Zcash Funding Bloc : A Dev Fund Proposal from Josh at ECC

joshs · March 25, 2024, 4:17pm

Summary

The current model for development funding should change to improve decentralization, elevate the community’s voice, and increase accountability. I present an informal proposal to shift to a fully grant-based model, with decision-making occurring through a Zcash community federated model called the Zcash Funding Bloc.

I believe no organization should be directly funded from the protocol. Instead, if there is a development fund, the funds should be locked in a multi-signature wallet with keys distributed across various trusted groups across the ecosystem. These groups (collectively the Zcash Funding Bloc) will independently assess and vote on the merits of major grants. If a grant receives majority approval, funds are allocated.

The Zcash Funding Bloc includes known and trusted community participants and coin-holder participation through quadratic voting. Those groups will determine what is funded based on proposed deliverables and past performance. Anyone applying for grants is sovereign and may choose to find funding through other sources, including ECC and the Zcash Foundation.

Assuming it will take up to a year to get the necessary pieces in place, the current development fund structure should be extended by one year. This will fund the existing organizations at half of what they currently receive but allow time to transition away from current assumptions.

If this idea or some form appears to have support, I’ll draft two ZIPs - one for the extension and another for the Zcash Funding Bloc.

Background

With the end of the current development fund slated for November this year, the community has an important decision to make. Does it want to continue to fund efforts to improve Zcash through a portion of the mining rewards, or does it wish to move on without them? How should it be structured if the answer is to continue to fund development?

I’ve been public about my opinion that some funding is good, but the funding model should change. Although ECC is a beneficiary of the funding model today, it hasn’t proven to be as effective as I think it should have been.

Four years of funding allow organizations such as ECC and the Zcash Foundation to hire and plan, sort of. But I also believe it leads to waste, perverse incentives, and a lack of accountability.

For example, due to ZEC price volatility, ECC has spent money on initiatives that never saw the light of day or were significantly curtailed. We spun things up and spun them down, wasting time and energy.

I also don’t believe that the protocol should directly fund any organization that stands to benefit from the development funds. Something should change.

It’s essential that you hear from us (ECC) directly to begin a dialogue with enough time to make a sound decision by this summer. While the ideas presented here are my own, I have consulted with and taken feedback from the ECC leadership team and Bootstrap Board of Directors (ECC’s parent organization). In the case of the Boostrap board, we had several conversations, and while we didn’t reach a unanimous agreement on all the points, we agreed that we should start the conversation.

The Zcash Funding Bloc

The following describes an idea to create a new model that allocates funding based on grants based on objective community sentiment.

Create a new development fund equal to 20% of the mining rewards in perpetuity or until the community decides on a different long-term plan.

All development funds are stored in a multi-signature wallet with keys distributed across various trusted groups across the ecosystem. These groups will independently assess and vote on the merits of major grants. If a grant receives majority approval, funds are allocated. Collectively this group is called the Zcash Funding Bloc.

The Zcash Funding Bloc includes known and trusted community participants and coin-holder participation through quadratic voting. Those groups will determine what is funded based on proposed deliverables and past performance. Anyone applying for grants is sovereign and may choose to find funding through other sources, including ECC and the Zcash Foundation.

The initial Zcash Funding Bloc will comprise of the Electric Coin Company (ECC), Zcash Foundation (ZF), Zcash Community Grants (ZCG), and one or more others (possibly ZecHub members). As soon as feasible, this group will also include coin-holders, through coin-based quadratic voting to reduce the risk of plutocracy. The Zcash Funding Bloc may evolve over time as new organizations enter or exit the ecosystem.

Each bloc participant will elect a person responsible for representing their voice. The bloc must always have more than three members. The bloc members will meet monthly to review major grant applications and updates.

Disbursements from the wallet require k of n signatures. If a grant recipient is not performing to expectations, bloc members may withhold payments until satisfied that the recipient has addressed any concerns.

The Zcash Funding Bloc and the supporting infrastructure will be formed by November 2025.

ECC and the Zcash Foundation may apply for grants. If the case that a bloc member is applying for a grant, it will abstain from the decision on its grant or any outstanding competing grants.

The ZCG will be solely responsible for grants under a certain threshold. I suggest starting with a per grant cap of $200k and an annual cap of 20% of the grant-based development fund.

