This guy has the same blood type than mine it seems, lol.
I think it’s worth to post the whole article here and not just a link. (It’s a good document and as the thoughts are directed towards the community i doubt there is a problem to post the whole text here. But i messaged him to tell me if it’s a problem to post his text here and i will remove it in case he does not agree)
Full text of:
Thoughts from James Prestwich: https://docs.google.com/document/d/1eHpO_L7yncGy_K4BslzTzDG1uAE7PSzz2eeM6dqhHEI/edit
Who am I?
Some of you may have met me in Montreal or Split, or at Bitcoin or Ethereum events. I’ve been active in the blockchain space for over five years. I am the founder of Summa, where I head the on-chain engineering team. I am also an advisor for Chia and Keep. Summa builds interoperability technology on many chains including Bitcoin, Ethereum, Zcash, and others. In 2018, Summa received a Zcash Foundation grant of ~98 ZEC, which we hold in a shielded wallet. This money funded development of a Zcash-compatible transaction library named Riemann. Earlier this year, the Summa team received ~$10,000 from the ECC and others to draft ZIP-221, which we hope to see in NU3. I do not mine Zcash or any other coin, personally or via a company, and hold a small amount of ZEC.
Why am I writing this?
The conversation around the Founder’s Reward (FR) affects every Zcash holder, including those that haven’t registered for the forum. As a community, we’re being asked to pay the company. The payment will come from all Zcash holders and affect the community for years to come. There’s a lot of poor information about the FR to-date and poor information leads to bad decisions. We are talking about allocating other peoples’ money without their consent. Therefore we have a responsibility to make good decisions on their behalf.
The Founders’ Reward was not a development fund
The company received less than a quarter of the Founder’s Reward (FR). The word “reward” is critical to understanding this. The FR was never a development fund, it was a reward to investors, advisors, and early employees for their contributions of knowledge, capital, and code before the launch of the chain. This is evident from its name and structure. Since its inception, more than 75% has been paid to investors, founders, and early employees. As we learned at Zcon0, Zooko’s personal share was similar in size to the company’s allocation.
To its credit, the company has (until recently) been very up front about this. The recent transparency report made it clear that the majority of the funds were allocated to the investors and individuals, and relatively little went to the company. It should be clear at this point, that Zcash has never had a development fund, we’ve had a Founders’ Reward. The founders decided to use some of that reward to fund a company.
So, about the new dev fund
The company has asked that we pay it to work on Zcash. It is asking for tens of millions of dollars of holders’ money to pay for its staff and operations. This may be worth it, or may not. Regardless, we should evaluate this opportunity carefully and base our decisions on both the company’s asks and its past performance. The asks seem simple, so let’s talk about past performance.
The company has produced some awesome results
The ECC has worked on a huge variety of projects, and produced a lot of results. It has hired some of the world’s best cryptographic engineers, produced great UX research, furthered conversations with regulators, worked with exchanges like Gemini to list ZEC, and produced several amazing production-ready cryptosystems. I have an immense amount of respect for the team and the code they’ve produced. It has compiled a list of its accomplishments, which is definitely worth reading.
Interlude
At this point, I’d like to reiterate that I have an immense amount of respect for the team. I’ve worked with many of them, interacted with them socially, and I’ve supported Zcash largely because of the individuals involved. I have absolutely nothing bad to say about the people I’ve met. And I believe they each have a strong commitment to their ethics and vision.
Unfortunately, the ECC is not an individual. A collection of people with the best intentions can (and often does) produce mixed or poor results. Organizing a company and monitoring its progress is a herculean task. It is nearly impossible to keep a group of dozens aligned in pursuit of the same goal.
Going forward, I’d like it to be clear that the ECC’s actions are not the actions of any given individual. And it’s possible that no single person there would make the choices that the company has made. Organizations should be considered separately from the people that compose them.
But the company has not been managed well
The ECC has made several poor managerial decisions. These fall into two main categories: financial and operational. Financially, the lack of a CFO and treasury management strategy cost the company millions as it rode ZEC all the way down. There is relatively little to say here. The company received much more than $20mm and lost most of it to poor fiscal management. Mistakes like these are extremely common with inexperienced founders. Crypto in particular tends to excuse this behavior, because there is so much money available in the industry that founders and communities undervalue good fiscal management. The ECC’s CFO hire is a very positive sign here, but the long delay in hiring indicates that the company doesn’t prioritize proper stewardship of funds.
