. Key considerations will be DRIFT’s relative price performance compared to a comp bucket of Solana ecosystem tokens and SOL and absolute performance vs core internal KPIs. When DRIFT trades meaningfully below the comp basket and the KPI trend is flat-to-positive, the dedicated buy-back program executes a capped TWAP across on-chain venues.
If the full 1mm is not deployed over 3 months the program criteria can be adjusted or the funds can be returned to the DAO. The potential adjustment is at the sole discretion of the Drift team. After completion of the program there will be an analysis conducted on the execution of the program to serve as a reference for potential future versions of the program.
The bought back DRIFT used to initialise the Strategic Incentive Fund will be sent to the security council.
This proposal proposes using the bought back DRIFT to initialise the Strategic Incentive Fund. The objective of this fund is to recognize and award usage of the protocol, while simultaneously driving growth through focused direct distribution of Drift.
The Strategic Incentive Fund would serve as a source to fund the next generation incentive program. Governance is a key lever in driving the future growth of Drift and it is crucial that governance power is distributed to the protocol’s most active and core users.
The distribution methodology of the Strategic Incentive Fund is at the discretion of the Drift team to allow for flexibility in initiatives. The bought back DRIFT will just be used to initialise the fund so that further rewards can be added in the future through other proposals.
If the proposal passes it authorizes sending the funds to a buyback program address to programmatically purchase Drift. The program will be developed by Drift Labs. Upgrade authority of the buyback program is held by the security council.
Key Considerations:
The proposal rests on two core assumptions: (1) the buyback program will accumulate DRIFT cost-effectively, and (2) using the fund to initialize the Strategic Incentive Fund is the highest-return use of capital.
Strategy Execution:
Crypto markets are highly volatile and less efficient than traditional capital markets, making designing a cost-effective program for token accumulation difficult. To ensure efficiency the initial program’s design will be intentionally conservative and designed to be iterated on and improved with time. Execution will be overseen by Drift team members with previous programmatic-trading expertise.
Strategic Incentive Fund:
Incentives are one of the most powerful levers to both directly drive growth and align users with the DRIFT ecosystem. With the current incentive program (FUEL) coming to end, re-initializing a new incentive program is critical for Drift’s continued growth.
Incentives will take the form of direct distribution of DRIFT tokens instead of a pseudo-points program. Direct distribution has the distinct advantage over points of providing calculable incentives. As DeFi continues to grow in sophistication, direct allocations are likely a more effective use of strategic incentives.
The Strategic Incentive Fund will be focused on two novel incentive distribution mechanisms, incentive matching and ecosystem support incentives. Distribution of these incentives will be at the discretion of the Drift team.
Incentive Matching:
One of the uses of funds will be matching incentives proposed by ecosystem partners. Matching incentives helps encourage partnerships by offering a capital efficient use of incentives for both partners. This will be open for any partner protocol to apply for as long as the incentives drive utilization of a Drift product or asset.
Ecosystem Incentives:
A novel idea is instead of grants, providing direct incentives to projects building on top of Drift liquidity to help them bootstrap growth. Having a diverse ecosystem of projects building on Drift helps increase the robustness of the underlying program.
Other:
Given the novelty of DeFi there is a lot of room to experiment with incentive design, this category is a catch all for those experiments. All experiments will align with the mandate and have a focus on capital efficiency.
The primary goal is to accelerate Drift and the Drift ecosystem growth in a capital-efficient manner. The main risk is inefficient capital deployment, which could contradict the foundation’s mandate and weaken the DAO’s position.