SAUCE Buyback Allocation Update: Balancing Rewards, Burn, and Growth

Request for Comment
1

Title: SAUCE Buyback Allocation Update: Balancing Rewards, Burn, and Growth
Author(s): SaucerSwap Labs
SaucerSwap Voting Interface: TBA
Related Discussions: N/A
Submission Date: June 28, 2025

Introduction

SaucerSwap Labs proposes a revised allocation for SAUCE token buybacks to ensure long-term protocol sustainability, incentivize holders, reduce token supply, deepen liquidity, and support ongoing development. This new structure balances rewards for stakers with key infrastructure needs and aligns with current trends across leading decentralized exchanges (DEXs).

Background

SaucerSwap currently routes 100% of buyback-acquired SAUCE to single-sided stakers via the xSAUCE pool. While this model effectively rewards long-term holders, it does not allocate resources to other areas critical to the protocol’s growth—such as liquidity, development funding, or deflationary pressure.

Industry leaders like GMX, PancakeSwap, and Osmosis have adopted hybrid tokenomics frameworks that combine staking incentives with deflationary mechanisms, dedicated development funding, and protocol-owned liquidity (POL) strategies. These models have proven effective at building resilient, capital-efficient ecosystems.

To align with these best practices, SaucerSwap Labs recommends a more balanced structure for SAUCE buybacks moving forward.

Rationale

The revised allocation achieves four primary goals:

1. Maintain Competitive Staking Yields

Staking rewards remain the largest allocation (75%), keeping xSAUCE yield attractive relative to alternatives like HBAR native staking and other Hedera-based DeFi products. This helps retain long-term holders and supports SAUCE’s role as a productive asset.

At the current TVL and average buyback rate (~$2,000/day), staking APR will adjust from ~5.07% to ~3.8% under the new structure—still above most Hedera-based DeFi yield options. Should protocol volume increase, staking APR would be expected to increase proportionally.

2. Introduce Sustainable Deflation

A portion of bought-back SAUCE (12.5%) will be permanently removed from circulation. This creates deflationary pressure. While the absolute burn volume may be modest initially, the visibility of consistent token burns can build long-term confidence and support.

3. Reinforce Protocol Liquidity (POL)

7.5% of buybacks will be used to seed and deepen protocol-owned liquidity in SAUCE-related trading pairs. This improves trade execution quality, reduces slippage, and anchors the token in real, protocol-backed market depth.

4. Support Continued Development

5% of buybacks will be directed to a development fund managed by SaucerSwap Labs. This ensures operational continuity and reduces dependence on finite vesting schedules or the DAO treasury. The modest allocation maintains optics while still contributing meaningfully to core engineering, security, and product growth.

Allocation Percentage
SAUCE Stakers (xSAUCE pool) 75%
Token Burn 12.5%
Protocol-Owned Liquidity 7.5%
Development Fund 5%
  • Buybacks will continue to occur via the existing system, drawing from protocol fees and other designated funding sources.
  • Token burns will be executed daily, with public tracking and transparency dashboards (i.e., burn-tracker built into the Stake page of the SaucerSwap web-app, and an updated Discord Buyback Bot to report daily burns).
  • POL will be deployed strategically to deepen key pairs (e.g., SAUCE/HBAR, USDC/HBAR, etc.), improving user experience and trade efficiency.
  • Development funds will be swapped to stable assets or HBAR as needed to fund ongoing operations.

Benefits to the DAO and Community

  • Incentive Alignment: Rewards users while funding growth and reducing supply.
  • Liquidity Depth: Improves trading quality and price resilience during volatility.
  • Deflationary Narrative: Aligns with market expectations of proactive circulating supply management.
  • Operational Sustainability: Reduces reliance on emissions or Treasury allocations post-vesting.

Communication and Transparency

  • A public dashboard will be implemented on the Stake page to track burn totals.
  • Governance may revisit allocations based on protocol growth, user feedback, or market conditions.
  • SaucerSwap Labs commits to ongoing reporting and transparency around execution.

Conclusion

This revised buyback allocation represents a strategic evolution of SAUCE tokenomics—designed to reward holders, strengthen the protocol, and support long-term sustainability. The 75 / 12.5 / 7.5 / 5 structure aligns with leading DeFi practices while preserving SaucerSwap’s unique positioning in the Hedera ecosystem.

We respectfully request the community’s support for this proposal and look forward to continuing to grow the protocol together.

Voting options

For: Approve the new SAUCE buyback allocation
Against: Retain the current 100% allocation to SAUCE stakers

2

Very good, pleasing to see attention given to deflationary mechanisms and liquidity support, but also keeping a balanced approach with a large % still going to stakers.

