Major Grants committee

As far as I can see the word “MUST”, like it’s specified in rfc2119 has currently no meaning attached to it.

@zancas, I understand your rationale for wanting members of the MG committee to be compensated (both to retain them, and to give them an incentive-aligning stake).

Still, there’s the question of the amount of compensation. Setting it to a fixed amount of ZEC risks its being way too small or way too large in real value, depending on what happens to be the ZEC price when the member joins. Adjusting it by a community governance process (of the form that’s currently available) is very heavyweight. Putting it at the discretion of ZF solves that, but of course it raises questions about power and independence.

So, what concretely do you propose?

Also, it’s likely that some committee members will be unwilling or unable to accept payment (because of tax reasons or whatever).

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Hello all,

I have been following the Zcash community as of late, and the Major Grants initiative is particularly interesting to me as my organisation is considering applying once it kicks off.

I’d like to provide some of my thoughts on the discussion here, not just because of being a potential grant applicant, but also because I am involved in another cryptocurrency project (whose name I will not disclose) which has a program that awards grants to third-party developers. My organisation is one of the largest third-party developers in this ecosystem and I have been intimately involved and have experienced a lot of the challenges firsthand.

The reason I am posting here anonymously is due to needing to remain discreet. As pointed out earlier in this thread: publicly criticising the Foundation that manages the funds feels a bit scary, and I am afraid that it can put our company’s financial security at risk.

Based on what I have learned from my personal experience, and based on other comments and ideas in this thread, these are my suggestions:

  1. The benefits of establishing a third legal entity for the Major Grants committee far outweigh the initial startup costs and I strongly recommend prioritising this. 2021 is about 5 years after the launch of Zcash and there is no good reason for the project to not be sufficiently decentralised in funding allocation by then. True: it’s quicker and cheaper to centralise and piggy back on the ZF, but there is plenty of time and resources to make sure that we don’t have to do this. Idea: a community member that wants to help spearhead the new entity can create a ZF Grants proposal to pay themselves a full-time salary in addition to the expenses necessary to establish the entity and become the lead author of the ZIP.

  2. Since this seems to be a split vote and highly contentious, the ZF should consider not rushing on this decision as far was what is documented in ZIP 1014. If the concern is that a new entity will not be established in time, then perhaps the ZF can be the backup entity if a new entity isn’t established and approved via a ZIP by deadline. Something more akin to this can be documented in ZIP 1014. This promotes a stronger commitment for making the best effort to decentralise the project, and only falling back on the ZF if absolutely necessary.

  3. Reviewing proposals for large grants takes a lot of time and due diligence. I believe that it will be important to compensate committee members and to also have a surplus of committee members. Since reviewing proposals will be a part-time engagement, we may have some members that won’t have the time to provide timely reviews, yet who are uniquely experienced to be considered part of the committee whenever they do have time. If it’s a committee of five people, it will then be important to have multiple experts in single categories, and at the very minimum require one expert per category to be involved in each decision.

  4. While not having a member of ECC sit on the Major Grants committee makes sense when it is a conflict of interest, their voice or input should not be completely disregarded during the grants selection process. From my personal experience: if the founding development team does not respect the contributions of a third-party development team or does not have a good working relationship with them, it will not foster a very healthy or collaborative ecosystem. Since the ECC will have the most expertise on Zcash and are the maintainers of the core repositories, their opinions on grant applicants cannot be simply ignored. While excluding them from the committee is completely advisable, a legitimate governance mechanism should be established where the ECC can provide their recommendation on approving or rejecting a grant. These signals can also be provided by the ZF Board of Directors and the ZF Community Panel. The Major Grant committee can then decide based on their own knowledge and insights, combined with the various signals. This is how you decentralise: if the committee members are smart enough, the ZF doesn’t need to have legal control or veto powers. Let’s just do what we can to find intelligent people.

I have a lot more ideas about and I can expand upon any point if necessary. I am very passionate about governance and really find the Zcash community on the forefront of establishing sound practices of democratically funding protocol development, which is one of the most exciting things of our times.

Cheers!

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Welcome to the Forum! Personally I feel rapidly employing exotic governance mechanisms that would stress and already full bandwidth for the sake of decentralization when it’s already fairly decentralized in the parts were it counts would just be unnecessarily risky (K.I.S.S basically)

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image

(with apologies to xkcd)

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Hi All. I am the same lex_node who developed ZIP 1007 (Enforce Development Fund Commitments with a Legal Charter), contributing under a new forum account.