ZCG will coordinate the process for larger grants with the bloc to ensure timely reviews and responses. Funds will be distributed when over 50% of members sign.

Until the Zcash Funding Bloc is established (for one year), the development fund should be renewed with the remaining allocations as they are today. This would allow continuity, time for regulatory review and community discussion, and for ECC and ZF to adjust their plans. Due to the halvening in November this year, all organizations will receive 50% of what they receive currently.

ZCG must separate from the Zcash Foundation. The current and 1-year extended allocation of the development fund will be used to cover this cost.

All organizations can obtain additional funding through outside grants, donations, and revenue-generating activities.

I believe that this model, or something similar, will:

Continue funding Zcash development efforts
Further decentralize Zcash
Increase transparency and accountability for all participants
Increase the voice of the community through direct participation
Provide ECC and ZF time and clarity so that they can effectively plan

I welcome your thoughts and we will engage with the community through the ZAC to gauge sentiment.

Chlup · March 25, 2024, 4:35pm

I like the idea of full decentralization and grant-voting system to distribute funds. Well done, very well thought proposal

kworks · March 25, 2024, 5:04pm

Each bloc participant will elect a person responsible for representing their voice. The bloc must always have more than three members. The bloc members will meet monthly to review major grant applications and updates.

ZCG must separate from the Zcash Foundation. The current and 1-year extended allocation of the development fund will be used to cover this cost.

I suggest a max term of two years for any ZCG or Bloc voting participant.
All participants from these organizations must be elected.
All organizations in the Zcash Funding Bloc must post public financial results.
ZCG should be legally located in Europe in a non tax haven country. Voted for approval by zcash community when it is set up.

The ZCG will be solely responsible for grants under a certain threshold. I suggest starting with a per grant cap of $200k and an annual cap of 20% of the grant-based development fund.

I suggest Grants are capped at $500K.

Zcash Funding Bloc - funds.

I suggest all funds held are shielded in zec on the zcash blockchain network. Possibly but would like suggestions on posting a viewkey for zcash funding Bloc funds.

I like your boldness, not all the way to support but in the right direction.

Steelzec · March 25, 2024, 5:04pm

Dev fund has been the most controversial thing about zcash among community members and other rival chains. My take is that a 20 cut is not that bad, but the problem is how to make the dev fund fruitful. Major grants should be provided only for protocol level projects and that too based on deliverables. Grants should passed to those who make timely completion of their projects and it should be disbursed as completing major milestones of projects.

Jgx7 · March 25, 2024, 7:13pm

Seems like its on the right track. Things I care about.

Knowledge based decisions. Ideally we have people who are proven and credentialed, in the DeFi, TradeFi, monetary, capital markets, product specialists etc. We must ensure grant recipients do not dominate the decision making.
The vision is critical from the outset. Are we moving to a DeFi vision?
I think we need to fully decentralize in much the same way as Ethereum and block rewards phases out or becomes very small over time. Maybe its a pipe dream, but I believe enabling developers to self fund and reap the rewards of their efforts while at same time paying a gas/fee for the use of the L1/L2 is the way to decentralize funding and development. Ethereum is the way forward in this regard. We need to better connect funding with development and take out the middle men, which is the block reward model.
Granting on sentiment is OK in the beginning. But, we cant continue funding projects on an ongoing basis (like 4 wallets that only have a combined user base of 20k). We have to cut the cord and provide a way for seed funding to stop. Especially when its very clear the project/wallet is not working as expected or if the vision changes. We need to develop some real and meaningful performance metrics to guide funding and educate the group voting on what is working and not working. When people want grant money, we should make sure they also define their own performance expectations. a) this will help decide its importance and b) this also helps keep them accountable. I dont think any grant recipient outside of the core blockchain protecol development should expect ongoing funding beyond seed (eg wallets, and all edge use cases need to have a plan to be self sustaining on their own). So if its an edge use case they should be able to answer How will your project fund itself after Zcash has provided seed funding?
ECC and the Foundation have $20-$25m of excess funds (which is in addition to the block rewards). How will this be used to help fund grants such as Qedit? Will this money be available to the Zcash ecosystem for grants to be offered per the voting you have outlined?
The Funding Bloc should not be duplicative. For example, a member of the Funding bloc that recieves grant money starts to look duplicative/overlapping which could Gerry mander the voting. with ECC focused on wallets and ZcashD, foundation with core blockchain, and ZEC holders. That seems like a pretty level playing field. Once you add ZCG and ZecHub, I think it starts to tilt the scales and becomes duplicative with ECC. Qedit would be a good addition because they fill a void which are L2 assets.
I really dislike the funding into perpetuity. Block rewards are a centralized source of funding. We need to figure out how to decentralize funding at the transaction level. Transaction level funding better connects funding with developers who understand the customers. Ideally block reward funding is gone. Obviously this is a very rough idea and mechanics need to be thought through. But my main point is we need to stop relying on inflationary funding/block rewards and create a market based ecosystem.
i don’t think zcg should he at the center of managing all grants. so don’t like this aspect. they haven’t proven an ability to manage projects or allocate grant rewards to move zcash blockchain forward and this seems like a potential source of problems. would zec holders be voting for ZCG members ?
it seems like this proposal is mainly showing alignment between ECC and ZCG. i think for this type of change, it’s important to have agreement between the foundation and ecc as a joint recommenation…

