RFC - Transitioning to a SAUCE-Centric Incentive Structure on SaucerSwap

Request for Comment
1

Title: RFC - Transitioning to a SAUCE-Centric Incentive Structure on SaucerSwap

Author(s): FistBumpJoe (open to community co-sponsors)

SaucerSwap Voting Interface: [To be added]

Related Discussions: Original Off-Topic Discussion

Submission Date: October 15, 2024

Summary:

Hey everyone,

Building on our previous off-topic discussion, I’d like to formally propose a gradual shift in our incentive structure on SaucerSwap, starting with this RFC. Over 6 epochs (approximately 84 days), we would transition half of the SAUCE incentives currently allocated to HBAR-based pools to SAUCE-based pools for the same HTS token pairings (both V1 and V2 incentives). The goal is to make SAUCE the main asset in our incentivized pools, enhancing its value and strengthening our community.

For those familiar with the earlier discussion, there are a few important changes from the previous off-topic discussion. In developing the V2 spreadsheet, a few details had to be worked in:

  • This proposal does not currently change the HBAR incentives provided by the HBAR Foundation or LARI incentives paid in other currencies like JAM, PACK, HLQT, etc. However, if this proposal is enacted, we encourage the providers of those external rewards to consider re-aligning their incentives with the corresponding Sauce-based pools to align with the overall spirit of this community-driven shift.

  • Additionally, V2 includes more USD-based pool incentivization than V1. Currently this proposal does not change incentives for USD-based V2 pools that don’t currently include HBAR, HBARX, SAUCE, or XSAUCE. See the V2 spreadsheet link below for full details.

Abstract:

In our initial discussion, many of you expressed support for enhancing the value of SAUCE and exploring new ways to strengthen our ecosystem. Taking your feedback into account—particularly the suggestion to shorten the transition period—I propose we proceed with a 6-epoch transition instead of the originally suggested 10 epochs.

By making SAUCE the central asset in our incentivized pools, we align with the emerging “fat app” theory. In contrast to the older “fat protocol” theory, “fat app” theory suggests that individual applications (like SaucerSwap) are beginning to accrue value independently of their underlying layer-1 tokens (like HBAR). This shift could enhance value capture for SAUCE holders, promoting price appreciation and fostering a more vibrant community.

Please note that this proposal focuses on reallocating SAUCE incentives within our control. Incentives provided by external parties, such as HBAR incentives from the HBAR Foundation and LARI incentives paid in other currencies (e.g., CLXY, JAM, HLQT), are not included as part of this proposal. We respect their autonomy but encourage them to consider aligning with this initiative.

I’ve prepared updated spreadsheets outlining how this transition might look for both the V1 and V2 portions of rewards with the old V1 spreadsheet included for documentation:

Please review the new spreadsheets.

Motivation:

The main idea is to empower SAUCE by making it the central asset in our incentivized pools. Here’s why I believe this could be a significant step forward:

  • Value Capture: Focusing incentives on SAUCE-based pools can enhance the intrinsic value of SAUCE. This means more potential for price appreciation, directly benefiting SAUCE holders.

  • “Fat App” Alignment: Embracing the “fat app” theory allows us to grow independently of HBAR’s market fluctuations. SAUCE can stand on its own merits, which could attract more interest and investment.

  • Community Growth: A SAUCE-centric economy could strengthen our community’s identity and cohesion, making SaucerSwap an even more engaging platform.

  • Flexibility: Starting with a 6-epoch transition gives us room to monitor, learn, and adjust. We can respond more quickly to any developments and community feedback.

Specification & Rationale:

Specification:

Scope of Change:

  • This proposal focuses on reallocating SAUCE incentives within DAO control.

Gradual Transition Pools:

  • Over 6 epochs (~84 days), we’ll shift half of the SAUCE incentives from HBAR-based pools to SAUCE-based pools for the same token pairings in V1 and V2.

  • For example, if a pool currently receives 120 SAUCE in incentives per epoch, after the start of the transition, each epoch it will receive 10 fewer SAUCE until after 6 epochs, 60 SAUCE will be allocated to the HBAR-based pool and 60 SAUCE to the SAUCE-based pool.

  • Some of these pools, particularly V2 SAUCE/HTS-TOKEN pools will need to be created.

Strengthened Pools:

  • To maintain liquidity, we’ll gradually enhance SAUCE incentives for the HBAR/SAUCE and USDC/SAUCE pools.

  • This encourages liquidity providers to maintain HBAR and USDC liquidity, maintaining a robust HBAR presence while transitioning to a stronger role for SAUCE.