I haven’t paid as much attention since then, since it looked like ZIP 1007 would not move forward, but I have been catching up in the last two weeks and I see many of the same concerns that drove that ZIP are cropping up again in the debate over governance of the MG-Fund slice of the DevFund block rewards.

I come at these issues from an interesting place, since I am expert in traditional corporate governance. I have advised boards of directors on how to handle the conflicts of interest that arise in M&A transactions and other complicated scenarios, and am acutely aware of the interplay of psychology, law and economics in these delicate situations.

The core issue in traditional governance is the SEPARATION OF OWNERSHIP AND CONTROL. In a public corporation, that means that the people who own the corporation (the stockholders at large) do not control it–they appoint fiduciaries who manage it on their behalf. There are various kinds of well-known issues that arise from this: conflicts of interest, monitoring problems, free rider problems, etc. A combination of mandatory law (statutes, common law precepts) and contract law (audit mechanisms etc.) step in to prevent the separation of ownership and control damaging the people who aren’t in control but have a vested interest in the enterprise.

I have analogized the holders of a protocol token to the holders of “shares of network equity” who are
positioned similarly, from a governance perspective, to the stockholders of a public corporation. The owners of the means of block production–the miners–can also be seen as holding a kind of network equity.

With that background in mind, I have some thoughts:

  • in the current proposed structure, ZEC holders and miners are essentially like donors to a nonprofit (this is true even with the slice that goes to ECC, which is for-profit): they are giving away money with the hope of a public benefit, but have no rights to enforce how those funds are used or even really to monitor those funds except to whatever extent the receiving entities choose to make disclosures
  • this is bad–ZEC holders and miners are agreeing to donate on certain terms, but have no legal, enforceable right to independently monitor that the terms are complied with or enforce them–all they have is a sort of soft power of moral suasion that can be exercised based on whatever information the ECC and ZF choose to report
  • therefore, at a high level, I would tend to agree with the views of @zooko, barbra, @RoyBatty and others who–if I am permitted to put my own personal and perhaps not completely accurate gloss on their comments–wish to treat the MG-Slice as being a fund held for the benefit of and spent in accordance with the will of ZEC holders and miners
  • assuming one takes that view, then the optimal result would be control of the MG Slice by a new organization of some kind that is solely accountable to ZEC holders and miners
  • OTOH, it has been fairly pointed out that there are many potential issues and inconveniences in setting up such an entity…while (as a corporate lawyer) I tend to think those are being somewhat exaggerated, on the other hand I do not think they are completely irrational either

Putting aside the issue of an independent entity for a moment, I tend to think the specifics of the ZF proposal are strange. In particular, excluding ECC representatives from the MG committee is probably one of the worst decisions possible. As noted, ZF already has a conflicts rule that would require committee members to recuse themselves from voting on proposals where they have a conflict of interest–that is already a tougher rule than members of the board of directors of a mega cap company like Apple Inc. have when voting, and I really have to question why that is not sufficient to mitigate any ECC representatives’ conflicts. Excluding a group of people who have some of the most skin in the game and the most competence to decide how grant money is spent as a class, because of the mere potential for conflicts of interest which they would have to recuse themselves from voting on anyway, is in my mind not only overkill for addressing conflicts of interest, but actually creates more conflicts of interest because, when combined with the other aspects of the proposal (ZF appoints members, funding must comply with ZF charter docs, etc.) essentially centralizes control of the MG-Slice under the ZF and makes it even less likely that ZEC holder views which differ in some way from the ZF will be represented.

Additionally, I still have the same concerns that drove ZIP 1007: namely, through what mechanism are all the SHOULDs and MUSTs and SHALLs in ZIP 1014 going to be enforced? ZIP 1014 is vague on this, but it is a critical–perhaps the most critical–question. The idea that it would be sufficient for the ZF and/or ECC to put into their charter documents some provisions about this is laughable to a corporate lawyer. Those can be amended at any time. Also, a contractual commitment like that is only as good as the counterparty’s ability to monitor performance–and here, ZEC holders and miners would be the counterparties and would be relying on the ZF’s and ECC’s voluntary reporting. They would also have massive collective action and other problems in seeking redress for any problems that they did end up uncovering. That is not good governance or accountability.

So, there must be a mechanism that gives ZEC holders (and potentially also miners, to the extent they should be viewed separately from holders) direct rights over the MG slice. There are only two ways to do that which I am aware of: (1) put the funds in control of a third entity that is essentially a fiduciary of ZEC holders (/miners); or (2) have the ZF and ECC enter into a contract (like the charter I had previously proposed) that enables ZEC holders (/miners) to legally enforce the relevant requirements.

