Redirecting SAUCE Token Emissions from SaucerSwap V1 HBAR/HBARX Pool to Development Fund

Request for Comment
1
  • Title: Redirecting SAUCE Token Emissions from SaucerSwap V1 HBAR/HBARX Pool to Development Fund
  • Author(s): SaucerSwap Labs
  • SaucerSwap Voting Interface: N/A
  • Related Discussions: N/A
  • Submission Date: Wednesday, September 25th

Introduction

SaucerSwap Labs proposes to redirect the monthly SAUCE token emissions of approximately 553,428.288 SAUCE from the SaucerSwap V1 HBAR/HBARX liquidity pool to a dedicated development account. By reallocating emissions from underutilized liquidity pools to development efforts, we aim to mitigate the impact of an upcoming vesting cliff in SAUCE token inflow. This reallocation will optimize resource utilization and promote the long-term sustainability and growth of the SaucerSwap ecosystem.

Background

A significant portion of SaucerSwap operational funding in SAUCE tokens comes from three vesting accounts (marketing, operations, advisor). The monthly SAUCE received by these accounts is about 550,000 SAUCE each, or 1,650,000 SAUCE total. This monthly inflow of SAUCE is set to expire in July 2025, leaving a shortfall in SaucerSwap’s current operational budget.

Rationale

The HBAR/HBARX liquidity pool currently contributes a significant portion of the protocol’s Total Value Locked (TVL), accounting for ~21.5% of SaucerSwap’s total TVL. However, it generates only ~0.2% of total trading volume, indicating that the liquidity in this pool is extremely underutilized.

While liquidity is valuable when it facilitates trades, excessive liquidity without corresponding volume does not effectively serve the protocol’s objectives.

  1. Underutilized Liquidity Offers Limited Value: The primary function of liquidity is to enable trading volume. Despite its high TVL, the HBAR/HBARX pool’s excessive liquidity does not lead to increased trading activity, rendering it ineffective.
  2. Misallocation of Rewards: Continuing to emit SAUCE tokens to this pool incentivizes behavior that offers little benefit to the ecosystem. Users receive rewards without substantially contributing to the protocol’s utility.
  3. Negative Impact on the Ecosystem: Excessive rewards for low-risk, low-value activities can distort the market and undermine the effectiveness of the incentive structure designed to promote meaningful participation.
  4. Focus on Healthy TVL: While TVL is an important metric, its value lies in context. Prioritizing healthy TVL that actively supports trading volume over vanity TVL strengthens the protocol’s foundation and aligns with long-term objectives.

Proposal Details

• Cease SAUCE Emissions to HBAR/HBARX Pool: Stop all SAUCE token emissions to the SaucerSwap V1 HBAR/HBARX liquidity pool.
• Redirect Emissions to Development Account: Allocate the freed-up emissions of approximately 553,428.288 SAUCE per month to a development account managed by SaucerSwap Labs.

The redirection of tokens will be achieved by the creation of a dummy token, DUMMY3, similar to DUMMY1 and DUMMY2 that currently fund LARI and DAO Treasury emissions. DUMMY3 will be assigned the 505 MasterChef allocation points that currently belong to the HBAR/HBARX farm.

Impact on Current Liquidity Providers

Emission rates and APR of other ssv1 farms will not be affected by this change.

Current liquidity providers in the ssv1 HBAR/HBARX pool will be affected by this change. We encourage these users to consider reallocating their liquidity to other pools that contribute more significantly to trading volume and protocol growth. This transition supports both individual incentives and the collective health of the ecosystem.

Benefits to the DAO and Community

  1. Expanded Development Resources: Redirecting emissions provides SaucerSwap Labs with additional resources to continue development and introduce new features, and improve the overall user experience.
  2. Reduced Reliance on DAO Treasury: By securing alternative funding through reallocated emissions, we lessen potential dependence on SAUCE tokens from the DAO Treasury. This approach conserves DAO resources and extends the runway beyond the current emission schedule ending in 2027.
  3. Aligned Incentives: Adjusting the reward structure encourages users to participate in activities that genuinely contribute to the protocol’s growth, such as providing liquidity to pools that facilitate higher trading volumes.

Commitment to Long-Term Sustainability

SaucerSwap Labs remains dedicated to the enduring success of the SaucerSwap ecosystem. We are committed to transparency, continuous improvement, and aligning our strategies with the best interests of the community. By making prudent decisions today, we aim to prevent potential challenges in the future and ensure that SaucerSwap remains a leading platform in Web3.

Conclusion

Redirecting SAUCE token emissions from the underutilized HBAR/HBARX pool to a development fund is a strategic move to optimize resources, prioritize real utility, and align incentives with our collective goals. We are confident that this action will foster sustainable growth and deliver lasting value to the SaucerSwap ecosystem.

We respectfully request your support for this proposal. Together, we can build and scale the SaucerSwap protocol, benefiting our users and strengthening the broader Hedera DeFi community.

1 Like
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HBARx/HBAR LP was super GOATed when it came to Liquidity to emissions (SAUCE/xSAUCE and HBAR/BSL also being there). And it had minimal Impermanent Loss, which is why a lot of people was cool with letting liquidity sit in that pool.

However, when it comes to Fees APR to all the V1 pools with emissions weight, HBAR/HBARx is dead last by a long shot. Sub 0.10% fees APR when the next closest right now is, above 0.30%.

This discussion on Fees APR is interesting and gives me new ideas and another metric to judged emissions weight by. For quick reference, the Liquidity-weighted Fees APR for V1 pools with emissions given is 1.52%.

Things I would like to bring up. The Farm emissions weight page has not been updated for 3 months. Currently, it lists HBAR/BNB[hts] having farm emissions when the SaucerSwap DEX UI doesn’t show it receiving any.

It is probably the first time, at least this year, in which emissions weight was discussed as points, rather than a percent of something. I do recall the early verisons of the documentation had weights as a whole number before switch to percents. I wish the docs pages to be updated to have weights numbers for everything (and maybe include a colum for percentages), including any development and other Core team accounts. Then you can have V1 farm weights and LARI be 2 lines on a big overview table, and have a breakdown of weights on the the SaucerSwap V1 and SaucerSwap V2 sections.

It would be fair since we are talking about a shift of emissions from V1 farm rewards to development accounts. The GRELF/SAUCE proposal only changing farm weights, but this proposal as submitted would set precedent on changing weights outside the little bucket it occupies.

I don’t anticipate much pushback. Maybe counter proposal to reallocate some of that HBAR/HBARx V1 weight to HBARx/HBAR V2. Since the team mentioned the V1 liquidity being under utilized, if the liquidity was concentrated, it would be better utilized. And the way to incentivized moving liquidity from V1 to V2 is to move emissions there. :eyes: Maybe a gradual transition. All the V1 HBAR/HBARx emissions going to V2 HBAR/HBARx pool, and decreasing it to previous level and sending the emissions weight to the Development account over a few weeks.

Additionally, the new interface fee does hurt the HBAR - HBARx swaps. I don’t suppose giving the community a carrot and include an exemption for HBAR - HBARx swaps, just like the stablecoin swaps exemptions.

2 Likes
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I support this proposal. If SaucerSwap wants to remain as the leading DEX on Hedera, then naturally they will need funds to continue development.

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I concur with all of H-Barbara’s points. In addition, I would also like to find out more about what the emmissions will be used for exactly. As a large $SAUCE token holder, will $SAUCE emmissions be sold on market to fund development, potentially putting downwards pressure on the $SAUCE price?