INVAO will buy back IVO digital bond shares from the open market annually and burn those purchased shares via a smart contract. With each buy-back-and-burn, the net asset value of INVAO’s blockchain Asset Pool will be divided among a shrinking supply of bond shares in circulation. As a result, the price of the IVO bond share should continuously grow over time.
INVAO will spend 20% of annual operating profits – calculated as trading profit less trading and operating costs and tax – to buy-back-and-burn shares. The smart contract includes a commitment to buy-back-and-burn at least 50% of the total amount of bond shares issued, which is expected to have positive short-term and long-term effects on the IVO share’s price appreciation.
The issuer benefits from the buy-back-and-burn process in four ways: Firstly, buy-back-and-burn programs support the growth and price stability of the bond value once listed for secondary trading. Secondly, buy-back-and-burn results in increased liquidity as the secondary market demand for trading the asset on exchanges will be higher. Increased liquidity, in turn, results in lower price volatility. Thirdly, buy-back-and-burn incentivizes long-term growth investors to hold the IVO bond share, which further adds to the price stability of the asset.
One could also draw a comparison with dividend payouts, another way for companies to shift value to investors. The difference being that dividends come in the form of a cash-payout, while stock repurchases and token buy-back-and-burn schemes increase the market value of the asset. For most retail investors, the buy-back-and-burn process will have more favorable tax implications.