Operationally, the company went without a board or CFO for over two years, until early this year. This is fairly common for startups that have raised <$5mm. However, it is not common for a company that is managing >$20mm of other peoples’ money. Nor is it wise. A board is a check on unfettered power of founders and management. These checks exist for good reasons; many of the company’s missteps could have easily been prevented by an experienced board. Boards protect the company from liability and mismanagement.
In addition to common issues that come with inexperience, the company has a history of treating its employees poorly. The allegations in the recent lawsuit are that the company offered equity to employees, failed to deliver for over two years, and retaliated against the employee for pointing it out. Some delay in equity plans is normal. The first time I administered a plan, it took about three months to make initial grants. Two years is not normal. It is egregious.
This case is particularly interesting because the employees’ equity allocations are tied to their FR allocations. Simon is not the only person to depart the company in the past few years. Several extremely significant engineers have left without public comment. Some of them are my friends, and have personal stories. Do they have equity and FR positions? Any funds we give the company could go to settling outstanding employee or investor lawsuits, and we don’t have the information necessary to assess that risk. I understand that the company cannot comment on ongoing litigation or potential liability. That alone is reason to be wary of giving the ECC funds.
The evidence suggests that the company has produced results in spite of its management, not because of it. Again, this is not unheard of for startups, especially with inexperienced founders, but should be weighed carefully when deciding whether to give them money. Historically, the company has not taken care to govern its business well, so as a community, we should look for strong commitments to improvement.
What really tips the scales for me
This was all avoidable. The company knew from the start that its revenue from the FR would eventually expire. In spite of that, it has consistently increased its spending quarter-over-quarter. The ECC’s growth has never been sustainable. We know that the company was aware that it was outspending its budget, because it renegotiated the Founder’s Reward allocation earlier this year to increase its revenue.
The ECC has asked for $1.1mm per month (~$13mm/year), and have presented its accomplishments. It also gave a veiled threat. It says “We’re All In On ZEC” in one post, while adding a deadline in the next. Despite what its marketing and leadership will tell you, we’re not being asked to hire the company. We’re being informed of the company’s terms.
The ECC is not negotiating in good faith. The company exacerbated its budgetary problems by overspending its revenue. It also set the timeline. The NU deadlines driving this process are company deadlines, not foundation- or community-set. The company created the problem, set the deadline, and has control over the fixes. This is not a good faith negotiation.
According to its own blog posts, the ECC would rather pivot away from Zcash than accept less than $13mm/year. The ECC’s budget and timeline are not negotiable, but Zcash’s future is. Going “All in on ZEC” at the expense of sustainability was a company decision, and does not represent the best interests of the Zcash community.
The company pivoted, and nobody noticed
I understand that desperate times call for desperate measures, and that fighting to keep the company alive could cause the management to make decisions they normally wouldn’t. But this is not a recent decision. The Dev Fund is a deliberate, long-term strategy that is just coming to fruition.
As we learned from the Harmony Mining proposal, the company sees itself as the owner of this protocol, not as employees of the community. The company believes it has the final word on protocol changes, and allows individual employees to make and unmake decisions. Protocol decisions are driven by the company, not the community.
I first heard plans for a new development fund last October. I heard about it again at Stanford Blockchain Conference in February of this year. Most recently, at Zcon1, an ECC executive asked me to write down my thoughts on a Dev Fund, and post them publicly. I have a tremendous amount of respect for this commitment to and solicitation of public discourse, but it makes me wonder how many public opinions were organic vs prompted…
Between Stanford Blockchain and now, the ECC renegotiated the existing FR allocation to favor the company. The Dev Fund plan has been in motion since last year, and was tested in private on the other FR recipients. In other words, the ECC has established a pattern of increasing spending and then backfilling new funds by appropriating block rewards. The ECC has embraced a new business model: marketing to the community to get more block rewards.
We know that:
- The ECC created this problem.
- It has been planning a new Dev Fund for at least 10 months.
- This process is driven by the ECC’s NU timeline and budget.
- There is focused marketing campaign around creating a new Dev Fund.
- The ECC owns the trademark, which allows it to decide what “Zcash” is, regardless of the outcome of this process
This is not an open community-driven conversation or a fair negotiation. The ECC is setting all the terms and the timeline. The process is driven by company needs and company marketing. The individuals involved are pursuing a good result. The company is better-funded than any other Zcash entity and has a privileged platform. It is the loudest person in the room. This results in the ECC de facto exercising political power to set the terms of the conversation to benefit itself. Despite good intentions, the ECC has created an unhealthy governance process.