3

What about some allocation to have emissions?
There is an emissions cliff approaching, but if emissions were in part funded by buybacks, then liquidity incentives can continue forever. And we can still have a reason for governance participation for the emissions weights.

4

Questions about the deepening Protocol SAUCE Liquidity.
Which pools? By how much? Would it just be weighted on the largest pools?
Just the top 80% of Liquidity in pools (So weak pools like SAUCE/BOFA and SAUCE/DZNT don’t get a Liquidity boost. Just the big pools)? How would these pool Liquidity boosters work?
Edit: oops, misread. Not just SAUCE pools, but main question applies. What are the “main pairs”?

Also, the team gets parts of the Swap fees, interface fees, the beloved v1 HBAR/HBARx emissions, and now wants part of the buybacks?

Just seems a lot easier to just increase the swap fees portion the team gets, i.e. the devcut portions of the swap fees.

But regardless of how the funds to the dev team happens, I think people would want more of more detailed justifications (because even though reduced dependency on emissions vesting and DAO treasury is true, that was already said for the V1 HBAR/HBARx farm changes and the interface fees). Maybe big things like … perpetuals futures trading is a big budget item. :eyes: If we got a sense of scale of how big the items on the roadmap are, then people would be more receptive to this particular change.

P.S. still critical on the burns portion of the proposal.

5

Yeah I’d like to see sustainable protocol fees and enhancements to liquidity depth come from the swap fees. I thought there was already changes made for protocol sustainability….are those not enough?

3.8% is not competitive to other hts bluechip assets like Hashpack and bonzo.
This makes holding xsauce less attractive IMO.

Can we get some comparison on swap fees within hedera dexs and also comparison across networks for leading dexs to see why these changes are not getting applied to the swap fee? How much would the swap fee need to grow to yield the 12.5% in revenue being proposed from xsauce? How would our fee structure look to other leaders If these fees were applied to the swaps?

Not delivering on community pools and taking from xsauce holders is troubling. I’m ok with the burn coming from xsauce if the tea,/community think this will help sauce holders but would like to pursue avenues in the swap fees for the other 12.5% first before taking from xsauce apr.

6

Thanks to everyone who’s contributed feedback—especially around staking competitiveness, emissions sustainability, burn sizing, and dev fund optics. Based on that input and analysis of leading DEX models (GMX, PancakeSwap, Sushi, Balancer, and others), here’s a refined and simplified version of the proposed SAUCE buyback allocation.

Proposed Buyback Allocation:

  • 80% – xSAUCE Stakers
    Keeps APR around ~4% at current buyback volume, aligning with community expectations for competitive staking yield.

  • 8% – Protocol-Owned Liquidity (POL)
    Used to deepen liquidity on core pairs like SAUCE/HBAR and SAUCE/USDC. This allocation can be revisited once depth and slippage targets are met, with potential reallocation to stakers or the incentive reserve.

  • 8% – Incentive Reserve
    Held in a rolling 30-day account. Used to top up LARI or Masterchef emissions on an as-needed basis. As a reminder, with Tokenomics V2 enacted in 2023, SAUCE emissions are currently scheduled to run through 2028.

  • 4% – Token Burn
    Provides consistent, visible deflationary pressure while preserving the majority of buyback utility for staking and liquidity.

  • 0% – Dev Fund
    SaucerSwap Labs continues to be funded through the existing 0.4% interface fee. No additional allocation from buybacks is proposed at this time.

7

I appreciate the changes to the RFC.
Especially appreciate adding an incentives reserves.

Still begs the question of what exactly core pairs are or how much each of the core pairs gets funded.

8

Thank you for the updates. They have moved in a good direction :slight_smile:

I would have liked to see some of the comparisons I asked for so we could all see some of the competitive advantages we believe saucerswap possess and margins we have. It’s difficult to assess this proposal without really understanding the need behind the proposal. Tbh, some of the changes without explanation make me wonder why the original request was formed the way it was.

As someone who went heavy in the xsauce to avoid impermanent loss, I do have some concerns about POL management. Can the team point to a track record of success where they can show growth of the liquidity provided? Would the growth be measured in number of coins returned relative to what was provided or in stable coin value? If there is a possibility of redistribution of grown assets, should xsauce holders be prioritized /given more weight since they are population tightening their belts now? The examples pairs provided for POL all include sauce. Will this fund be only used for sauce pairs? Xsauce pairs?

For the incentive reserve, what tokens can be purchased? How will this impact the emissions schedule. Would it be used for not sauce lari rewards? Will current emissions rate be able to be maintained after 2028 indefinitely? Or are emissions likely need to be addressed again to be sustainable at current rates?

Thanks!