Draft for a potential "Smart" Buyback Proposal

General
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  • Note: This is a rough draft putting out a possible structure for a “Smart” Buyback proposal. Seen some interest from the community, 404dreamt, brought up the topic earlier this month.*

  • Looking for feedback on the draft. What are your main concerns? How would you improve the proposal?

Summary

The DIP outlines the reasoning and structure behind the Smart Buyback proposal. Given the early stage and growth of DeFi markets, Drift is at the stage where it is critical to continue to reinvest in growth of protocol. The most capital efficient levers for growth that Drift has access to are likely internal. Smart Buybacks would allow Drift to utilize fees in a capital efficient way to buy back DRIFT tokens to be reinvested into growth initiatives, further aligning DRIFT with Drift ecosystem and initialising a powerful growth lever.

Context:
The core mandate of the Drift Foundation is to grow and strengthen the Drift ecosystem. An unstated focus of the Drift Foundation is capital efficiency. Issuance is a cost, in-efficient allocation of resources is a net negative to the Drift ecosystem and therefore actively goes against the foundations mandate. Buybacks are ultimately an active decision in capital allocation. The theory behind Smart Buybacks is to acquire Drift at cheap (according to program) prices to be reinvested into the growth of the ecosystem. Resources can likely most efficiently be used to drive growth by being deployed into the many powerful internal growth levers at the foundation’s disposal.

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 has strong cashflow 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: ~33mm (Grafana )
Annual Revenue: ~12mm (Artemis Dashboard )
Community Allocation 43%: (Drift Tokenomics, I can only put 2 links)

Alignment:

Beyond its growth impact, the proposed smart buyback program is a powerful alignment mechanism. DRIFT is the core asset which governs the Drift ecosystem. Channeling fees collected from the protocol into systematic smart 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 strengthen holder conviction, amplifies community engagement, and fuels a reflexive flywheel which strengthens the Drift community. Community alignment is a growth lever in its own right.

Smart buybacks solve 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 smart buybacks is the allocation of 1MM from protocol owned assets in order to programmatically buy back the DRIFT when criteria is met. This proposal pioneers the idea of buyback tokens in an “smart” 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 treasury for 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 + 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.

Bought back tokens will be transferred to Drift and re Locked for 2 years before being reinvested into growth initiatives by the Drift Foundation. 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.

If the proposal passes it authorizes sending the funds to a buyback program address to programmatically buy back. 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) deploying the acquired tokens through internal growth levers 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 proposed design should 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.

Growth Levers: Assumption is that the highest capital efficiency growth levers rest with the Drift foundation. Possible example levers below.

  • Product Growth: Product growth drivers include growth of the core team, incubation of synergistic products and exploration of accretive acquisitions opportunities.
  • Incentive Support: This includes focused incentive programs targeted at assets listed on Drift and Drift products in competitive niches. Targeted liquidity support of current and future Drift issued assets.
  • Community & Ecosystem: Investing in strategic growth initiative to support the Drift community and ecosystem of builders building on Drift.
2 Likes
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Overall like the idea of Smart Buybacks.

Think some counter points are that more direct buyback mechanisms like straight TWAP or as a percentage of fees are simpler and have more direct value attribution. That being said personally think the emphasis on capital efficiency makes sense and is good for longevity of the ecosystem.

Main questions are:

  • What is the best program design for something like this?
  • Is there something more specific to allocate the funds to?
1 Like
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I agree with Squid. Creating a “smart” strategy is not trivial and the resources required to build and maintain such a system will quickly eat away at the allocated 1MM.

I think a simple TWAP rule is sufficient to avoid buying overpriced Drift tokens like when Drift had that huge spike a year ago or whenever; while still maintaining the primary objective.

Also, instead of investing a fixed amount such as 1MM it would be better to invest a fixed percentage of fees. When the Drift exchange generates a lot of fees it’ll have a greater allocation to buyback which will likely cause Drift tokens to do well, this in turn will draw more attention Drift creating a positive feedback loop. Conversely, if Drift has a period of low volume then a percentage based buyback prevents unsustainable allocations.

Other aspects:

  • Burn vs Locking
  • Frequency. Ideally buybacks occur frequently to avoid spikes/front running. I think hourly or even minutely would be cool
  • Frequency brings up the issue of strategy. If the condition to buy is not met and let’s say the exchange generated $1000 of fees in the last hour and the strategy buys hourly. Does that $1000 get added to the next period’s buyback? If so what if the buyback condition is not met for weeks then all of a sudden we have a million dollar order to execute. Some thought is needed there.
  • With any strategy, careful consideration should be given on how people might reverse engineer/exploit it.
  • It would advantageous to have it be as transparent as possible so having the program be an account on drift that people could look at to see the balance and buy orders would be cool.
3 Likes
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Question for a temperature check. Since this should, in theory, significantly impact the price of Drift. Would the community be open to placing this in the hands of a futarchy decision market?