To address this, I would like the company to:
- Refrain from supporting, assessing, or commenting on any specific Dev Fund proposal until the trademark agreement is finalized. There can be no open, community-driven process while the company has the legal right to set the outcome.
- Exempt any Dev Fund from the NU process. Community funds should be distributed on the community’s timeline.
- Plan for a 9-12 month Dev Fund discussion. The community needs time to evaluate this, request more information, and develop sustainable proposals.
- Detail its marketing spend and headcount. How much FR is the ECC spending to market to us? The Coinbase Earn campaign alone was 6-7 figures.
What makes a good Dev Fund?
The company has asked that we hire it for software development services for $1.1mm per month. Given its positioning, I would suggest that we treat it as a software company for hire. The company should be subject (at minimum) to standard processes for evaluating contractors. Normally, software development service agreements involve a scope of work, concrete deliverables, and quarterly or project-based review of the contract.
The needs of Zcash and the community will change drastically in the coming years as we pursue our goals of privacy and inclusivity. As we grow, it is likely that our needs will evolve beyond what any of us can foresee. Adaptability is crucial, and any plan that does not include review every three to six months will result in this same negotiation process every 4 years (at minimum!) and reward the company for spending our money marketing to us.
I have two specific recommendations for a new Dev Fund. First, the company should provide the same documentation required of any contracting entity in advance of inking a deal:
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A scope of work document
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What precisely will the company work on while we employ it?
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Why do these projects serve the interest of the community?
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What are the concrete deliverables?
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What timeline will they be delivered on?
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A detailed breakdown of project costs, including expected developer hours
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A commitment to quarterly review of its performance by its employers
These are standard for hired development teams. A guaranteed monthly retainer and full discretion without deliverables or review is not normal, and would not be acceptable to any employer. It is important that the Dev Fund does not become a guaranteed “reward.”
Second, we should diversify. The ECC has strengths and weaknesses. We should select several recipients with complementary strengths. We should branch out, and allocate funds to more contributors. As others have pointed out, the existence of the FR has had a chilling effect on outside development. Personally, as a recipient of a Zcash Foundation grant and a contractor for the company, the existence of the FR has been incredibly discouraging. As an independent, I will always be understaffed and underfunded compared to the Company. I feel an expectation to contribute code and expertise below cost, out of open-source ethos, while others would largely receive the rewards of my work. The ECC’s privilege makes me less likely to develop for Zcash.
The Dev Fund distribution process should allow the community, miners, the foundation, and other stakeholders to exercise oversight on the allocation of the development fund. It should allow the company confidence to plan its operations while keeping them accountable to the community. It should closely connect contributors’ budgets and rewards to the services provided to the community. This aligns incentives where a blank-check development fund does not.
I am not attached to any proposal specifically. I believe there are many amazing Dev Fund structures. However, I am attached to the idea of regular review and diversification of recipients. We should not consider any proposal without an oversight mechanism.
So, should we give the ECC more money?
The ECC has a history of managing its funds poorly, and is negotiating the new Dev Fund in bad faith. If we increase its revenue, this process is likely to repeat every few years indefinitely. Here are my strongly held beliefs
- I think the ECC leadership is earnest in their desire to decentralize.
- I think the talent there is amazing.
- I think the company has contributed a lot to the ecosystem since launch, and hope it will continue to contribute going forward.
- I think this process is driven by the company’s timeline and budget, rather than the community’s
- I think that the company entered this process with a result in mind, and spent FR funds marketing to create that result.
- Which is why I do not think that we should increase the company’s revenue.
- If there was a proposal to support the company’s engineering team without allocating discretionary funds to the company, I would support it.
The community should be extremely wary of funding marketing efforts that bias governance processes. It should fund free and open-source software development. At most, we should keep the ECC’s revenue at current levels.
TL;DR
The company has asked us to hire it. Given its behavior to date, we should make it clear that the Dev Fund does not belong to the company. The Dev Fund belongs to the community. We should hold the company to the same standard we would any hire. This includes a scope of work, a detailed plan for (and accounting for) our funds, and regular review by its employers.
Edit: I got the confirmation that he doesn’t mind posting the whole text on the Zcash forum!