gordonesTV · March 25, 2024, 9:45pm

Excellent proposal!

Just a suggestion/comment:

When we use the word “development”, many people assume that we are talking only about the technical section, about code, about programming, and the truth is that “develop” means to drive, to grow and to evolve.

And precisely in order to drive, grow and evolve, in addition to technical “development” per se, we need educational and community initiatives.

Please do not leave out of these proposals initiatives that promote education, dissemination, and marketing.

Zcash also needs “that” development.

zkcroc · March 25, 2024, 11:06pm

A very interesting proposal @joshs ! Kudos to you for sticking your neck out for something like this.

This proposal aligns with a previous idea of mine and I actually support this but I have a a couple of Qs/comments

at current zec price 20% reward would not be enough to fund all orgs, is there community support to bump it up to say 30%?
an addition of another key stake holder/wallet signatory org such as shielded labs would be beneficial as they are non US based and are completing key protocol upgrades
Does the implementantion of this scheme once again push back the POS development?

Thanks

gotope · March 26, 2024, 1:56am

Why, why always want to provide money from inside system (block miner) instead of looking for money from outside?
This kind of ecology is unhealthy, and a tree needs external soil, water, and air to grow. More external funds are needed to grow, and there is no closed system that can grow up, and the market capitalization of BTC, ETH, SOL is the purchase of external funds to keep increasing.

pacu · March 26, 2024, 1:59am

@joshs thanks for posting this. I see that it goes into the right direction addressing concerns that many community members have posted over the years.

It also puts fund recipients in a leveled and fair ground of requirements and responsibilities.

It supposes that incentives will be aligned so that orgs receiving funds will have both the opportunity to request the funds needed and not be spread thin but also they will be far way more accountable. That’s healthy. Because current dev fund unintentionally ended up being an stressor either way. Market imposes roadmaps that orgs can’t meet with their current team sizes and funds. We have to face that music. Even those who totally consider themselves ECC detractors, must know that any org they wish to swap ECC for will have the same issue. They might do better or worse but the resources problem will be there unless something changes.

This is my initial reaction after two reads. I’ll read this a couple more times tomorrow

If this comes to fruition. And it is determined that 1 year is the time it will take to implement this, ZF and ECC must commit fully to a 1-year term strategic alliance/merge that put them in the sole obligation of implementing the funding changes done in the term in 365 day or less. There can’t be “ooops we missed the deadline” blog posts here.

pacu · March 26, 2024, 2:24am

Thanks for asking this question! I think is super relevant. Might have been answered 4 years ago and should be revisited

GGuy · March 26, 2024, 6:08am

Hi @joshs, I think it’s worth considering a deeper push towards decentralization for your proposal. The current setup, with entities like ECC, ZF, and ZCG each holding 25% of the control, seems to still centralize power considerably. The concept of a Zcash Small Council and a Zcash People’s Parliament could potentially address this. Zcash coin holders could serve as a Zcash Senate.