Happy to explain more if folks are open to the idea.

3 Likes
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Agree with the buyback being a fixed % of fees earned by the protocol rather than X amount notional. Light makes a good point about this creating a positive flywheel for the protocol. It is already quite profitable so leveraging protocol profitability to create consistent buy pressure for the token is a great idea.

As far as what to do with the accumulated DRIFT, would be good if it can go back into the protocol to help enhance liquidity (via pure lending, vaults or some other mechanism). This would also boost TVL and contribute to the flywheel.

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Hmmmm

“strategy is not trivial and the resources required to build and maintain such a system will quickly”

This is a good point it would be interesting to get insights from the team here. Like is the amount of time to design something a bit more nuanced than twap worth the resources.

I’m not sure I like programmatic as a percentage of fees. Like you said market conditions change a lot. Having fixed amounts be used when we know the market conditions allows the DAO more control and flexibility of buybacks.

On transparency I fully agree, more transparency the better. That being said transparency has to be balanced with not giving to much info to potentially adversarial parties who may try to exploit buybacks.

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Interesting, would probably depend on community demand.

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I prefer the idea of using fees (perhaps average time-weighted over a period of time) as one of the parameters in this smart buyback

also wondering if on-chain liquidity should play a part in determining the frequency and amount of buybacks

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Could you elaborate on what you mean by using fees?

On chain liquidity is a good consideration.

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Drift has barely done anything with the Foundation or DAO yet so all the focus should be trying to get the remaining tokens allocated into the market and getting people engaged with voting/the foundation.

And even when those tokens are allocated, if you’re still using the Futarchy model, won’t buybacks influence the votes?

You’re not an established token and DAO yet so I don’t think you have a strong case for any sort of buyback/revenue return at this stage. Growth of the token holder base and of the DAO’s engagement should be the focus.
Save the revenue for building more products for now.

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Why this “so all the focus should be trying to get the remaining tokens allocated into the market” and what does this look like?

On futarchy that is an interesting point, maybe @Nallok can elaborate. One concern would be short term vs long term focus on markets.

On the final point, strongly agree “Save the revenue for building more products for now.” – that is why to start it would be smart buybacks, way more conservative approach to buybacks. Just sets the precedent that they are possible.

Do you think it’s better to have no buybacks at all?

1 Like
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Buybacks should influence the decision for sure. Really it comes down to capital allocation strategy, if the token and its value is underrepresented in the price and cash is not useful otherwise, then a buyback is the best use of capital.

The thing the markets get through is any politicking around promises or vague ideas, it rewards concrete plans. I think it will take some time for people to figure out how to create these proposals as we’re so used to the blanket roadshow and pork barreling proposals from DAOs currently.

The concepts are there and futarchy ensures the minority voices are heard and serviced better than token voting. It is no silver bullet, but it is a marked improvement.

Unlike with token voting, you will have saturated all market demand with proposals as you put capital at risk to direct an outcome, so high conviction is the name of the game. I understand a lot of this can sound hand-wavy, but the opportunity to profit really levels the playing field and gets results where traditional DAOs suffer the most.

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You raise crucial insights about capital allocation and market-driven governance. A few reflections:

:one: Buybacks as a Signal – When executed strategically, they can underscore a protocol’s conviction in its undervalued token and its disciplined treasury management. The market’s ability to cut through “pork-barrel politics” (as you note) is precisely why futarchy intrigues—it forces proposals to stand on measurable merit rather than rhetoric.

:two: High-Conviction Barriers – Your point about “capital at risk” is underappreciated. Traditional DAOs often suffer from low-stakes voting where tokenholders rubber-stamp proposals with no skin in the game. Futarchy’s requirement of financial commitment to steer outcomes could filter out noise and elevate high-impact ideas.

:three: Minority Voices – Worth expanding: how does MetaDAO’s design prevent whale dominance in markets? (e.g., Is there a sybil-resistant layer or market-making incentives to ensure liquidity isn’t gamed?). Token voting fails minorities; futarchy could improve this, but only if the market structure is anti-fragile.

Open Question:
How would MetaDAO handle “common knowledge” problems? (e.g., Everyone knows a proposal is valuable but hesitates to bet early, creating false market signals).

Agreed on the Big Picture – This isn’t about perfection but progress. As you said, futarchy won’t solve every DAO ailment, but it’s a compelling experiment in aligning incentives concretely—not just through promises.

Suggested Next Step:
A live demo of MetaDAO’s market mechanics for a mock Drift proposal could help skeptics transition from “hand-wavy” to hands-on believers.