Weakened Pools:

  • SAUCE incentives for HBAR/USDC and HBAR/HBARX pools will be reduced to fund the increased incentives for corresponding SAUCE pools.

  • This shift balances the overall SAUCE incentive distribution without requiring additional emissions.

No Change Pools:

  • SAUCE incentives for V2 USD-based pools like USDC[hts]/WBTC[hts] and the SAUCE/XSAUCE pool remain unchanged

  • V2 Pools Excluded:

  • All USD-based V2 pools that don’t currently include HBAR, HBARX, SAUCE, or XSAUCE are not proposed to have any changes.

External Incentives Unchanged:

  • HBAR incentives provided by the HBAR Foundation are not intended to change.

  • LARI incentives paid in other currencies like CLXY, JAM, HLQT, etc., are not proposed to change.

  • V1 SAUCE-based pool incentives are also unchanged.

Encouraging Alignment:

  • While external incentives are not within the scope of this proposal, we encourage providers of these rewards to consider aligning with the community’s spirit if this proposal is enacted.

Monitoring and Reassessment:

  • After the 6 epochs, we’ll evaluate the impact on SAUCE’s price, liquidity, and overall platform usage.

  • We’ll gather community feedback to assess the effectiveness of the transition in another off-topic discussion followed by an RFC proposal and election.

Decision Point:

  • Based on observation and community input, we’ll decide whether to:

  • Proceed with another 6 epochs to complete the transition.

  • Proceed with an adjusted schedule.

  • Reverse the changes if they’re not yielding the desired results.

  • Maintain a 50/50 split if that seems optimal.

Rationale:

  • Empowering SAUCE:

  • This shift aligns incentives with our community’s interests, potentially leading to better value capture for SAUCE holders.

Risk Management:

  • A phased approach over 6 epochs allows us to mitigate risks and adjust as needed without causing abrupt changes to the ecosystem.

Respect for External Incentives:

  • By not altering external incentives (HBAR and HTS-Token LARI rewards), we respect the autonomy of external parties while focusing on what we can control.

Community Engagement:

  • The proposed transition period has been shortened to align with community feedback. Continued community feedback is highly valuable going forward.

Benefits (Pros):

  1. Enhanced Value for SAUCE Holders:

  • Potential for increased SAUCE price appreciation.

  • Greater alignment between platform success and token value.

  1. Alignment with “Fat App” Theory:

  • Allows SAUCE to accrue value independently of HBAR.

  • Strengthens SaucerSwap’s position as a leading application in the ecosystem.

  1. Flexibility and Control:

  • Phased transition provides opportunities to reassess and adapt quickly.

  • Community feedback can shape the final outcome.

  1. Strengthened SAUCE Economy:

  • Encourages more trading and liquidity in SAUCE-based pools.

  • Could attract new users interested in SAUCE’s growth potential.

  1. Respect for External Incentives:

  • By not altering HBAR and HTS-Token LARI incentives, we maintain relationships with external partners.

  • Providers of external rewards may be inspired to align their incentives voluntarily.

Downsides (Cons):

  1. Liquidity Adjustments:

  • Liquidity providers may need to rebalance their positions, which could be inconvenient.

  • Temporary fluctuations in pool liquidity might occur during the transition.

  1. Uncertain Outcomes:

  • We can’t predict exactly how this will impact SAUCE’s price or platform usage.

  • There’s a possibility that the benefits may not materialize as expected.

  1. Potential Volatility:
  • Increasing reliance on SAUCE could introduce new volatility if demand doesn’t meet expectations.
  1. Community Concerns:

  • Some members might prefer the existing incentive structure.

  • Reducing SAUCE incentives for certain pools to re-allocate them might be seen negatively by those heavily invested in HBAR or specific pools.

  1. Limited Control over External Incentives:
  • Since HBAR and other ecosystem LARI incentives are not changing, the overall impact will become stronger once external ecosystem providers choose to align.

Voting:

As this is an RFC, we’re currently in the feedback and discussion phase. No voting is required at this time. Once we’ve gathered sufficient input and made any necessary adjustments, we’ll move to the Proposal phase.

Conclusion:

I’m eager to hear more thoughts on this refined proposal. The shorter 6-epoch transition aims to address concerns about the timeframe, allowing us to assess the impact sooner and adapt as needed. By specifying that certain pools and external incentives are not intended to change, we respect the contributions of our partners while focusing on areas within our control.

The potential benefits for SAUCE and our community are promising, but I acknowledge that there are risks and unknowns. If this proposal is enacted, I encourage providers of external rewards to consider aligning their incentives with the overall spirit of the community.

