Title: SaucerSwap Incentives Realignment and HBAR Rewards Simplification
Author(s): SaucerSwap Labs
SaucerSwap Voting Interface: TBA
Related Discussions: SAUCE Buyback Revision, Emissions Realignment, & HBAR Reward Extension
Submission Date: 2026-01-29
Summary
This proposal updates SaucerSwap’s incentive framework to reflect changes in market structure, liquidity distribution, and fee generation since the last major emissions and buyback realignment. It reallocates SAUCE incentives between V1 and V2 while keeping the DAO allocation unchanged, updates per-pool weights using a consistent, fee-primary methodology, simplifies buyback-funded HBAR incentives, and broadens the permitted use of HBAR previously allocated for smart contract rent to include development and protocol maintenance costs.
Buyback-funded HBAR incentives are reduced and focused on two V2 pools—SAUCE/HBAR and USDC/HBAR—while the remaining portion of that incentive budget is retained in the strategic reserve for future governance-directed deployment. The objective is to improve capital efficiency and preserve optionality under current market conditions.
Abstract
Since the adoption of the current buyback and emissions framework, SaucerSwap’s liquidity and routing patterns have evolved materially. V2 markets have consistently dominated routed volume and fee generation, but the distribution of liquidity and activity has continued to shift, with a migration of TVL from V1 to V2, increased activity in LayerZero pools, and a reordering of market relevance across legacy and newer pools. At the same time, the Hedera Foundation grant-funded HBAR incentive stream has depleted, and ongoing HBAR incentives have been maintained through buyback-funded conversion and distribution that was explicitly intended to be reevaluated.
Rather than continuing broad, static incentive distribution, this proposal applies a fee-primary, health-adjusted allocation framework with explicit concentration controls to derive the specific V1 and V2 pool weight updates proposed here. In parallel, buyback-funded HBAR rewards are simplified and narrowed in scope, with a portion of the prior incentive budget retained as a strategic reserve for future, targeted deployment.
Finally, and independent of incentive design, the proposal broadens the permitted use of HBAR previously allocated for potential smart contract rent, allowing those funds to also support development and protocol maintenance while smart contract rent is not currently enabled on Hedera.
Motivation
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Alignment with Usage: Incentives should follow where liquidity is actively used and fees are generated, rather than remaining anchored to historical allocations.
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Capital Efficiency: In lower-activity conditions, broadly distributing incentives can exhaust the budget without producing lasting liquidity improvements. Concentrating incentives and retaining reserves helps ensure capital is deployed where it has a measurable effect.
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Optionality: Retaining part of the incentive budget allows the DAO to deploy capital later into time-bounded or targeted programs rather than exhausting it continuously.
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Sustainable Development: HBAR previously reserved for potential smart contract rent can support ongoing development while rent is not enabled on Hedera.
Specification & Rationale
Methodology
This proposal uses a constrained, multi-factor allocation model to derive both the top-level SAUCE emissions split between V1 and V2 (with the DAO share held constant) and the per-pool incentive weights within each version for this reweight cycle. The model relies on two inputs: annualized fees, treated as the primary signal because they reflect realized demand and productive liquidity, and TVL, treated as a secondary signal because it represents liquidity depth and route availability rather than productivity. The same framework is applied consistently at both levels: first to aggregate V1 and V2 metrics to determine the V1 vs V2 split, and then within V1 and within V2 to determine pool-level weights.
Fees and TVL are transformed using diminishing returns so incentive share does not scale linearly with size, reducing heavy-tail dominance and limiting winner-take-all outcomes. Small smoothing offsets are applied to avoid instability from zero or near-zero values. The resulting fee- and TVL-based distributions are normalized and blended into a final score, with fees remaining dominant and TVL providing a controlled health adjustment (approximately an 85% / 15% weighting for this update). An explicit concentration cap is applied so that no single pool exceeds a fixed share of the modeled set; any excess is redistributed proportionally across uncapped pools, preserving the total allocation while enforcing diversification.
