Community Sentiment Polling Results (NU4) and draft ZIP 1014

Community Collaborations protocol
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Blockquote[quote=“prestwich, post:101, topic:35560”]
I don’t think that it’s reasonable for the protocol to be designed around a company’s compensation policies. Treasury management strategies change much faster than the protocol. Unlimited-upside comp for individuals is not sustainable anyway. Changing the Dev Fund structure to support would be socializing private costs of misaligned compensation.
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100% agree, you put it in a better way than what I’ve been trying to say.

To add, is there a exercise period (or time to vest) for employees before they sell their ZEC?

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I will try to answer why that mathematically doesn’t work by using an extreme example just to illustrate. Suppose each employee is promised 1 ZEC per month and the whole ECC operating budget is 700k usd per month. Well what happens if bitcoin goes to 100k usd and 1 ZEC = 7 BTC (as the prophecy says)? Then each employee is owed the entire ECC monthly budget which obviously just doesn’t work mathematically.

These numbers are just for fun but obviously the problem that still exists with smaller numbers is that the operating budget of the ECC would have to go down in order to accommodate paying employees their promised ZEC denominated salary. So if the funding is denominated in USD and employees are promised fixed ZEC salary also then this would be a perverse incentive where maybe they (company leadership) want the ZEC price to stay low to make their budget work.

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How about just offering generous compensation for a year and just provide refresh in ZEC based on the price at that point, This is similar to a tech company offering stock-based refresh (fixed USD amount) based on employees performance. That way, if ZEC price goes up, employees still get the benefit until all the ZEC is vested. ECC (or any dev team) may choose to provide additional ZEC grant after an year. Each ZEC grant can be vested over 3 years or 4 years or even 5 years.

At the end, it is upto ECC to decide which works best for them. Unlike Google/Facebook, ECC needs to come up feasible strategies that is in best interests of community/holders and also retain + attract employees.

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See IV.A. on best practices for tech company compensation. This is not a direct analogue but since it was brought up here. In my personal experience, this has proven true. Blake Masters for Senate

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Josh, while you’re here, I’m wondering if you can disclose (no need to disclose actual numbers, trying to understand compensation structure):

  • Typical offer ECC provides for new employee
  • ZEC grant at the end of year to retain the employee
  • Vesting period for grants

Let me describe a scenario with typical tech employee in mind:
There are typically three components: base, bonus (startups usually don’t provide this) and equity (stock options, RSU etc)
Value of base doesn’t fluctuate in USD over time unless base is increased.
Value of equity grant doesn’t fluctuate in USD but it can change when it is going to vest (ZEC fluctuates enough).

If the equity grant says 120000 USD equivalent will be provided over 1 year => 10000 USD per month (let’s say there is no cliff :slight_smile: ). Assume ZEC price grows 10% every month beginning from 35$. Then the employee would end up receiving - 10000/(351.1^0) + 10000/(351.1^1) + 10000/(351.1^2) + … + 10000/(351.1^11) ZEC at the vesting time = 2048 ZEC (@100 USD per ZEC) which is worth 204800 USD (much higher than original 120000 USD value)

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A lot of people are arguing at cross purposes here and some questionable framings have been used to describe this.

Everyone, I think, understands it’s a good idea to give employees incentives. You do this by somehow giving them zec. If the price goes up, the employees get richer. The question is how do you get the Zec to give the employees and when do they see the appreciation?

ECC could, for example, giving their employees a percentage of their USD denominated salary or bonus in ZEC. So every year an employee gets e.g. $25K USD worth of ZEC. as a bonus. This would mean ECC would presumably buy the ZEC as needed on the market. The employees would see an upside only if it appreciates after it was given to them.

The other thing you could do is promise employees a fixed amount of zec per month when they are hired. This would mean the employee starts seeing the upside from day 1 if the price goes up. (it also means they see a larger downside if the price tanks). ECC can’t do this if there is a simple USD cap, because then if the price goes too high, ECC can’t buy the coins they promised people.

You could also give equity in ECC at least as long as it’s a for profit…

So, if you agree promising x ZEC a month is the only possible way you can give incentive compensation to employees, then the USD cap needs to become something different.

