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+---
+VIP: TBD
+Title: VET Buyback & Burn Mechansim
+Author: Neil Brett (@nwbrettski)
+Discussions: https://vechain.discourse.group/t/add-vip-vet-buyback-and-burn-mechanism/732
+Category: Core
+Status: Draft
+CreatedAt: 2026-02-12
+---
+
+## Overview
+
+This VIP introduces a protocol-level VET buyback & burn mechanism funded by:
+1. A fixed percentage of block rewards.
+2. A configurable percentage of base-fee VTHO (from VIP-251) redirected away from VTHO burning towards VET burning.
+3. Optional contributions from applications (VeBetterDAO), sponsors, validators, the VeChain Foundation, and community members.
+
+VTHO is accumulated in an on-chain Burner Contract, which periodically converts the VTHO into VET via time-weighted average price (TWAP) swaps, and sends the purchased VET to the `0x000000000000000000000000000000000000dEaD` address, which is quantum secure and burns the tokens from the total supply.
+
+This introduces a predictable, continuous, and usage-scaled buy pressure on VET, the primariy asset of VeChainThor.
+
+## Motivation
+
+Hayabusa fundamentally changed VTHO generation from a fixed static generation rate of 0.000432 VTHO per VET per day, approximately 37M VTHO per day, which was distributed uniformly to all VET holders, to a dynamic generation rate that is a function of the quantity of staked VET and is distributed exclusively to stakeholders that stake VET and contribute to the secutiy of the VeChainThor network.
+
+By it's nature Hayabusa will reduce the quantity of VTHO generated however burning VTHO does not contribute materially to VET value capture. Given that VET is the primary asset of VeChainThor it is desired to have VET holders benefit from VeChainThor network usage. Burning VET is a way to accure value to VET by reducing the circulating supply of VET, creating a constant bid for VET and increasing the scarcity of VET.
+
+VET is:
+- The store of value,
+- The staking asset,
+- The economic backbone of the consensus mechanism,
+- The scarce token supporting network value.
+
+Thus, redirecting a portion of VTHO system inflows into VET repurchase and burn aligns the protocol with modern L1 tokenomics (ETH EIP-1559, Bera BGT, Chainlink ACR, and HyperLiquid HL).
+
+This creates:
+- A perpetual demand-side pressure for VET,
+- A predictable deflationary mechanism,
+- Direct linkage between network activity and VET market value.
+
+## Rationale
+
+Why VET and not VTHO?
+
+- VET is the scarce value asset,
+- With Hayabusa VTHO issuance is stable and predictable, it's burning provides little value,
+- Enterprise cost stability is preserved because VET burns do not affect gas prices,
+- Economic value must accrue to the asset that secures the network, VET.
+
+This mechanism will create a flywheel effect:
+
+Network Usage -> Provide VTHO to Burner Contract -> Fuel VET buyback -> Burn VET -> Increase VET scarcity -> Increase VET price -> Increase VeChainThor security
+
+VET token holders want value to accrue to VET. The existing dual token model does not accrue value to VET. While VET is the primary scarce asset in the VeChainThor network it's supply nor price is impacted by network utilization or adoption. Value must accrue to VET and the VET token holders in order for the VeChainThor network to thrive.
+
+## Specification
+
+The buyback and burn system consists of a contract, Burner Contract, which accepts VTHO. The Burner Contract then periodically triggers TWAP based buybacks to purchase VET. The purchased VET is transferred to the `0x000000000000000000000000000000000000dEaD `, without the possibility of it being withdrawn.
+
+The Burner Contract must meet the following criteria:
+- Non-upgradable,
+- Ownership renounced,
+- Minimal interface, with no withdraw, send, selfdestruct, or fallback functionality.
+
+The primary functions of the Burner Contract are:
+- Accept VTHO,
+- Perform TWAP based swaps from VTHO to VET,
+- Send VET to `0x000000000000000000000000000000000000dEaD`
+
+### Obtaining VTHO
+
+The Burner Contract requires VTHO. The following outlines three approaches to obtain the VTHO:
+
+#### Partial VTHO Block Reward to Burner Contract
+
+Under VIP-254, VTHO generation is paid via block rewards. Blocks are predictable, every 10 seconds, and produce a fixed quantity of VTHO, function of the quantity of staked VET. Currently, block rewards are payable to validators and delegators, typically a 30 / 70 split, between both parties. This mechanism could be modified to include a fixed percentage of all block rewards being routed to the Burner Contract. This would introduce a fixed and predictable component and the largest contributing mechanism providing VTHO to the Burner Contract.
+
+This VIP specifies that:
+- `BLOCK_REWARD_BURNER_CONTRACT_PERCENT` of the block reward that is routed to the Burner Contract.
+
+Suggested parameter percentage is 10%. This setting is adjustable via governance.
+
+#### Partial Rerouting of VIP-251 Base-Fee Burn
+
+Under VIP-251, 100% of the base fee is burned as VTHO. Rerouting part of the VTHO from being burnt to fueling the Burner Contract would link VeChainThor network usage, payable in VTHO, to VET. This is a variable component fueling the Burner Contract contract as it is entirely dependent on VeChainThor network utilization which varies.
+
+This VIP specifies that:
+- `BASEFEE_BURNER_CONTRACT_PERCENT` of the base fee that is routed to the Burner Contract.
+- `BASEFEE_BURN_PERCENT` of the base fee that is burnt as VTHO.