I note the views of many in this forum that these “governance experiments” are too complex and time-consuming etc. I am not sure I agree, but recognize that there is a kind of “governance fatigue” effect kicking in, as well as a ticking clock. I therefore also would like to float a third possible mechanic, which does not provide ZEC holders with direct rights, but may at least mitigate some of the issues and potentials for conflict: ZF and the ECC would cooperate to found and fund an independent, quasi-regulatory authority that would independently monitor the ZF’s and ECC’s fulfillment of the MUSTs, SHOULDs and SHALLs in ZIP 1014.

This would be a different type of third entity than has been proposed to date–it would not control the spending of any funds, but it would have some funding and would have at least a moral (perhaps even legal, if we could figure the details out correctly) right to call out the ZF and ECC for any shenanigans and try to fix the situation on behalf of ZEC holders and miners. It would give the ZEC holders and miners a kind of ZCash-specific, private equivalent to the SEC, which would monitor the quality and accuracy of the two org’s disclosures, and would police their use of funds.

In any event, I do believe that there must be something, with as much teeth as reasonably possible under the circumstances, but with at least a few good sharp teeth, that holds the ZF and ECC accountable on behalf of the donors–ZEC holders and miners. I truly believe that if we get this right, ZCash will have the best and most decentralized governance of any blockchain.

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Just to add some clarity about next steps, I’ve updated the Foundation’s original post: To be abundantly clear, we still need to reach consensus on the changes to this ZIP with the ECC per our 2-of-2 trademark agreement; the exact wording and changes to ZIP 1014 may be modified with additional input from them before we submit a PR. @zooko and I had our first conversation about the Foundation’s modifications, and we expect that to happen within the next two weeks.

Also, @lex_node, @avichal, @RoyBatty and others who have brought up the MG slice turning into a separate entity: as @Shawn and @madars have noted, this is something that was brought up in previous debates/discussions and the community sentiment clearly indicated that the Foundation should manage the slice. What isn’t clear, based on the poll, is how the selection process should work, and how limited the Foundation’s veto/control should be, as you and others bring up @avichal.

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Welcome, Roy! I think your backstory is intriguing. Like Barbra (who is the person who made that point that you’re citing from up-thread), you claim to have relevant experience from related situations. Very cool! I hope you find the Zcash community and governance structure to be a pleasant new home. :slight_smile:

I have a clarifying question: is it the Zcash Foundation or the unnamed foundation from your mysterious past that you’re referring to here?

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I’m pretty happy to see external people showing interest for the Major Grants Program and providing general ideas for governance, especially so if they have experience, it’s a very fruitful thing.

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As a little bit of extra context to my rant, here is an article by a legal expert on nonprofits detailing how in general donors to nonprofits have no remedies if the nonprofit uses donated funds in a way differently from how the nonprofit ‘agreed’ to. I believe everyone here should keep this in mind: https://theconversation.com/disappointed-donors-cant-count-on-getting-their-charitable-money-back-93635

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I just want to chime in on this. There are a lot of good ideas coming up here. It kind of feels like we’re getting a “positive feedback loop” on governance, where word is getting around that Zcash’s governance has good structure and real force, and that is attracting people who have experience at software, law, governance, etc. who see Zcash as potentially a place where their contributions can have leverage for good. That’s great!

I think this discussion is repeatedly getting confused by an ambiguity that I too was falling into previously, about whether we’re talking about a new legal entity, or we’re talking about different rules for a Zcash-Foundation-sponsored legal entity. I posted things about “an independent third party”, and then in subsequent conversation, I tried to clarify, and then again, and then again, that what I meant was honoring the intent of Question 3 on the second Community Advisory Panel:

  1. Do you believe the Foundation should have independent authority in determining Major Grants, or should there be a new Major Grant Review Committee as prescribed in this ZIP?

A. The Foundation should have independent authority in determining Major Grants
B. There should be a new Major Grant Review Committee with near-complete authority

Avichal did something similar, arguing for “a separate Major Grants organization”, and when Shawn pushed back, based on the results from the Community Advisory Panel, Avichal said that a separate legal entity is “an implementation detail” and that he is advocating for answer B on Question 3.

(Lex’s recent comments can be read as an expert opinion that implementation details matter, and that to an expert, they are not that hard to implement.)

