Dev Fund Proposal: Dev Fund to ECC + Zfnd + Major Grants

The only issue I have is whether or not the removal of the trust component better serves the interest of the project. It is the removal of basically the only failure point in the funding Stream and essentially is one less thing. However I think that the preemptive nature of the zcash Foundation directly allocating funds to itself could be perceived or, if not, even misperceived as a conflict of interest whereas with the trust model creates a higher level of required contractual accountability between all parties. I think this also embodies the spirit of the project better as far as “attempt to comply” is concerned.

Other than that I do agree the Perpetual fund should not intrinsically continue and that’s kind of based on that it should be absolutely no less hard than this has been to do.

Note that even if we keep the “in perpetuity” phrasing, it’s still a percentage of the block rewards. So it’s still subject to the halving of block rewards, and thus diminishes over time, eventually to zero. Just very slowly. So it’s a matter of pace.

As proposed by @ChileBob in Continued from block rewards with a halving schedule, it’s also possible to decouple the two and have the Dev Fund shrink faster than the block reward.

How can this happen without on-chain governance?

I’m still working through this, and will have a full response. One question though

I’m quite surprised we disagree here. The requirement to change the board was based on the fact that the ECC and the ZF should be arms-length entities. The ZF board being composed of ECC shareholders is completely inappropriate going forward, in my opinion; and I believe your concerns can be addressed otherwise, by the ZF proposing a transition plan that takes into account board churn and the technical difficult of a coin vote.

Very interested in your rationale here @tromer

My proposal is meant to strengthen this. Your proposal would have 1 seat for the “principal developer” (ECC), whereas my version removes the ECC representative, and moreover specifies that if other board members have a CoI when voting about a Major Grant (as would be the case for ECC shareholders voting for a grant to ECC) then they’ll be excluded from the vote.

Now, we could just decree a blanket ban on all ECC shareholders/representatives (which goes further than either of our proposals). I think it would be harmful, because factually, many of the best-informed and most-involved people in the community are “tainted” by some sort of ECC affiliation or historically-held stake (for their early role, or for some advising they did years ago); and it would be a shame to exclude all of them from the board pool.

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What I proposed is this, with a compromise that’s an explicit board seat and still required to sit out when there’s a CoI. I’d strongly suggest a blanket ban and removal of the explicit seat over allowing shareholders of recipients to sit on the ZF board.

There are easy fixes for this in the other direction – board members should divest ECC holdings if they want to keep sitting on the board. I prefer an orderly board refresh and a more “professional” board rather than one that’s so heavily weighted toward researchers and founders today, but either can happen in my proposal (or another) and give us two arms-length organizations.

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@mhluongo, I think having an ECC representative on the Zfnd board is much worse. This representative would be there to represent ECC’s interests. Whereas people like @Matthewdgreen and @imichaelmiers, while they happen to historically hold ECC equity, are not representing ECC: they care about Zcash’s success first and foremost, and have been critical of ECC on many occasions.

As for divesting, I suppose that’s an option, if there’s adequate liquidity and appetite, and if the tax implications are manageable… I frankly don’t know.

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What ECC affiliates should be allowed to serve on the Zfnd board?

  • None. Zfnd board member must not hold ECC shares.
  • Zfnd board members may hold ECC shares, if disclosed and excluded from votes concerning ECC.
  • An explicit Zfnd board seat to ECC, but no other ECC shareholders.

0 voters

can you add an abstain/don’t know option please :slight_smile: because I voted against in the first poll, but im not so sure after thinking about it a bit more. there are arguments both ways.

For the perpetuity I kinda would like to see the code default to nothing, but it could also follow a halving schedule or something else. Im going to look over blocktowns proposal again. I am more flexible on this than I first thought I was.

It might be useful to let the ECC have a “get out” clause for example. where zec and zcash can continue without them. (sure I am thinking 8 years out) but it does feel like setting precedent with whatever decision is made now. (even though it isn’t meant to be)

@mistfpga, I can’t edit those polls, but I will add “I don’t have a strong opinion” option to future polls (what should these be?). In any case, when updating my proposal, I’ll weigh out-of-poll input like yours.

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It does require some form of on-chain governance, which is why I chose to include a mandate in my proposal to build a voting system for future dev funds.

I think that anyone else with a dev fund proposal should consider adding a similar mandate, if they want a perpetual dev fund and they think that dev fund should not favor any particular organization. :slight_smile:

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@aristarchus, I’d love to see a purely decentralized on-chain voting system. But I am not at all sure that a good one can be agreed on and technically implemented. That’s why my proposal is full of incentives and urging, but stops short of mandating the perhaps-impossible.

Oh I love on-chain governance theoretically, but I don’t think it’s a good differentiator for Zcash in the short term.

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Oh, it would be a long term project to actually implement after year 8. I would expect the process of agreeing on and implementing a voting system to be hard, and not a differentiator at least in the short term.

I just think it is a good idea to try to try to agree now about how we will allocate a dev fund in the future, since it will only get harder to come to a consensus in the future.