SAUCE/HBAR is treated as a strategic pool whose importance is not fully captured by short-term fee production alone, as it is the primary source of on-chain liquidity for acquiring SAUCE for governance participation and other protocol-level uses, such as staking. It is therefore assigned an explicit target weight and removed from the modeled set, with the model applied to the remaining pools and the results recombined. Certain pools are explicitly deprecated where appropriate, with freed weight redistributed across the remaining incentivized pools to conserve the overall distribution.
The methodology is included to make this update systematic, transparent, and auditable; it does not standardize or bind future reweights, which remain subject to separate governance proposals.
Reallocation of SAUCE Incentives (V1 vs V2)
Applying the methodology at the aggregate level, the DAO allocation remains unchanged and SAUCE incentives are reweighted between V1 and V2 based on observed activity and fee production.
| Recipient | Current Alloc Points | Current Share | Proposed Alloc Points | Proposed Share |
|---|---|---|---|---|
| V1 | 2222 | 44.44% | 788 | 15.76% |
| V2 | 880 | 17.60% | 2314 | 46.28% |
| DAO | 1898 | 37.96% | 1898 | 37.96% |
The revised split increases emphasis on V2, reflecting continued migration of TVL, routing activity, and fee generation, while preserving the DAO’s allocation.
Pool-Level Incentive Weights
Applying the same methodology within each version, per-pool weights in both V1 and V2 are updated to reflect relative fee production, liquidity depth, and the strategic handling described above. The resulting V1 and V2 pool-level incentive weights derived from this update are summarized in the appendix tables.
V1 Deprecations
Two V1 pools are removed from incentives:
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HBAR/DINO
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HBAR/HAI
Their combined weight is redistributed equally across the remaining incentivized pools.
Implications
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Most V1 pools experience lower total APRs due to the reduced V1 emissions budget.
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Within both V1 and V2, relative weights shift toward pools demonstrating stronger fee production and sustained usage.
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Incentive allocation becomes more responsive to current activity rather than historical configurations.
HBAR Incentives Simplification
Buyback-Funded HBAR Incentives
Under the prior framework, 24.5% of protocol buybacks were allocated to a combined POL and incentive reserve and, during a stabilization period, converted from SAUCE into HBAR before being distributed as rewards.
This proposal refines that approach:
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12.25% of buybacks continues to be used for LP incentives.
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Because this budget originates from SAUCE buybacks, SAUCE is converted to HBAR prior to distribution.
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HBAR incentives are distributed only to:
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SAUCE/HBAR v2 (50%)
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USDC/HBAR v2 (50%)
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Rationale
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SAUCE/HBAR v2: Directing HBAR incentives here supports reliable access to SAUCE for voting and staking, and reinforces the liquidity venue most directly tied to DAO participation rather than discretionary or peripheral trading activity.
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USDC/HBAR v2: This pool concentrates the highest share of routed volume and fee generation on the protocol and serves as the main settlement and routing venue for a wide range of trades. Incremental liquidity depth in USDC/HBAR therefore benefits a large portion of user flows, making it the venue where additional incentives have the broadest protocol-wide effect.
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Focused distribution: Concentrating buyback-funded HBAR incentives on these two pools improves effectiveness by allocating rewards where they can meaningfully influence liquidity depth, routing quality, and protocol usage. In this context, reducing dilution means avoiding the dispersion of a finite incentive budget across many pools, and instead directing incentives to venues where marginal liquidity improvements are more likely to produce measurable benefits.
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MasterChef circumvention: With HBAR incentives no longer directed to V1 pools and buyback-funded HBAR rewards narrowed in scope, they can be transferred directly to the LARI airdrop account for distribution to the designated V2 pools, avoiding unnecessary constraints associated with emitting HBAR via MasterChef.
