SAUCE Buyback Optimization: Partial Burn and Reduced Reward Recycling

Request for Comment
1

Context

At present, protocol SAUCE buybacks are primarily recycled back into the market through staking rewards. This creates a persistent sell loop:

• protocol buys SAUCE

• tokens are distributed as rewards

• a significant portion is sold

• buyback impact is neutralized

This structure limits meaningful supply reduction and creates continuous sell pressure, reducing the long-term effectiveness of protocol revenue.

Proposal

Introduce a deflation-aligned buyback model by redirecting a portion of protocol SAUCE buybacks to permanent burn.

Specifically:

  1. Burn 50% of all protocol SAUCE buybacks

  2. Allocate the remaining 50% to staking rewards

  3. Reduce overall staking emissions by 50%

The objective is to balance near-term yield with long-term value capture by ensuring that each protocol buyback produces permanent supply reduction.

Phased Rollout

To minimize disruption and allow data-driven decisions, a staged rollout is recommended.

Phase 1 (30-day test period)

• 25% burn

• 75% rewards

After 30 days, DAO reviews on-chain metrics:

• price behavior

• staking participation

• sell pressure

• trading volume

• circulating supply changes

Phase 2 (pending DAO review)

• transition to 50% burn

• 50% rewards

This phased approach allows the community to evaluate real impact before full implementation.

Long-Term Vision

If results are positive, the DAO may gradually increase the burn allocation over time.

The goal is to evolve SAUCE from a primarily yield-driven token toward a value-capture asset, where protocol revenues permanently reduce circulating supply and reward long-term holders.

This transition supports sustainable growth rather than short-term emission-driven participation.

Benefits to SaucerSwap

• reduced structural sell pressure

• stronger long-term tokenomics

• clearer value capture from protocol revenue

• improved investor confidence

• better alignment between protocol success and token value

This proposal is not anti-staker. It seeks balance between present rewards and future value.

Summary

This RFC proposes a gradual transition from reward recycling to deflationary buybacks through:

• partial burn of protocol buybacks

• reduced staking emissions

• phased implementation with DAO review

The objective is sustainable growth and stronger long-term SAUCE economics, not short-term yield optimization.

2

Thanks for publishing this RFC—I’ve spent some time thinking about burn mechanics as well. My takeaway is that burns don’t meaningfully move price on their own; the price impact comes from the buyback itself, not from what happens to the tokens afterward. Burning doesn’t add buy pressure, it just changes post-buy distribution. In SaucerSwap’s case, buybacks are constrained by protocol revenue, and even a 50% burn would be modest relative to circulating supply, liquidity, and daily volume. More importantly, diverting buybacks to burns reduces explicit yield (staking/incentives), which can weaken demand and offset any perceived scarcity benefit. The RFC also characterizes “reward recycling” as a sell loop, but that’s overstated: xSAUCE rewards aren’t immediate sell pressure, and the most direct loop—buying SAUCE only to convert it to HBAR for incentives—is already being addressed under the nearly-ratified HBAR rewards simplification. That framework cuts buyback-funded HBAR incentives in half, concentrates them where they’re most effective, and retains more SAUCE in reserve, reducing mechanical sell pressure without sacrificing growth or capital efficiency.

1 Like
3

Thank you for the detailed comment. I agree that the market impact comes from the buyback itself rather than from the act of burning, and that burning does not create additional buying pressure. The goal of the idea is not short-term price movement, but a long-term signal of commitment to supply discipline and responsible use of protocol revenue. It is also true that yield plays a role in demand and that directly redirecting a large share of buybacks toward burning would reduce visible returns. For that reason, I don’t see this as “burn versus incentives,” but rather as a balanced model where a small and predictable portion of buyback tokens is burned without undermining reward efficiency or protocol growth. This approach combines the economic function of buybacks with a long-term narrative and transparency, while preserving the current incentive structure.

4

Hi, thanks for the forum post! Per the governance process, the request for comment phase must have a minimum duration of 3 days before the proposal voting phase can begin.

This topic can move to phase 2: proposal vote on or after February 9th 19:38 UTC. More info about the governance process is available here 🗳️ Overview - SaucerSwap
Thanks!

1 Like
5

I’m aligned that a burn is mainly a long-term “discipline/credibility” signal vs a short-term price lever. I still don’t think burns materially change price dynamics (the buyback trade is the impact; the burn is post-buy accounting), but I get the narrative goal. With Proposal 5797 now passed, we already have a clean way to add a predictable burn without touching HBAR incentives or SAUCE staking: the prior 24.5% POL + Incentive Reserve path is now split into 12.25% that still goes SAUCE → HBAR for HBAR rewards on the selected pools, and 12.25% retained as SAUCE in the POL + Incentive Reserve bucket for future deployment. If we want a burn component, I’d amend this RFC so we burn a defined portion of the retained 12.25% stream (the reserve bucket), and leave the other 12.25% (HBAR rewards path) unchanged. That gives a transparent “supply discipline” signal while preserving the incentive structure we just ratified and keeping SAUCE → HBAR recycling capped at the 5797 level. The explicit tradeoff is reducing reserve optionality in exchange for permanent supply reduction.

8

Thank you for the detailed comment. I agree that the market impact comes from the buyback itself rather than from the act of burning, and that burning does not create additional buying pressure. The goal of the idea is not short-term price movement, but a long-term signal of commitment to supply discipline and responsible use of protocol revenue. It is also true that yield plays a role in demand and that directly redirecting a large share of buybacks toward burning would reduce visible returns. For that reason, I don’t see this as “burn versus incentives,” but rather as a balanced model where a small and predictable portion of buyback tokens is burned without undermining reward efficiency or protocol growth. This approach combines the economic function of buybacks with a long-term narrative and transparency, while preserving the current incentive structure.

9

We’re broadly aligned with this.

On our side, SaucerSwap Labs will be publishing an RFC covering V3 tokenomics, and we’ve already confirmed that buybacks under the V3 model will include a burn allocation as one component of the overall framework. More detail is available in the V3 announcement here: SaucerSwap | Introducing SaucerSwap V3 .

Given that V3 is currently targeted for a Q2 launch, you can expect the full tokenomics RFC in the coming weeks. With that in mind, it may make sense to hold off on publishing a separate RFC for now and instead provide feedback directly on the proposal once it’s live. Of course, that’s entirely your call, but I think that would be the most productive route given the work already in motion.