Please share your feedback, questions, and any concerns you might have. Whether you’re in favor, against, or undecided, your input is crucial. Together, we can determine the best path forward for SaucerSwap and all of us as SAUCE holders.

Looking forward to a productive discussion!

Additional Notes:

Updated Spreadsheet Links Again:

Community Collaboration:

Your input is vital. Please feel free to suggest modifications or raise any concerns. The more we collaborate, the stronger our proposal will be.

2

The majority of people have HBAR as store of value and when the Hedera ecosystem continues to grow, it is in SS’s best incentive to retain the majority of HBARs on its protocol–increasing its TVL and remaining the leading DEX on Hedera.

At the moment, Sauce is inextricably tied to HBAR–and the use cases of Sauce is far and few in between. Besides DAO governance, Staking, and SentX NFT purchases, there are not many use cases for Sauce. If the incentive structure changes now, there may be increased sell pressure on the Sauce token.

I think we are a little too early to change the incentive structure. It would be good to revisit this once Axelar interoperability and Lending/Borrowing on Bonzo and Sirio go live. The more use cases for Sauce, the less pressure of it to sell, and the more users will be holding Sauce as a store of value.

3

Thanks for your response.

Can you elaborate on this concept? Why would this lead to increased sell pressure on sauce?

4

I believe there are two folds for this. The first one being that since Sauce does not have much utility beyond Governance and single sided staking, users may sell their rewards. The second one being that if users need to off-ramp, they will need to sell their Sauce tokens for HBAR—and this route may go through more shallow HBAR pools, affecting the Sauce price and possibly increasing sell pressure. Before V2, large swaps would often trigger big PA and sometimes sell-offs, as V1 has less liquidity depth than a V2 at certain price points.

I like your proposal and it’s an engineered solution for increased Sauce TVL. I think it will have greater utility/impact and upside if it’s implemented after Axelar interoperability and lending/borrowing—more use cases and greater demand for Sauce.

5

Hi Avocado,

Thanks for expanding on your thoughts! I’d like to respectfully push back on a few points and clarify why I think this would benefit SAUCE and the broader ecosystem.

  1. Utility & Sell Pressure:

While it’s true that SAUCE’s primary use cases are still developing, moving it to the center of SaucerSwap’s liquidity incentives increases its utility by design. This proposal aims to build stronger, deeper liquidity for SAUCE, which would not only help mitigate sell pressure but also lay the groundwork for future use cases like cross-chain liquidity with Axelar and DeFi products on Bonzo and Sirio.

If we wait until after these platforms launch, we might be too late to establish SAUCE’s dominance as the primary liquidity asset. By increasing SAUCE’s role now, we create an environment where future use cases can thrive, rather than reacting to them after the fact. The deeper liquidity pools will allow for smoother price discovery and larger trades, reducing volatility and making SAUCE a more attractive asset for longer-term holding.

  1. Sell Pressure vs. HBAR Dependence:

You raised a good point about off-ramping via HBAR potentially causing sell pressure on SAUCE if HBAR pools become shallower. However, this assumes that HBAR will continue to act as the default store of value for users. HBAR’s tokenomics, including ongoing sell pressure from Hashgraph and THF grants, makes it a weaker candidate for that role than SAUCE, which has stronger tokenomics. Moving incentives to SAUCE decreases the dependency on HBAR, which has held back the HTS ecosystem due to large sell-offs of HBAR by early investors and ecosystem orgs.

Moreover, with Axelar integration on the horizon, users won’t be forced to sell SAUCE just for HBAR - cross-chain assets and stablecoins can be integrated into SaucerSwap’s ecosystem, offering more stable off-ramping options that avoid HBAR’s volatility altogether.

  1. Timing & Market Conditions:

I appreciate your point about waiting for Axelar, Bonzo, and Sirio to go live. However, right now is the perfect time to test this shift while the market is relatively quiet and while THF incentives are still boosting HBAR-based pools. This gives us a unique opportunity to explore the effects of shifting liquidity incentives with minimized risk, knowing that we can adjust if needed before larger retail attention is drawn in by cross-chain integrations.

Additionally, by positioning SAUCE as the primary liquidity asset before new demand flows in from these upcoming integrations, we ensure that SaucerSwap is ready to capture that demand and further increase SAUCE’s utility as the network grows.

In summary, I believe shifting incentives to SAUCE now can actually help reduce sell pressure by increasing its liquidity depth and positioning it for new use cases that will soon emerge. Waiting could miss the chance to establish a stronger foundation for SAUCE, especially given HBAR’s ongoing sell pressure.

I’d love to hear your thoughts on these points!

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