Strategic Reserve
The remaining 12.25% of buybacks from the prior 24.5% allocation is retained as SAUCE in the strategic POL + incentives reserve rather than being converted to HBAR and automatically distributed. This reflects the view that, under current market conditions, continuously deploying the full incentive budget is not necessarily capital-efficient. Retaining a portion of the budget preserves flexibility for future governance-directed deployment, including targeted liquidity programs, time-bounded campaigns, or other initiatives where objectives, scope, and expected impact can be clearly defined at the time of execution.
By separating immediate incentive distribution from reserved capacity, the DAO avoids committing capital without a clear near-term objective while maintaining the ability to respond deliberately as conditions or priorities evolve. Any use of the strategic POL + incentives reserve remains subject to separate DAO approval.
Expansion of rentPayer HBAR Use
SaucerSwap V1 was designed with a shared rent-paying account to fund potential smart contract rent. While rent mechanisms exist in Hedera’s architecture, smart contract rent is not currently enabled on the network, and no activation timeline has been announced by the Hedera Council.
Over time, the rentPayer account (0.0.1058134) has accumulated a material HBAR balance that significantly exceeds what would reasonably be required to cover smart contract rent under currently documented parameters. As rent remains inactive, continued accumulation in an account narrowly earmarked for rent provides diminishing marginal value.
Accordingly, this proposal expands the scope of the rentPayer account from a single-purpose reserve for potential rent obligations to a more general-purpose funding source for development and protocol maintenance costs. This change reflects current network conditions and enables a more capital-efficient use of HBAR already held by the protocol, without altering incentive mechanics or buyback-funded reward flows.
Pros
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Incentive allocation more closely reflects realized usage by prioritizing observed fee generation, improving the relationship between incentive spend and productive liquidity.
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SAUCE emissions are reweighted toward V2 in line with continued migration of TVL, routing activity, and pool relevance, while preserving a supportive V1 allocation.
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Pool-level incentives become more responsive to current activity rather than historical configurations, reducing legacy bias in the weighting scheme.
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Buyback-funded HBAR incentives are concentrated where incremental liquidity has the greatest protocol-wide effect, improving capital efficiency relative to broad distribution.
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Narrowing the scope of HBAR incentives enables direct distribution via the LARI airdrop mechanism, avoiding unnecessary constraints associated with emitting HBAR through MasterChef.
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Retaining a portion of the prior incentive budget as a strategic reserve preserves flexibility for future, targeted deployments rather than committing capital continuously under weaker market conditions.
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Broadening the permitted use of the rentPayer account enables accumulated HBAR to support development and protocol maintenance rather than remaining idle while smart contract rent is not enabled.
Cons
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Some pools, particularly in V1, experience reduced incentives as a result of the lower V1 emissions budget and updated weighting scheme.
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Concentrating buyback-funded HBAR incentives on a small number of pools reduces breadth of distribution and may be less supportive of long-tail markets.
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Metric-driven reweights are inherently backward-looking and require periodic reassessment to remain aligned with evolving usage patterns.
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The introduction of a strategic reserve delays deployment of part of the incentive budget and may defer potential short-term liquidity support in certain markets.
Voting Options
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YES — Approve
Approve the incentives realignment, HBAR rewards simplification, creation of a strategic reserve, and expansion of rentPayer HBAR use.
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NO — Reject
Maintain the current emissions split, pool weights, HBAR incentive routing, and rentPayer usage.