I’d like to ask everyone to clarify and narrow the scope of the conversation by agreeing that the Community Advisory Panel results have already excluded standing up a new legal entity before NU4 activation. This is based on the fact that none of the proposals that had at least partial support in the first round of polling (Community Advisory Panel, forum, and spontaneous petitions from coin-holders) called for the creation of a new entity.

So, creating a new legal entity is off the table for NU4. But what is still on the table is: shall the MG’s governance be independent from the Foundation (even though the legal entity that holds the funds on behalf of the MG body will be the Foundation, at least at first). That was Question 3 on the second round of polling, which was a picture-perfect “split vote” in the Community Advisory Panel but a landslide in favor of an independent MG among the (highly controversial) petitions posted anonymously by coin-holders on the blockchain.

It is within the community’s power and its right to specify that the MG funding will go to the Foundation on conditions that guarantee independence of the MG governing body. Lex’s cautionary tales of non-profit shennanigans notwithstanding, I believe that the Foundation would act with utmost integrity to honor that commitment, at least as long as the current personnel of the Foundation are in place. The ECC would use our rights over the trademark and our zcashd source code to honor that mandate. Future improvements to governance, such as Lex’s intriguing suggestion to hire an existing third party to monitor our compliance with our own rules would use this mandate as a basis. I’m interested to find out if Lex agrees with any that!

So, by all means, let’s continue the discussion about whether the Major Grants should be governed independently, but with the common understanding — as Josh Cincinnati’s post today re-iterates — that we’ve all already agreed that at least for NU4 it will live within the Foundation’s legal entity.

(ICYMI, the ECC’s position is that the MG governance being independent is important for decentralization of power and for the stated purpose of drawing in new third-party developers to support Zcash, but that we’ll use our trademark rights and our zcashd source code to support a ZF-controlled third party if that is the community’s decision.)

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I actually don’t understand how it’s possible for governance of the MG-slice to be independent from the ZF while the ZF holds the funds without setting up some new legal structure. “Entity” may not be a clear term–but something like a trust (the ZRF is a trustee and other person(s) are beneficiaries) could also work.

The core issue likely to come up is that the ZF has a particular mission, legal status and charter. It will thus likely take the position that any funds it manages have to be governed accordingly and that it has to have final say-so–like the proposed appointment/removal power and veto power–over the use of the MG funds. And even if it voluntarily adopted some policies to the contrary, it would have the right and power to change those at any time. The ZF is likely to say that even if it agreed to hold the MG funds in trust (with ZEC holders as beneficiaries) rather than considering to be donations to the ZF, that the same constraints would nevertheless apply to its activities as trustee because it is not authorized to do or support anything that is contrary to its nonprofit purpose.

Thus, it’s hard for me to see how true independence for the MG committee can be established without some legal engineering here. Otherwise, the MG funds are going to be treated as donations to the ZF and the ZF will ultimately have the power and right to treat them accordingly.

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Uhmm :thinking: yeah thats right, they’re a charity and all they’re non-taxable income is a donation (thought we established this)

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Correct. That’s what the text of ZIP 1014 says (emphasis mine):

  1. Major Grants awards are subject to approval by a five-seat Major Grant Review Committee. The Major Grant Review Committee SHALL be selected by the ZF’s Community Panel. The Major Grant Review Committee’s funding decisions will be final, requiring no approval from the ZF Board, but are subject to veto if the Foundation judges them to violate the ZF’s operating documents or U.S. law.

ZF SHALL recognize the ZF-MG slice of the Dev Fund as a Restricted Fund donation under the above constraints (suitably formalized),

and what option 3B of the Helios Vote said:

  1. Do you believe the Foundation should have independent authority in determining Major Grants, or should there be a new Major Grant Review Committee as prescribed in this ZIP?

B. There should be a new Major Grant Review Committee with near-complete authority

The intent of ZIP 1014 is not true independence. Instead, it’s up to the community to hold the Zcash Foundation to ZIP 1014, (including only exercising veto per the outlined limits, assuming that option 3B is taken).

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I was pointing out something very similar by saying:

Any comments?

Precisely my concern. I see various MUST statements in the ZIP and I am not aware of anyone having proposed mechanisms by which those requirements would be fulfilled.

Examples:

ECC MUST undertake a firm obligation to use the Dev Fund only in support of the Zcash cryptocurrency and its community…This obligation MUST be made irrevocable, e.g., within ECC’s corporate governance structure (i.e., its Operating Agreement) or contractual obligations.

ECC is a corporation run for the benefit of its stockholders. They / the board of directors they appoint can amend the corporate governance structure at any time without the permission of anyone else.