Personally 1) I’m not so sure thats the only way to give incentive comp to employees, but think we should listen to what ECC has to say if they can give a clear reason why incentive comp can only be structured as promises of x zec per month. 2) Even if it must be structured that way, it doesn’t follow that all of ECCs funds need not be caped. Effectively they need an option pool.

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Looks like we both ended up saying similar stuff :slight_smile:

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The difference b/n this and what ECC wants is, it wants to tell amount of ZEC the employee will receive in the future - which would be 120000/35/12 ZEC (~285) every month. So employee will have 3420 ZEC instead at the end of year after full vesting. Of-course (@100 USD per ZEC) employee will know own 342000 USD amounts in ZEC.

I understand the difference, but I think it’s worth exploring the former approach for providing employee compensation.

Added benefit, holders and employees are aligned exactly alike, with same upside.

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By the same logic, the allocations in 1012 are also community requirements, right? We only know how the community feels about proposals, not line items.

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I suggest (with my ZIP Editor hat on) that the fact that ECC is eligible to compete for Major Grants should be explicitly spelled out in the resulting ZIP. Otherwise it is not obvious and might become an issue of dispute, especially given the following wording in ZIP 1012:

If ZF are not eligible to compete for Major Grants, that should also be spelled out. (It’s difficult to see how they could be without raising a potential conflict of interest; and so I assume that this is supposed to be taken into account in the level of the ZF-GU slice.)

Disclosure of interest: I also obviously have an ECC hat, and ECC would benefit from being able to compete for Major Grants. My interest here however is just in clarifying the intent.

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@daira, both are already explicit in ZIP 1012:

  1. These funds may be only be used to issue Major Grants to external parties that are independent of ZF. They may not be used by ZF for its internal operations and direct expenses.
  1. Major Grants may be issued to ECC only if no other parties are available and capable of performing the specified work with similar effectiveness and cost. (The intent is that eventually ECC will not receive Major Grants.)
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(These are my personal views/comments.)

Would it help if the ZEC allocations are fixed but only for the ongoing funding period (semi-annual, or whatever the reporting/transparency requirements prescribe), i.e. allocations are calculated and caps applied based on the price of ZEC in the beginning of each funding period? To be honest, for some reason I always assumed that this would be the default practice. All dev fund recipients would be able to guarantee a certain level of ZEC-denominated compensation, regardless of the price, but only until the end of the current funding period.

Perhaps there are even better options. Intuitively, the 50-50 proposal seems reasonable to me. I don’t see it as making things much more complicated. It simply guarantees half of the ZEC granted, regardless of the price, and directs the other half to a reserve only if the total allocation exceeds the $ cap (based on monthly calculations, I assume. Is this correct? @tromer). Let’s say the price increases 10x during the current funding period. Is it not reasonable to let all dev fund recipients benefit from it through half of the ZEC they’re receiving, but direct the other half to a reserve? To me, this sounds like basic responsible treasury management without removing the benefit from price increases. I read the comments above, but I’m not sure I understand the counterargument. What am I missing?

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I do have one questions @zooko: in startups equity for employees gets diluted and in fact that is usually the only way it appreciates in value. Whats the equivalent of dilution for the zec you are handing out?

You’ve said it’s absolutely necessary to offer employees a fixed amount of zec per month because Silicon Valley has shown this is the most effective way to incentivize employees. You’ve said that long term the lack of this incentive would be a problem for ECC and the Zcash community, This is indeed the kind of thing we should worry about.

Silicon valley obviously provides incentives with equity instead of cryptocurrency. But it seems you think ZEC is the reasonable analog here. But this brings us to my question: what is the analog of dilution for zec given to employees? The model that Silicon Valley has shown works is I get shares in an early stage startup. But the only way the value of those shares goes up is via subsequent rounds of investment and then an IPO. The thing is, every single round of investment (which again is the main thing that causes a value increase for traditional startups) usually dilutes my shares. The 3% of the company I get as a founding employee is not 3% by the time the IPO happens. So this gives employees incentives but effectively limits the upside. What is the analog here?