The idea of an elected official managing k-of-n wallets under this adjustment raises some concerns regarding security and accountability. Thus, following your suggestion, adopting a 6-9 month Network Upgrade (NU) cycle could offer a balanced solution. This approach would facilitate accountability and transparency through semi-annual funding proposals, ensuring continuous oversight and participation from the community.

highlow · March 26, 2024, 6:39am

another way to send your zcash to some groups.
how is that ECC is making modifications over the code and unlike BTC or ETH that the comunity is making changes…here how do I know who is in this groups what is their opinion and what is real or not.
specially the POS rejection that should be a must.
How do I know that some nobrainers vote and vote for POS instead of POW just because…they heard it on TV that is the new age…or…in their heads the PoS is the ultimate solution.
These groups must dissappear and never vote for the sake of the ZCASH and people that developed zcash as intrinsic value and limited supply.
Not even now we don’t know for sure why the price is so small on zcash because there are only 16mil discovered and very hard to mine.
Maybe they printed some zcash…and are in the hidden addresses and with the new POS thing they can show them publicly? not even sensing the nature of the problem they will inject the printed zcash just because is POS?
how do I know the so called creators didn’t print out of thin air zcash and stays hidden under some obscure z address? and now with switching to new groups voting they will vote somehow to cover the printing involved in the POS valueless technology.
Also have you wandered why zcash values so less?
it is because they printed zcash out of nothing…the zcash is hidden in z type addresses and they are slowly injecting zcash in the market creating inflation and valueless zcash prices why miners work their zcash with energy and hard work.
we don’t want POS! we want you to stop injecting 0 valued zcash in the ecosystem! mine the zcash and don’t inject it through POS!

hanh · March 26, 2024, 7:42am

The turnstile limits how many coins can unshield. Let’s say you found a loop hole that allows you to mint shielded zec at will. When you want to sell them on an exchange, you will need to unshield. At best you would completely drain the pool and leave all the legitimate zolders hanging dry. But the total supply remains the same.

pacu · March 26, 2024, 11:00am

I don’t think that these proposals are being left out. They can apply through the many mechanisms there are to access grant funding.

The proposals that were funded by ZF grands or ZCG grants usually were very well defined, with solid justifications of impact and solving specific problems. I don’t see why educational grant proposals like those wouldn’t be funded.

noamchom · March 26, 2024, 1:38pm

Exactly. And the same is true of the ZF (and now Qedit as well). This ecosystem has plenty of world-class researchers and software engineers. Yet we always find ourselves in trouble because of problems that stem out of too many layers of governance, bureaucracy, extra-org cooperation (or lack there of), scheduling (missing delivery dates), funding (lack there of), external dependencies, and other administrative waste.

We need to empower the researchers & engineers, not the governors, boards of directors & bureaucrats.

I like the general concept of a grander governing body for Zcash, especially one that specifically intends to involve community members and coin holders; but I think it is inappropriate to try and force-in the creation of such a huge structure as part of the 2024 block subsidy debates.

The topic of block subsidies of today is the question: Who gets How Much?

In the practical sense, Josh has proposed to keep the block subsidy as-is and subsequently giving it a rolling 1-year renewal option (rather than the previously expected 4-year cycle).

Building the full governance structure that is described (which I do generally support) is a 2-4 year project. I don’t believe that it is reasonable to bind a project that large into the debate about the block subsidy which has to go-live in less than 8 months.

Jgx7 · March 26, 2024, 2:17pm

This seems a little fitting.

joshs · March 26, 2024, 2:55pm

For what purpose?

Why this limit on the total grant size? It’s conceivable to me that advantageous grants may exist well in excess of this amount.

joshs · March 26, 2024, 3:04pm

It’s my opinion that orgs should find additional sources of revenue such as donations, other grants, or revenue and not be wholly dependent on block subsidies.

I like Jason and what he’s doing with shielded labs. In my opinion, as an organization, they need to demonstrate the ability to deliver capability.

I don’t think the two are heavily correlated regarding the effort involved, but it would depend on the final design and if ECC is on the hook to deliver functionality.

joshs · March 26, 2024, 3:08pm

I agree that we must avoid assuming all activities will be funded completely by block subsidies. This model is intended to encourage more resilient participants and community accountability.

joshs · March 26, 2024, 3:15pm

Hi @GGuy. Thank you.

I’m not trying to solve all of governance here, just how development funding is allocated. The Zcash Funding Bloc can evolve over time. It makes sense that it would be a dynamic group.

With this proposal, it’s not a committee but a group of sovereign groups with one share of the spending key for larger grants. Not everyone has to sign or agree.

Your idea is interesting but more than what I am trying to accomplish here. It adds a layer of organizational complexity I was trying to avoid.