Support
There should be restrictions such as the pet must be adult, have at least 3 traits, and you can only sell 5 or so a day

Personally, rather than a mechanic that either needs heavy restrictions, or just allows gold to pour into the economy, I would prefer more incentives to release pets, not straight up gold.

Something like a tier system added to releasing where you gain the chance to obtain certain things at certain tiers, with the chance getting higher for each pet released until you get a drop for that tier, then it goes back down.

IE, say the tiers are like this:

0-50 pets released - Tier 1 rewards
50-250 pets released Tier 2 rewards
250-750 pets released - Tier 3 rewards and so on.

When you release any pets, you gain eligibility to get a tier one reward when releasing a pet. With each pet you release and you don't get a tier one reward, your chances go up, until you hit 50 pets released, where you are guaranteed a reward from tier one.

The same for tier 2+ Once you hit the bottom number of required pets released, you are get a chance to obtain a prize from that pool. Your chances of gaining a prize from that tier goes up until you hit the top number of required pets, then you are guaranteed a drop. once you get a drop, you have to start over from 0 for that particular tier.

You can have multiple tiers going on at the same time, with the higher tiers dropping better stuff. Perhaps the only requirement is that the pets cannot be egglings.

As for the rewards in the pool, they could be just about anything from dyes, to perhaps themed eggs, to small amounts of scales or even AP and gold.

The tiers I mentioned are of course not the tiers that would be used. They could be a lot higher, though I do hope that there would be a tier with lower requirement.

I am not opposed to the NPC buying pets, I just feel that it would be better for the site to encourage regular releasing, without restrictions, and without having it potentially pour gold into the site.

Adding tries that give you awards would encourage people to mass breed and release

They already do, or at least mass breed, and to be honest, I don't see a limited NPC that gives gold doing much good for the already mass breeding problem. If you can only sell five pets per day, and the average mass breeder breeds at least 10 times that per day, then we still have the same problem of too many pets and not enough incentive to release/sell the pets.

There could be the same limitations on it now, such as pets must be over 42 days, which means that players would need to keep those pets for 42 days before they could release them for rewards. The tiers could also be adjusted so that it would be very difficult to mass breed and release, simply because it would need more pets than the average player has room for (especially in conjunction with needing to keep the pet for 42 days) in order to mass breed and hold the pets.

What if every festival, a npc came that you could sell pets to for tokens
And for every so many pets, you would get a prize or something similar
Only adult pets could be sold, and only five per day

That would be nice, though I would prefer, in addition to this, a more long lasting reason to get rid of excess pets, and I don't think just adding in monetary rewards would work, especially if you were limited in the number of pets you could get rid of per day.

True
What if when you sold over a a certain amount, the amount of tokens you get would go down
I think there should be some kind of limit so that mass breeding won't be as popular when the npc is arround

To be honest, I have the feeling any way of getting monetary (or item) rewards will result in players mass breeding, especially if they can gain more gold than is spent on breeding/keeping and buying pets costs more than they would get

that is one thing I like about the tier system, is that it can be adjusted to make it so, while players CAN mass breed, it isn't profitable for them to do so. The higher tiers would require a great many pets, more than a player could really hold in their stables, unless they were extremely wealthy or had been around a long time (which that type of player is typically already mass breeding for projects or isn't interested in mass breeding for anything) and it would be those tiers that would have the truly desirable rewards.

the lower tiers, ones that most players can reach fairly easily, would have things like scale shop items, and small amounts of scales/gold (no diamonds though) and maybe common themed and non-themed pets. (the themed pets could be ones created specifically for this feature, and not just various themes already existing).

I do not think avatar items should be included since each player only needs one copy of each item, so eventually there could be a glut on the market with them.

The issue with mass breeding is that any site that allows breeding without jumping through hoops (hello Aywas) will probably have mass breeding, because you have players looking for certain things (such as project breeding) and players who just like breeding to see what results. I normally fall in the second group, but don't tend to breed often.

As I said though, the tiers could be adjusted to discourage mass breeding just to release by having it where it isn't 0-50 (or 0 to any) but you have to have a minimum number of pets released before you are eligible, those pets have to be X days old (say you have to keep them 10 days OUT of the hatchery before they are eligible for this. I don't know at what age sylestis are kicked out of the hatchery automatically, I usually move them manually)

All loot should be consumable and tradeable.

Unfortunately, as I said, mass breeding is a problem on just about any site I have seen with an economy and fairly easy breeding (surprisingly, gryffs allows mass breeding and they have a sell feature for gryffs, but, it doesn't seem to have the issue with mass breeding. I think that may be though because gryffs have a vastly different marking/color system to sylestia and FR, two sites I see complaints about mass breeding on.) Without completely changing how breeding works, I am not sure there is much to be done to discourage mass breeding, and I feel that changing how breeding works (or adding monetary barriers to breeding) simply works to punish those who aren't mass breeding or mass breed only for themselves (ie they don't sell the pets, just breed to see what the results are or for specific pets).

True
Over breeding is a very big problem

I think it'd be a great idea but a lot of people would farm and just toss bred pets in and it'd ruin the market.I think it'd be cool if it was just tamed/caught pets that could be released and it'd only be like...3000 gold for maybe a lv5 species...