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@tromer sorry for coming in a bit late on this.

I’m in favor of the Volatility Reserve and an endowment mechanism Most of all, I’m in favor of testing out this mechanism for the next 4 years. I think it’s fiscally responsible, it’s innovative and pushing the boundaries of decentralized governance, and ultimately can be reversed.

That being said, I’ve also been an advocate of incentive alignment from upside. Subsequently, allocating a %-of/ half of excess funding back to each respective entity seems to resolve some of the concerns raised on this thread. Although, I would prefer a blended approach (surprise, surprise) whereby allocation is based on both:

  1. **a % of funds over 700K cap (as @tromer proposed) AND
  2. a % of interest created from endowment/ revenue-share activities creating incentive alignment opportunity for fund managers**

However, my main concern is scale (and therefore usefulness) of the Reserve. As proposed, we have a 3-way split + (potentially) a further split… Just keep in mind, if the fund is too small it won’t be very useful. I would strongly recommend reaching out to a fund manager and running some numbers before making a decision on this, I am certainly not an expert.

@tromer or @zooko have you run any models on this?
A simple fix is to only permit endowment/ revenue-share activities once a threshold of reserve funds has been achieved.

The conversation has mostly focused on concerns, so I’d like to remind the community of the potential opportunity held within equity/ revenue-share capabilities:

A Volatility Reserve coupled with an endowment mechanism (i.e. ability to invest or create a revenue-share agreement with other market-creating companies) might end up being a HUGE strategic advantage for Z-cash. Not only is ZCash creating the most innovative tech, but it would also be able to fund and build a supporting ecosystem.

That being said, investments have risks and legal complications. @zooko, @tromer has your legal team reviewed the structural requirements for endowment/revenue-share activities?

  1. Unfortunately, my experience is within the Canadian context, but in Canada, non-profits’ taking equity is a big No however revenue-share agreements are OK.
  2. Would all entities holding a Reserve be responsible for hiring and maintaining fund managers to steward the fund? Will all entities agree on investment criteria?
  3. Do we consider a simpler alternative, place ZEC in an interest-bearing account and call it a day, (loosing the whole market-creating up-side). Keep in mind that revenue-share agreements theoretically should be less risky.

Maybe it’s too complicated but I would hate to give up on something innovative just because it’s ‘not possible.’ That wouldn’t be a very :zebra: thing to do.

Playing catch-up on some of the other points in the proposal:

On the MG determined by a committee v.s. ZF my suggestions is a divide in decision-making power, say there are 6 seats, 3 for ZF 3 for Community Advisory - no veto rights for ZF. Ideally, these are fixed seats, but we can explore the idea of adding non-voting rotating seats based on expertise. i.e. bring in ECC, ZF, or other external experts in an advisory capacity- on a rotating basis- but do not grant them voting rights.

Also, the proposal says, “ZF shall strive to define target metrics and KPI, and utilize these in its funding decisions.” I think this is a disservice to ZF and the entire Zcash community. My strong suggestion is to remove ‘strive’ and commit to defining metrics.

As for the voting mechanism, @tromer I really appreciate you bringing in an incentive for development, but I worry that it’s dictating a priority that may not actually be a priority. I’m okay to remove any wording around that.

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I’m not attempting to answer the question for Zooko, but just raising that I don’t personally believe that equity is a is a perfect analogue.

Early stage employees generally receive a higher number of shares (investors want them to have a large % to align incentives) and an option pool (rights to shares but not shares) is created for recruiting and retaining new talent. Those shares and options may be diluted in funding rounds - or they may not in the case of equity and depending on the class of stock and any anti-dilution provisions or follow-on rights. Those coming in late typically receive less options by % and may not ever be diluted prior to an exit event. Equity holders have a choice as to whether the capital infusion is worth the dilution. What ultimately matters is the % of share of equity as well as share class. A funding event in itself isn’t the driver of value.

I caution against too closely associating these two different types of incentive alignment. I think this would take us down a rabbit hole. I believe the broader point is that ECC is competing with startups that provide incentives beyond salary and that it is good to align incentives between ECC employees and Zcash coin holders.