@tromer thank you for this proposal. I think it provides additional clarity, it compliments (for the most part) @mhluongo’s proposal, and moves us significantly closer to a decision.

Initial Thoughts

1. Endowment Fund/ Interest-Earning Mechanism

To review:

  • Endowment funds are investment portfolios.
  • Financial endowments are typically structured so the principal amount invested remains intact, while investment income is available for immediate funding for use.
  • An endowment fund will have an investment, withdrawal and usage policy governing how it is run.

Take, for example, a nonprofit with an annual budget of $1-million that hoped to create an endowment that would generate at least $100,000 a year in annual income. That organization would need an endowment of at least $2-million to generate that much annual income, based on a 5-percent payout.

This can be incorporated here, instead of a volatility reserve or as a percentage of each member’s volatility reserves. Ultimately you’ll have to balance returns expectations with risk acceptability.

Fund Benefits 1.) ability to generate capital from external sources 2.) ability to have equity in more mature (not-grant-appropriate) crypto projects that earn a return and/or strengthen the ZEC ecosystem (unless explicitly stated that the fund shall not invest in crypto-related projects, despite their maturity.) 3.) ability to earn money on unused funds.

Shortcomings 1.) to invest in traditional markets ZEC would have to be converted to USD, which may have ramifications in cases of less liquidity, something I didn’t think of prior to; though I’m hoping won’t ever be a problem for ZEC 2.) It will require the hiring of a fund manager and some legal work to set up 3.) Alternative interest-earning accounts like Blockfi or Celcius Network may offer higher returns with less operational logistics and less risk than an endowment fund.

2. Coaching, Nurturing, and Scaling

Noting this:

You might want to have more skin in the game, i.e:
(low-end) commitment to mentorship, coaching, technical resources, touch-points with entrepreneurs, opening up of network/ contact, etc.

(high-end) some sort of revenue-share agreement (however, I get the sentiment that these projects don’t generate profit of their own from @tromer comments on the Dev call

…I’m not sure and this is outside my scope… maybe @tromer you might be able to take the concept and make it applicable to this space:

The idea is instead of giving out grants, an entity will distribute loans that are repayable (with interest) based on a percentage of profits made from the business over a generous time-horizon, and because this structure aligns incentives, the loaner will make available coaching and resources for the project’s success (hence above suggestion on skin in the game).

This just may not be applicable for this space, which is fine. But if the intention is to nurture teams, I would suggest a more formality around what that means; this in itself can act a greater value-add for high-quality applications than the grant money itself.

3. There is no discussion of metrics, milestones, or governance implementation goals.

This may be out of scope due to time constraints, but I would like to see ZFND incorporate some of the sentiments that have been raised in terms of defining metrics, building for decentralization (on-chain governance and voting), and better defining “furthering financial privacy” (ZFND) and “furthering the Zcash cryptocurrency and its ecosystem” (ZFND-MG & ECC) into decision making for Major Grants. It’s a short-term investment that will undoubtedly service the community over the long-term.

:slight_smile:

Thanks for the shoutout :slight_smile: I made a comment below.

I don’t know enough about endowments and such to really comment on that (why I didn’t comment on your proposal before) but I will say that this is why I support the trust fund model, it is already a legally recognized entity with supporting regulations and in that way, I feel, is less ambiguous about intentions, thats all.

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@ttmariemia, thank you for the close reading and thoughtful suggestions!

I agree with the ideal of creating an sustainable endowment, and sustaining work using its earnings (or better yet: its real earnings, adjusting for inflation).

The problem lies in the numbers. At the current coin value, a 20% Dev Fund can barely sustain the current expense rate if consumed as soon as it’s accrued.

Another way to look at it: even if we completely stopped funding development for several years and saved everything into interest-bearing investments, the Dev Fund monthly stream would need to be an order of magnitude larger than discussed, in order to build up enough principal, for the interest on that principal to sustain renewed operations.

That said, if the coin price jumps (as it has in the past), than the Volatility Reserve could accumulate much faster, and then the interest on that reserve could become a significant revenue source. Indeed inspired by your proposal, I said that “The Volatility Reserve may be kept as ZEC, or sold and held as fiat currency or low-risk liquid investments”. Edit: The Funding Target will let the reserve builds up as fast as feasible, and prevent it from being spent unless necessary, which I think is consistent with your outlook.

I admit that “low-risk liquid investments” is succinct and maybe too narrow; would you change this to something else?

commitment to mentorship, coaching, technical resources, touch-points with entrepreneurs, opening up of network/ contact, etc.

Good ideas! I’ll add something in this spirit.

revenue-share agreement (however, I get the sentiment that these projects don’t generate profit of their own from @tromer comments on the Dev call

The way we’ve been thinking of this so far is to split the timeline, not the revenue. Support projects before they’re profitable. The grant-sponsored R&D, released as open source, is a public good that Zfnd can comfortable support. The hope is that the recipient will eventually find a way to monetize things, cast aside their grant training wills, and become a self-sustaining part of the ecosystem.

That said, the “long-term loans instead of grants” is a very interesting direction. I don’t have any experience with it. @acityinohio, do you think it’s feasible?

