Dev Fund Proposal: 20% to a 2-of-3 multisig with community-involved governance

Sorry if this sounds a little pedantic, but my statement was not that the average (mean) price was less than $200; rather it was that ECC has been unable to sell at $200 or higher for the majority of time in those three years. Those are different statements, both correct to my knowledge.


Of course, and that is no doubt a very reasonable thing to do. I simply wanted to make explicit what is implied when people speak of “collusion” in this context. Namely that at least two parties out of three (i.e. including the ECC or the ZF, or both) are dishonest and corrupt.

As I’m sure you’re aware, block rewards are denominated in ZEC, the future exchange price of which is impossible to predict with certainty. The only relative price anchor that I can think of is the fiat cost of mining a certain amount of ZEC but, given the nature of crypto markets, prices can still fluctuate considerably. With that in mind, any predefined allocation to a development fund is arbitrary and speculative. I don’t know what the “right number” is but 20% is obviously high compared to other proposals. But whatever the allocation, the important thing is to deploy funds efficiently towards useful and competent work with sufficient transparency and accountability.

I agree. But any gainful deceit by a potential Third Party would, in a 2-of-3 situation, require collusion among the majority of Third Party members plus coordinating with either the ECC or the ZF, or individual vote buying deals among members of the Third Party and either the ECC or the ZF. If we assume that these two organizations are composed of trustworthy individuals with good intentions and a fair attitude, the Third Party alone can do little damage. In other words, corruption requires collaboration. And this holds for all four possible combinations of gainful collusion.

Maybe. Although that would reduce direct community involvement in the governance process. Note that, as it currently stands, the proposal recommends ZEC holder voting to be eventually integrated into Third Entity decision-making.

@tromer, I share many of the concerns raised by you and others in the thread, and I hope someone is capable of suggesting ways to address them without equally concerning trade offs :slight_smile:


Somehow the above statement doesn’t fit the below statement. If the ECC/ZF have highest integrity it should exclude lobbying with the 3rd entity automaticly, not?

Couldn’t this apply to the ECC as well? Do we know all shareholders in detail? I think i asked several times but never got an answer about who the exact shareholders in the ECC are, but i may have missed something. With sharesholders i mean shareholders and not founders, not employees and not investors as shareholders are these that direct and decide a company.

Any chance we get the shareholder info public or if allready available and i missed it (sorry if that’s the case) a link to the source.

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Sorry, I wasn’t very clear - I was thinking of an additional entity rather than replacing the third-entity with a lawyer. The community involvement is very important.

It would be 3-of-4 multisig where the legal/compliance sig is mandatory, making it a ‘three player game with a referee’.


This could work and it theory it sounds good, but i see some problems as well if the 4th entity is a lawer or whomever. Who is paying these? Whoever pays them the alignement would be toward these. Who choose them? Whoever chooses them the alignement could be towards them. If it’s only a single person it would be way more easy to lobby and influence a single person than a whole group that has to make decisions. Just some thoughts.

Wouldn’t it make eventually sense as the 3rd entity, the community governance panel which in detail to be newly designed? It would be nearly impossible to influence/lobby 100+ people.

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Various ways to choose a compliance entity - unanimous approval from all other entities for a start, selected from a public shortlist. Shouldn’t be hard, its not like we have a shortage of lawyers.

Paid via equal & mandatory deductions from all recipients as their service would be to all. Enough so they would want keep the business & not take risk, has to be renewed every so often with unanimous approval.

Adding an independant player with nothing extra to gain but something to lose changes things.

Its just a suggestion BTW, something to think about.

Edit: Just for clarity after reading tromer reply (which I agree with)
This was only an idea for preventing ‘clear & egregious misconduct’ & make sure all players behave correctly. Making decisions what gets funded etc would be purely Zfnd/ECC/Community.

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Granting veto power to a formalistic party like a lawyer would be a safeguard against clear and egregious misconduct. But such misconduct seems unlikely, and there’s always the hardfork option if it happens.

