A novel strategy has surfaced in the wake of the developing of Decentralized Finance (DeFi) and Automated Market Makers (AMM) such as UniSwap. This strategy combines the core advantages of the buyback and burn strategy with the additional benefits of deeper liquidity, and it is known as the buyback and liquidity provision strategy.
In this scenario, instead of burning tokens, they are first offered as liquidity for the token on its principal AMM market. Then the resultant LP tokens are held in the Treasury. Burning tokens is not an option in this scenario. This combines the advantages of lowering the total quantity of tokens and expanding the token's liquidity in one convenient package.
The following is an explanation of how this works in practice:
User A comes to the app and purchases goods worth 1000 USDC tokens.
The platform collects a 2% transaction fee or 20 USDC.
If the tokens stored in the reward pool are above the established threshold, then 1/5th (4 tokens) of the fee is used for buyback and LP (B&LP).
From the 4 USDC tokens for B&LP, 2 are sold for CAL at its current market price on an AMM (let’s assume 0.10 USD) and thus 20 CAL is obtained.
The resulting 20 CAL and 2 USDC tokens are posted back as liquidity on an AMM, thus providing more CAL tokens for people who want to buy them and more USDC for people who want to sell CAL.
As liquidity is added, the resulting CAL-USDC LP tokens are stored in the project's treasury and are spendable only via a governance vote.