3. There is no discussion of metrics, milestones, or governance implementation goals .

I agree that it would be great to include these. I made some attempts at it, earlier. But no easy answers here; I think the community isn’t ready yet to define metrics etc. crisply enough to be formally enshrined in a meaningful way. Especially when they need to stay sensible for many years, but need to be decided in a few days… So for now, by necessity it is left to ECC and Zfnd to make their own judgments on this, and the best we can do is put in place the general governance, transparency and accountability mechanisms that will encourage them to do the right thing.

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Some personal opinions/suggestions (also posted under @mhluongo proposal):

  • Wouldn’t it be desirable to put everyone on equal footing in terms of having to apply for funding? In other words, a single pool with no guaranteed pre-allocations but still allowing for long-term funding in case of recurring applications from credible teams with a proven track record.

  • How about a universal 25% cap per team per funding cycle + some reasonable $ cap in case of considerable price appreciation? Again, same rules for everyone. The most concentrated allocation possible in each cycle would be a four-way split between ZF, ECC, and two other teams.

  • In case of price appreciation, instead of burning extra coins, I think accumulating them into a dev fund reserve for future use is much more reasonable.

  • I like the idea of reforming the ZF board and authorizing it to make funding decisions, preferably with a requirement to abstain from voting in case of direct conflicts of interest.

  • Here’s one way to achieve some balance of power between the board, Advisory Panel, and coinholders: initial membership voted in by the Advisory Panel; subsequently, regular open elections in which 1 seat is voted in directly by coinholders (building the required technical solution could be rewarded in the first couple of funding cycles) and the other four by existing board members; at any given time, the coinholders should be able to signal dissatisfaction and if that hits a certain threshold, the Advisory Panel would have to vote in a new full membership. That’s just one idea but the point would be to empower ZEC holders and establish some basic checks and balances.

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@mlphresearch, thanks for these great questions and suggestions!

I think everybody agrees with this ideal, but no one knows how to reach it…

The problem is, what is the body which receives and decides these applications? Any single body would be a point of failure, and indeed Zfnd (which is only suitable body that actually exists) does not want to control all the funding, since it would create centralization with all of its regulatory and execution and capture risks.

So all the (realistic) proposals on the table try to approximate the ideal in various ways. Mine and @mhluongo’s specifically, by giving Zfnd discretion on some of the fund (enough to also assign to Major Grants / outside developers), but keeping enough funds outside of Zfnd’s control and thus outside the unified process.

Now, one of my goals in my proposal was to move a bit closer to your ideal, by at least putting all the neither-ECC-nor-Zfnd work under the same unified system of grants (explicitly bolstered to support major external developers). I think this is better than @mhluongo’s proposal of having separate systems (Zfnd grants to outsiders, vs. “outside development” which is also decided by Zfnd), whose difference I still can’t understand.

How about a universal 25% cap per team per funding cycle + some reasonable $ cap in case of considerable price appreciation? Again, same rules for everyone. The most concentrated allocation possible in each cycle would be a four-way split between ZF, ECC, and two other teams.

In the long term, I’d love this. My worry is that in the short term, and by default, it can turn out extremely harmful. I’ve seen no evidence that there exist two big new teams with attractive plans and clear capabilities. Conversely, we know that (at the current coin price) ECC will be starved by 25%. It would require ECC to drop expenses from ~$700k/month to ~$200k/month, and you know what that implies.

So simple question: suppose no good use is found for most of those %50, and meanwhile ECC is starved by its 25%. What’s the right thing to do?

Hard cap implies: “then let Zcash wither away”. Not a good outcome.

So I want a fallback. And thus my proposal says: if after giving preference to external teams we still haven’t used all of the Major Grants slice, then the Zfnd board may choose to assign it to ECC, for a well-specified grant proposal. This will be revisited half a year later.

@mhluongo answers it differently: he says ECC should split itself up to get more of the other slices. Based on deep familiarity with ECC’s technical work, I think the splitting that @mhluongo suggests cannot work.

Here’s one way to achieve some balance of power between the board, Advisory Panel, and coinholders: initial membership voted in by the Advisory Panel; subsequently, regular open elections in which 1 seat is voted in directly by coinholders (building the required technical solution could be rewarded in the first couple of funding cycles) and the other four by existing board members; at any given time, the coinholders should be able to signal dissatisfaction and if that hits a certain threshold, the Advisory Panel would have to vote in a new full membership. That’s just one idea but the point would be to empower ZEC holders and establish some basic checks and balances.

I need to digest this, but gut reaction: what problem is this trying to solve?
Our current system is self-perpetuating board (as in most non-profits) with advisory mechanisms. It seems to have worked well so far: we have extremely well-qualified and well-meaning people serving.
The one concern I’ve heard is that some members are ECC shareholders, and that’s a narrow issue that can be solved by a clear rule if people are really worried about it.
So, are you sure that giving ultimate control over Zfnd to wealth-weighted vote plus a loosely-defined panel (many of whose members are pseudonymous and thus not really accountable) would be any better?