My concern is that a laywer would not be able to judge funding decisions on merit. If Party A says it needs all the Dev Fund reserves to pursue some crucial development or promotion activity, and provides a plausible reason with many serious-sounding blockchainy terms, it’s hard to see how a lawyer would veto it on formal grounds.

The same concern applies to other additional “entities”. If they are not deeply familiar with the Zcash ecosystem and technology, or can’t put in the time and effort to review things, then they may (in good faith!) accept funding proposals that are badly suboptimal in the grand scheme of things. And as discussed, because of the zero-sum game, the funded parties would be incentivized to submit convincing-but-suboptimal proposals.


I just want to add that even though I trust the ECC and the Foundation, I do not think it is a good idea to put them in a zero sum game with each other competing for funding. It seems that this is the basic nature of any multi-sig decision type proposal.

In addition, this proposal would entail significant time spend thinking about and discussing who gets how much funding, versus simply focusing all efforts on development work and knowing with certainty what the funding levels will be for the next 4 years.

My view is that this proposal is trying to minimize the trust that the community has to put in the Foundation and the ECC. Unfortunately I think that at some level we are going to have to trust that they will act in the best interest of the Zcash community with the funding they are given. This is true for any system where you are paying someone in advance to perform some service, and it is true to some extent in the investing world as well.

Obviously I am biased toward my own proposal, but I think the community should weigh the costs and benefits of a having a temporary governance system for a few years, versus accepting that we are trusting the ECC and Foundation on some level no matter what, and telling them to move as quickly as possible toward a long term decentralized funding solution.


Some of the incentive problems would be mitigated by changing the funding structure, to not be a single pool that both ECC and Zfnd compete for.

Instead, earmark the funds to the intended recipient (say 10%+10% as in @aristarchus’s 20% split between the ECC and the Foundation proposal). However, still subject the dispensing of funds to 2-out-of-3 approval. Any funds yet to be dispensed stay earmarked to the intended recipient for the 4 years until the 2024 halving, but are not irrevocably owned by them. A community decision process in 2024 may decide to reallocate remaining reserves.

The main advantage is that this avoids the zero-sum game and the urgency for each funded party to spend funds before the other takes them (the first incentive problem). It also reduces pressure to consume reserves (the third incentive problem), though does not eliminate it since reserves may eventually be allocated.

This also caps the damage if one of the funded parties goes rogue and somehow manages to receive its funds and then waste them. The other half of the Dev Fund would remain earmarked to the other funded party, so substantial work can still happen.

This also maintains the intended an oversight structure, allowing for enforcement of reporting requirements such as those suggested by @prestwich and in the Foundation’s guidance.

The main drawback, compared to the original proposal, is less flexibility. If one of the funded party puts all of its portion to good use, and the other one underutilizies its funds, it would require the consent of the latter to pass on more funds to the former. Also, this does not allow for direct funding of other entities; though indirect funding is still possible, e.g., via the Zcash Foundation’s Grant Program (using its own share of the Dev Fund).


Nice - solves several problems.

Funding for additional parties could be via equal deductions from Zfnd & ECC, might only require an agreement in place for that contingency.

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We will have to discuss this internally before making an assessment on whether such changes are feasible and/or appropriate in light of the original intent of the proposal. We will almost certainly submit the ZIP draft as is, but I suppose further changes, if any, can be hashed out before the end of October. For now, I can share some of my immediate reactions from a personal perspective.

I think one of the unique defining features of our proposal - at least in my mind - is that it explicitly does not earmark or guarantee funding for any single organization, thus allowing for maximal flexibility going into a fundamentally uncertain future. Of course, the three governing entities are in a privileged position relative to external applicants because they only have to secure one additional vote to get their request approved whereas everyone else need two. But all would have to apply and get approved. I suppose many would see this as decentralization enhancing, and perhaps even desirable despite the criticisms you’ve raised. But I may be wrong. It’ll definitely be very interesting to see how the miner, Community Advisory Panel, and possibly forum user voting plays out.