ZF MUST disburse them as “Major Grants”, within the framework of ZF’s grant program but subject to the following additional constraints: These funds MUST only be used to issue Major Grants to external parties that are independent of ZF. They MUST NOT be used by ZF for its internal operations and direct expenses. Major Grant Review Committee members SHALL have a one-year term and MAY sit for reelection. The Major Grant Review Committee is subject to the same conflict of interest policy that governs the ZF Board of Directors (i.e. they MUST recuse themselves when voting on proposals where they have a financial interest).

Again, no way of enforcing this. The ZF is governed by its members, which are the members of the board of directors. They can decide to do anything they want, and there is no clear right or remedy for ZEC holders or anyone else if the ZF does not obey these requirements.

The one potential I see for a legally binding commitment is referred to here:

ECC and ZF MUST contractually commit to each other to fulfill these conditions, and the prescribed use of funds, such that substantial violation, not promptly remedied, will permit the other party to issue a modified version of Zcash node software that removes the violating party’s Dev Fund slice, and use the Zcash trademark for this modified version. The slice’s funds will be reassigned to ZF-MG (whose integrity is legally protected by the Restricted Fund treatment).

So I suppose the idea is that the ECC and ZF will enter into such a contract and will police one another. To me, that is not as good as giving ZEC holders a direct right of action. However, I could see this working and being effective–perhaps similar to the TM-sharing agreement itself. I’d be interested in helping to draft and negotiate this agreement.

If the desire is to have the MG fund be as independent as possible, then it should also be a subject of this agreement and the ECC should have some ability to enforce whatever independence standards are supposed to be followed.

Update: Considering this dynamic, I would reiterate my prior concern that DQ’ing ECC representatives from the MG committee would be disastrous. If, as appears to be proposed, the sole party legally positioned to enforce the ZF’s commitments about how the MG-slice will be used is the ECC, then it is all the more important that ECC representatives be on that committee. I would therefore go in completely the opposite direction as the ZF’s latest proposal–I would argue that the ECC should have at least one GUARANTEED seat on the MG committee and can appoint whoever it wants to that seat, in its reasonable good faith discretion.

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I think there should be 1 seat from the ECC, 1 from ZF and 3 independent seats.The 3 independent seats being elected by the community. This way it is decentralized, but the ECC and ZF would still have input since they have the most knowledge and expertise about Zcash.

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this would be a great structure

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A basic tenet of ZIP 1012/1014 is that ECC should be able to apply for Major Grants, with an expectation that it will initially do so if coin price necessitates it and other teams aren’t up and running yet, but eventually leave the MG slice to others:

The Dev Fund should maintain the existing teams and capabilities in the Zcash ecosystem, unless and until concrete opportunities arise to create even greater value for the Zcash ecosystem.

[…]

  1. Major Grants may be issued to ECC only if there are no other proposals to perform the specified work with similar capabilities, effectiveness and cost. (The intent is that eventually ECC will not receive Major Grants.)

This seems incompatible with having an ECC representative on the Major Grants committee.

This, and similar considerations, were discussed at great length prior to the first community poll, which chose the above structure.

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Sorry, but I disagree. Your conflicts policy already requires a conflicted member not to vote on proposals where they have a conflict. The ECC rep could easily comply with that rule, while remaining active on the board for proposals in which they are not conflicted.

Boards of directors of public companies (a fortiori, private companies) routinely allow members with conflicts of interest to sit on the board, because of their valuable expertise. For years, Eric Schmidt of Google sat on Apple’s board, despite the abundant possibility for conflicts of interest. Delaware corporate law is less restrictive than the ZF’s policy, and even allows conflicted members to participate in discussions and vote upon proposals for which they have conflicts, provided that the conflict is disclosed.

Furthermore, if the logic of excluding ECC reps is applied consistently, many other potential members would be excluded. My guess is that most people who have the expertise and interest to be good members of the committee are imbricated into the ZCash ecosystem in a way that they could directly or indirectly benefit from MG grants at one time or another. If you are excluding ECC reps for that reason, you should also be excluding many others for the same reason.

Finally, if the only mechanism for holding the ZF accountable for the "MUST"s etc. in 1014 is a contract between the ECC and the ZF–which appears to me to clearly be the case according to the text of the ZIP–then the ECC cannot enforce its rights under that contract and thus hold the ZF accountable unless it is privy to everything that is happening on the MG committee. An enforcement right is nothing without access to the information needed to know when a breach claim should be raised.

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