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ABSTAIN
Appendix
Appendix A — V1 Pools (Current vs Proposed Weights)
| Pool | Fee Tier | TVL | Yearly Fees | Current Weight | Target Weight | Delta |
|---|---|---|---|---|---|---|
| SAUCE/HBAR | 0.30% | $2,900,000 | $30,400,000 | 48.56% | 45.00% | -7.32% |
| USDC/HBAR | 0.30% | $1,400,000 | $108,750,000 | 15.75% | 13.84% | -12.16% |
| HBAR/BSL | 0.30% | $847,000 | $885,000 | 1.26% | 1.43% | 13.27% |
| HBAR/XSAUCE | 0.30% | $556,000 | $3,400,000 | 4.50% | 2.10% | -53.45% |
| HBAR/gib | 0.30% | $401,000 | $7,650,000 | 1.98% | 3.04% | 53.40% |
| HBAR/PACK | 0.30% | $399,000 | $6,700,000 | 2.88% | 2.83% | -1.90% |
| SAUCE/XSAUCE | 0.30% | $316,000 | $328,000 | 1.35% | 0.92% | -31.58% |
| HBAR/DOVU | 0.30% | $291,000 | $23,700,000 | 0.90% | 5.85% | 550.47% |
| HBAR/DAVINCI | 0.30% | $274,000 | $700,000 | 1.13% | 1.06% | -5.96% |
| WETH[hts]/HBAR | 0.30% | $215,000 | $4,885,000 | 2.48% | 2.27% | -8.20% |
| USDC/SAUCE | 0.30% | $171,000 | $3,960,000 | 3.24% | 2.00% | -38.29% |
| WBTC[hts]/HBAR | 0.30% | $141,000 | $4,800,000 | 2.57% | 2.19% | -14.75% |
| QNT[hts]/HBAR | 0.30% | $134,000 | $4,400,000 | 1.76% | 2.08% | 18.47% |
| GRELF/HBAR | 0.30% | $127,000 | $132,000 | 1.35% | 0.68% | -50.00% |
| LINK[hts]/HBAR | 0.30% | $124,000 | $2,700,000 | 1.04% | 1.61% | 55.23% |
| HSUITE/HBAR | 0.30% | $111,000 | $10,250,000 | 0.86% | 3.36% | 292.90% |
| HBAR/STEAM | 0.30% | $111,000 | $1,000,000 | 0.68% | 1.04% | 53.62% |
| HST/HBAR | 0.30% | $106,000 | $928,000 | 2.03% | 1.00% | -50.41% |
| HBAR/KBL | 0.30% | $102,000 | $1,360,000 | 0.00% | 1.16% | - |
| LCX[hts]/HBAR | 0.30% | $83,000 | $2,400,000 | 0.18% | 1.47% | 717.76% |
| WAVAX[hts]/HBAR | 0.30% | $82,000 | $2,600,000 | 0.77% | 1.53% | 100.06% |
| HBAR/GC | 0.30% | $72,000 | $1,920,000 | 0.00% | 1.31% | - |
| HBAR/DINO | 0.30% | $63,000 | $3,300,000 | 1.04% | 0% | -100.00% |
| HBAR/SENTX | 0.30% | $41,000 | $324,000 | 0.63% | 0.66% | 5.40% |
| HBAR/KARATE | 0.30% | $37,000 | $3,000,000 | 2.30% | 1.58% | -31.05% |
| HBAR/HAI | 0.30% | $21,000 | $22,000 | 0.81% | 0% | -100.00% |
Appendix B — V2 Pools (Current vs Proposed Weights)
| Pool | Fee Tier | TVL | Yearly Fees | Current Weight (SAUCE) | Target Weight (SAUCE) | Delta | Target Weight (HBAR) |
|---|---|---|---|---|---|---|---|
| USDC/HBAR | 0.15% | $9,200,000 | $3,750,000 | 19.00% | 20.75% | 9.21% | 50.00% |
| HBARX/HBAR | 0.15% | $4,400,000 | $45,300 | 7.00% | 3.78% | -46.07% | 0.00% |