As with the discussion around collusion, I am a bit concerned about the assumption that both the ECC and the ZF would feel urgency to “spend funds before the other takes them”. If everything I’ve read and heard about the principles of both the ECC and the ZF is true, I would expect them to block any request that can arguably be shown as excessive or resulting in a highly inefficient use of funds (I admit there’s a lot of subjective judgement that goes into such assessments but if the process/discussion is public, it should be possible to at least approximately arrive at what most of the community thinks is reasonable).

Given that the ECC has explicitly provided an estimate of how much money it needs to do what it thinks is best for Zcash, I wouldn’t be surprised if that gets reflected in their first request, assuming that the proposal gets accepted unaltered in its fundamentals. Again, my hunch is that many would welcome a more or less level playing field (although not really due to the privilege mentioned above) as promoting decentralization and welcoming others to contribute to Zcash and also get rewarded, even if one voting entity is against it in particular instances, perhaps because they were hoping to secure more funds for themselves.

Just some immediate thoughts - these are not set in stone, are not necessarily reflective of Placeholder as a whole, and are definitely open for discussion :slight_smile:


I would echo what Eran said above about incentives. They have a powerful effect on people’s perceptions of reality. It’s unavoidable — that’s just human nature.

Also, what Josh wrote in June:

My concern is not that the Electric Coin Company does subvert Zcash to serve its own interests; my concern is that the ECC would be able to do so.

You could swap out “Electric Coin Company” for “Zcash Foundation” or any other entity (or special interest group) that has substantial influence over Zcash, now or in the future.

Zcash governance is more decentralized than it used to be, and I’m concerned about that trend reversing. I understand why commenters on this forum and other community members feel like they are disempowered relative to ECC and ZF. That’s just true!

Before anyone jumps on me: We shouldn’t shy away from acknowledging the problems that we’re working to solve. I am not saying that ECC and ZF want the balance of power to be how it is. Again, quoting Josh:

It’s up to the Zcash Foundation, with the help of the Zcash community, to be the second party in the multisig model of Zcash governance. In the future, we hope there will be more! Bolt Labs, or Parity Technologies, or other businesses, or other nonprofits, or collectives of users, could be involved. The multisig model of Zcash governance is 2-of-2 right now, but it doesn’t have to stay that way forever.

As long as the same entities that govern disbursement of funds are also recipients, the conflicts of interest are substantial. Those conflicts of interest are both at play right now, given ECC and ZF’s control of the ZIP process.

Re: “collectives of users,” I’d love to see someone step up and organize one.

Anyway, you’re right that draft ZIPs don’t have to be perfect, so we can all continue debating this in the coming months :slight_smile:


How do the dynamics change if there is a 2-3 but a receiving entity must abstain in voting and a deadlock results in no action?


Hence my suggestion upthread :smiley: Dev Fund Proposal: 20% to a 2-of-3 multisig with community-involved governance - #13 by sonya


Incentives are important, no doubt. But so are values, principles, and whatever rules of governance and accountability are put in place. People are certainly incentivized by money - some more, some less - but they also care about other things, especially in this context. At least that’s what I’m reading/hearing.

I think your suggestion upthread on 4-of-5 is worth considering, even though it would increase the administrative burden in the system. If this is what the majority thinks makes sense, it could be made part of the Development Fund governance road map and rolled out in stages.

I’m not sure why it never occurred to me as an option. I would be interested to hear what others think about this: 2-of-3 for all external funding requests, and 2-of-2 (which is essentially equivalent to 3-of-3) for the ECC, the ZF, and the Third Entity themselves. This could be the starting point in October 2020, and the system could subsequently evolve into a 3-of-4 or 4-of-5, if the majority prefers further decentralization and community involvement (assuming also that these additional entities are willing to spend time reviewing proposals without getting paid to do so).