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Hi Josh,

Just a couple of points, what has changed between the first hangout and now? I remember asking you if the ECC needed to be funded in ZEC or USD and you said either is good. (not trying to trip you up, genuinely curious. I understand if you answered out of reflex and upon refection decided that it wasn’t such a good idea)

Also yeah, my numbers were way off - old spreadsheet updating its self with old info. In fixing it I noticed that from the numbers above you are currently getting 22% of the FR (11% of total supply) why is this 1% bigger than it should be? (it is quite a big difference - you have transposed this onto the new numbers too by halving the current ones.)

thanks.

steve

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As I remember it, you (I think) asked if we would be willing to consider accepting cash instead of ZEC and I said that we would consider it (I can’t make that decision for ECC) as I didn’t have a definitive answer - we hadn’t explicitly ruled it out nor were the specifics of the funding structure defined. FWIW, I believe that all payments should be in ZEC, but that’s just my personal opinion.

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IMHO, payments to any entity that is performing work on Zcash should receive compensation in ZEC. It’s natively ZEC anyway from the block reward and paying out directly simplifies the process. The idea of Zcash Foundation/board/whoever having to create a new process (broker) that sells ZEC in the marketplace to the tune of potentially millions per month to then distribute to others seems like a unnecessary step and could draw regulatory scrutiny.

Now if the umbrella company doing the work (ECC, Thesis, Parity, whoever) decides to cash those ZEC out to fiat to pay employees, or the employees working for said umbrella choose their compensation in ZEC then that is a choice best left to the employer/employees and seems too far out of scope to include in a ZIP or in the protocol.

Remember that a person/entity that is choosing to receive ZEC is taking a risk, be it possible upside but also a very real downside of loss.

Just my 2 ZEC on the matter :wink:

Disclaimer: This is just my personal opinion and doesn’t represent the view of the Zcash Foundation

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Sure, I hope this helps @aristarchus see my perspective as well. It’s a matter of when you account for the ZEC you’re disbursing to employees, and whether you’re building a ZEC “pool” for employee retention.

In the current proposal, ECC receives 7656 ZEC per month subject to the cap. Let’s say the average exchange rate is $50 USD / ZEC when this starts…so we’re not close to the cap. In what I’m describing ECC would consider some amount of ZEC spent for a collective pool for employees every month. For simplicity let’s assume its $100k a month, which would be 2000 ZEC. The ECC would incur a cost of $100k against their cap to supply 2000 ZEC into this retention pool every month.

Again to keep things simple, let’s just say it stays at $50 USD / ZEC for a full year. Without any contracts you make to employees, you’d have 24000 ZEC in this pool which would not be subject to any cap, since you already incurred the cost to fund the pool early on.

Throughout the year, you hire 4 employees, and guarantee them each 4000 ZEC over a four year vesting cycle. You’d be able to guarantee they have the full rights to that ZEC since you already incurred the cost and couldn’t use that ZEC for any other purpose. You’d have spent 16000 ZEC from that pool in present and future obligations, and have 8000 ZEC left at the end of the year. If employees decide to leave, you can put their unvested ZEC back into the collective pool, which still wouldn’t be subject to the cap. I think this method of accounting is generally a better practice anyway since you incur costs earlier and it’s more conservative.

If we get close to the cap, either the ECC modifies its budget to add more to the pool or we can use the process in modified ZIP 1012 to raise it.

Therefore in my view the proposal as written encourages financial restraint but does not prevent ECC employee upside. As much as I appreciate @tromer’s compromise I don’t really think it’s necessary. If the cap is too low then we should consider higher starting options, or see if community members want to eliminate it entirely. But I don’t think the concept of a monthly cap is at odds with employee retention and incentive alignment (for either the ECC or ZF).

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@Shawn, I think the point of debate is not how the funds are disbursed to grantees, but what are the amounts, and in particular how they’re denominated in advance. See above.

Put otherwise, it’s perfectly possible to make ZEC disbursements to grantees (addressing your concerns above), but calculate the ZEC amount based on USD funding targets and the ZECUSD exchange rate.

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