+
+Suggested parameters are a 50/50 split. This setting is adjustable via governance.
+
+#### Optional Public Contributions
+
+In addition to the above alterations, to existing mechanisms, the Burner Contract could be funded through additional VTHO deposits.
+
+The Burner Contract accepts permissionless deposits:
+- Sponsors / Enterprises / Partners / Exchanges may donate a fixed percentage on a regular basis (UFC / ToolChain),
+- dApps may contribute revenue fractions (VeBetterDAO / X2E apps / StarGate (NFT Boosting)),
+- Community initiatives can deposit VTHO (percentage of NFT sales),
+- The VeChain Foundation can contribute on a regular basis. All VeChain Foundation validator rewards, 30% of the block reward, could be sent to the Burner Contract. The Sunny Side Up validator could send it's validator rewards, 30% of the block reward, to the Burner Contract.
+
+### Burner Contract
+
+VET does not have a native burn function so a mechansim needs to be created to remove VET from the circulating supply. Sending VET to an inaccessible address such as `0x000000000000000000000000000000000000dEaD` is the simplest and most direct approach.
+
+The Burner Contract will create a constant bid on VET, a marginal net buyer, and over time reduce the circulating supply of VET making it a more scarce and desired asset in the network.
+
+The Buner Contract:
+- Accepts and holds VTHO,
+- Executes periodic buybacks using a TWAP design,
+- Sends VET to `0x000000000000000000000000000000000000dEaD`,
+- Emits public events for transparency.
+
+Buyback parameters:
+
+```
+BUYBACK_INTERVAL = 24 hours
+MIN_VTHO_THRESHOLD = 1,000,000 VTHO
+TWAP_BLOCK_WINDOW = 180 blocks
+```
+
+## Economic Analysis
+
+The following is a rough economic analaysis and makes some assumptions.
+
+### Partial VTHO Block Reward to Burner Contract
+
+Assume that the block reward is 2,000 VTHO per block. With 8,640 blocks per day and the Burner Contract receiving 10% of all block rewards the Burner Contract would receive approximately 1.7M VTHO per day or approxamitely 631M VTHO annually.
+
+This could result in a burn of approxamitely 51.49M VET annually, assuming the ratio of VET and VTHO remains the same as the time of this calculation.
+
+### Partial Rerouting of VIP-251 Base-Fee Burn
+
+Using previous data we can assume that the average daily burn of VTHO is 250,000. If 50%, 125,000 VTHO, were taken and used to supply the Burner Contract it would result in, at current market values approxamitely 9,842 VET being removed from the total supply of VET per day.
+
+Expanding this from a daily to an annual perspective this could result in a burn of 3.59M VET per year, assuming the ratio of VET and VTHO remains the same as the time of this calculation.
+
+### Optional Public Contributions
+
+Public contributions are optional and are not guaranteed. For illustrative purposes let's assume that the VeChain Foundation redirects the validator block rewards of 10 validators that they operate to the Burner Contract.
+
+Let's assume again that the block reward is 2,000 VTHO per block. The validator reward is 30%. This means that for each block a validator get's 600 VTHO. The likelihood of a validator proposing a block is probabilistic, VET staked per validator and delegators per validator, and dependent on the network whole network state. As an example let's assume that these 10 VeChain Foundation validators are middle of the table in terms of staked VET. This would mean that each validator would likely propose 85 blocks per day, 8,640 / 101. This would result in a daily total contribution of 510,000 VTHO to the Burner Contract or in terms of VET, at current market values approxamitely 41,599 VET being removed from the total supply of VET per day.
+
+On an annual basis this would result in a contribution of approxamitely 15.18M VET per year to the Burner Contract, assuming the ratio of VET and VTHO remains the same as the time of this calculation.
+
+### Summary
+
+Combining a 50% rerouting of VIP-251 base-fee burn from VTHO to VET with 10% of the VTHO block reward and 10 VeChain Foundation operated validators contributing the validators share of block rewards to the Burner Contract would result in an annual quantity of approxamitely 70.26M VET being removed from the circulating supply of VET, annually, at current market prices, network activity and VET to VTHO ratio.
+
+An aim of the Burner Contract could be to accumulate a given percentage of the total supply of VET. At the calculated rates of contribution to the Burner Contract it would take approxamitely 12 years to accumulate 1% of the total supply of VET.
+
+While this is a long timeframe the proposal here is to introduce direct value appreciation to VET via network utilization, the consensus mechanism and direct contributions to fund the Burner Contract mechanism.
+
+## Backward Compatibility
+
+- Does not impact transaction submission or gas price mechanics.
+- Does not increase user or sponsor costs.
+- Backwards compatible with VIP-251, VIP-253 and VIP-254.
+
+## Security Considerations
+
+- Burner Contract must be immutable and non-upgradable.
+- Buyback contract requires slippage protection.
+- TWAP mitigates attack vectors.
+- No privileged spending rights allowed.
+- Audit of the Burner Contract.
+
+## Reference Implementation
+
+The following parameters should be modifiable:
+
+- `BASEFEE_BURNER_CONTRACT_PERCENT`
+- `BLOCK_REWARD_BURNER_CONTRACT_PERCENT`
+- `BUYBACK_INTERVAL`
+- `TWAP_WINDOW`
+- `THRESHOLDS`
+- Optional burn caps or safety valves.
+
+## Copyright
+
+Copyright and related rights waived via CC0.