The more times I read this proposal the more I like it.

The part that interests me most is how multisig+governance makes it adaptive, especially given the ZEC/FIAT rate which is completely unpredictable.

For example, lets pretend that the price goes up (x10, x100, bat-country-crazy)

  • entities would have a huge surplus of funding as their costs are FIAT based

The governance function could decide what to do with the excess. Should it just keep going directly to the entities or be reduced to match their FIAT costs? Should it fund more things, bigger NUs, accelerated development? Should zcash stick to the plan & build a strategic reserve to fund the next 20 years?

Now lets pretend the price tanks ($15, something painful)

  • ECCs runway disappears & they pivot to make payroll
  • NUs slow/shrink/stall
  • ZFnd scales back to survival mode

If ECC pivots & leaves the governance function could redirect all to ZFnd to ensure its survival. NUs get smaller, development slows to fit budget constraints, but the project continues.

Now lets pretend both things happen - the price tanks, the project limps along in survival mode for years and then the price goes bat-crazy-nuts. The governance function could then react to expand development, ECC may want to pivot back from whatever they were doing, maybe some other entities want to join or take over their role.

I think this ability to react to change is important - how that fits with the zero-sum-game issue or the management/control of funds is also important but I’m sure a solution can be found for that.


@daira and I made an initial review pass over this PreZIP. This is not a formal part of the proposal process (in particular, @daira is not acting in hir role as ZIP editor); this is just a joint comment between @daira and myself on the current state of the PreZIP.

Overall this is close to a good state for becoming a ZIP draft.

As-written, this all looks like content for the Motivation section. The Rationale section is for explaining why particular decisions were made in the Specification, and should therefore reference specific parts of the Specification in-line (and thus makes sense to be below the Specification). In some existing ZIPs, the Rationale is interspersed within the Specification, which is also acceptable.

Should be “Specification”.

The current FR mechanism, and the currently-shelved ZIP 207, both periodically rotate recipient addresses for operational security purposes (allowing future keys to be kept offline until they are needed). We recommend that the ZIP not prevent this by mandating a single address.

This does not specify the default behaviour from the second halving, which would need to be implemented. (“MAY” indicates an entirely optional choice, and should not be used in a consensus rule unless you really mean that there is no consequence to the rest of the network regarding which option is chosen.)

“MUST” should probably be “SHOULD”, as it is specifying something they have a strong incentive to do anyway, and it is something that the protocol cannot enforce.

The mechanism for shared control of the address(es) needs to be specified in the earlier Funding section (i.e. is this a 2-of-3 transparent multisig address?)

The recipient addresses need to be known at the latest by the time the mainnet activation height is set. If this was a 2-of-3 multisig address (which per above is not specified), then if the Third Entity is not established before the mainnet activation height is set (which this provision allows), some other entity would need to hold their private keys in escrow.

The referenced document about the mission and values of the ZF are just those of the ZF, and has had no input on content, wording etc. from ECC or the general community. It doesn’t seem appropriate to include it as a normative reference within the ZIP.

There should also be a “Security Considerations” section that summarises the discussion down-thread around the trade-offs between 2-of-3 governance vs 2-of-2, 3-of-3, etc.


Thank you for these comments/recommendations! We will try and integrate the ones concerning format before August 31. Everything else will remain up for discussion and can ideally be sorted out moving forward.


(Still speaking for myself, not as ZIP editor.)

That still allows a single party to block any particular [funding] proposal, which to me is the main problem with 2-of-3. For protocol decisions, a built-in bias toward sticking with the status quo in case of disagreement is somewhat reasonable. For medium and long-term funding decisions, I don’t think it is.

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@daira The only alternatives that come to mind are (1) grant some entity unilateral power to make funding decisions (off the table?) and (2) increase the voter set so that each individual vote carries less weight (requires identifying and empowering additional parties, more coordination, etc.; feasible longer term?).