| HBAR/WETH (LayerZero) | 0.15% | $3,000,000 | $226,800 | 1.75% | 7.74% | 342.50% | 0.00% |
| USDC/WBTC (LayerZero) | 0.15% | $2,400,000 | $42,300 | 1.25% | 3.24% | 159.58% | 0.00% |
| HBAR/WBTC (LayerZero) | 0.30% | $2,200,000 | $160,920 | 2.50% | 6.20% | 147.93% | 0.00% |
| SAUCE/HBAR | 0.30% | $2,100,000 | $151,500 | 19.00% | 17.00% | -10.53% | 50.00% |
| HBAR/BONZO | 0.30% | $1,100,000 | $10,152 | 0.00% | 1.64% | -% | 0.00% |
| USDC/WETH (LayerZero) | 0.15% | $890,000 | $23,400 | 0.75% | 2.11% | 181.63% | 0.00% |
| USDC/USDC[hts] | 0.05% | $690,000 | $21,250 | 5.55% | 1.94% | -65.03% | 0.00% |
| HBAR/DOVU | 1.00% | $658,000 | $340,000 | 0.80% | 9.08% | 1035.50% | 0.00% |
| SAUCE/XSAUCE | 0.15% | $519,000 | $30,000 | 2.50% | 2.18% | -12.93% | 0.00% |
| HBAR/PACK | 0.30% | $366,000 | $30,000 | 0.00% | 2.09% | -% | 0.00% |
| USDC[hts]/USDT[hts] | 0.05% | $357,000 | $4,300 | 3.50% | 0.98% | -71.93% | 0.00% |
| HBAR/KARATE | 0.30% | $288,000 | $20,400 | 0.50% | 1.68% | 235.27% | 0.00% |
| GRELF/HBAR | 0.30% | $206,000 | $8,100 | 0.00% | 1.07% | -% | 0.00% |
| WETH[hts]/HBAR | 0.15% | $186,000 | $11,700 | 1.75% | 1.23% | -29.82% | 0.00% |
| WBTC[hts]/HBAR | 0.15% | $100,000 | $20,400 | 2.50% | 1.51% | -39.76% | 0.00% |
| USDC[hts]/HBAR | 0.15% | $100,000 | $28,200 | 7.50% | 1.80% | -76.03% | 0.00% |
| LINK[hts]/HBAR | 0.30% | $83,000 | $14,550 | 2.50% | 1.24% | -50.21% | 0.00% |
| HBAR/XSAUCE | 0.30% | $81,000 | $10,800 | 2.50% | 1.07% | -57.02% | 0.00% |
| QNT[hts]/HBAR | 0.30% | $68,000 | $24,300 | 4.00% | 1.61% | -59.66% | 0.00% |
| USDT[hts]/HBAR | 0.15% | $55,000 | $13,200 | 5.15% | 1.15% | -77.75% | 0.00% |
| USDC/SAUCE | 0.30% | $39,000 | $28,500 | 4.00% | 1.72% | -56.97% | 0.00% |
| HBAR/HLQT | 0.30% | $37,000 | $1,080 | 0.00% | 0.47% | -% | 0.00% |
| USDC[hts]/WBTC[hts] | 0.15% | $32,000 | $6,450 | 1.25% | 0.78% | -37.40% | 0.00% |
| WAVAX[hts]/HBAR | 0.30% | $31,000 | $3,600 | 1.00% | 0.62% | -37.96% | 0.00% |
| JAM/HBAR | 1.00% | $21,000 | $51,000 | 0.50% | 2.42% | 384.05% | 0.00% |
| USDC/HCHF | 0.05% | $22,000 | $1,200 | 0.00% | 0.45% | -% | 0.00% |
| CLXY/HBAR | 0.30% | $19,000 | $4,350 | 0.00% | 0.64% | -% | 0.00% |
| WETH[hts]/USDC[hts] | 0.15% | $17,000 | $3,000 | 0.75% | 0.55% | -26.22% | 0.00% |
| HST/HBAR | 0.30% | $13,000 | $843 | 0.00% | 0.40% | -% | 0.00% |
| WBNB[hts]/HBAR | 0.30% | $9,100 | $2,760 | 1.75% | 0.52% | -70.43% | 0.00% |
| USDC/CARAT | 0.15% | $2,100 | $525 | 0.75% | 0.34% | -54.69% | 0.00% |