My thoughts on the dev fund and Zodler meme

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Hey everyone. Some people have asked, commented, agreed and disagreed with my comments around zodling. I wrote about my thoughts just now.

Link here and post also written below.

It’s uncensored, largely unedited, and just my perspective. I’m always open to changing my mind, but feel pretty strongly about this.

Intro

I recently said that anyone who says “zodl” should be taken outside and beaten with a stick. Now, while I was kidding and don’t condone violence, my dislike for the zodl meme remains.

I believe the current state of the Zcash development fund, and culture around it, are killing Zcash’s community, the price of ZEC, and stalling any meaningful efforts around adoption.

This is a short post where I’ll cover these three points and then provide some closing thoughts.

Current Zcash Development Fund Model

Everything is an experiment, and most funding models in cryptocurrency have different tradeoffs. The Zcash development fund is argued to provide sustainability and progressive decentralization, and should support the community of Zodlers that are basically buying and holding ZEC (while miners, ECC and ZF sell it) to sustain the ecosystem.

It’s never this black and white, but when you really get into it, this is kind of the current state. I argued in my talk at Zcon4 that this model creates a level of discontent among community members who buy and hold the coin (which is justified). Since Zcash has not necessarily delivered on the things its promised, there needs to be change. I see two paths forward:

  1. Slightly change the current model to create pseudo-jurisdictional decentralization and divide power amongst already influential organizations in the Zcash ecosystem.

  2. Create a reasonable, but radical, change that provides immediately worthwhile jurisdictional decentralization, responsible checks against power, and distributes ZEC to more people through structured, contributor-centric programs.

I believe these are the only two paths. I predict that some members (individuals and organizations) of the current dev fund will advocate for variations of these two ideas. Any idea closely related to number 1 cannot win .

I also believe the current dev fund creates an incentive model where community members buy and hold Zcash, rely on ECC and ZF (and to an extent ZCG-funded projects) to deliver, and hope the price of ZEC to goes up. This contributes to an idea known as “zodling”.

Zodling and the price of Zcash

The status quo has not produced results that community members and cryptocurrency users are content with. The price of Zcash against Bitcoin is an indicator for that.

This isn’t because anyone contributing to Zcash really talks about the price of ZEC. It’s because of the way most people acquire Zcash. Zcash is largely acquired through centralized exchanges where you must provide KYC/AML information to sign up, link your bank account, and spend your salary on a platform where the UI is telling you if the price of Zcash is up or down.

So, for those who disagree with me, what incentive model does that create?

When I look at other privacy-oriented communities who use cryptocurrencies, I see somewhat of a hatred towards this model. I use the word “hatred” very carefully here. They seek to construct protocols, applications and communities that discourage any use of centralized exchanges, encourage sovereignty and build peer-to-peer markets that support trade, commerce, and community. These groups will likely never use Zcash, and are arguably improving their privacy guarantees to rival shielded Zcash.

Now, you might think all of this is unsustainable. That is a fair argument. So let’s look at the other groups who are actively using cryptocurrencies.

Communities that are really driving the adoption of cryptocurrencies, in my opinion, are interested in the “Web3” ethos. They like tokenization, ownership, digital collectibles and price speculation. They’re actively building decentralized protocols, scaling solutions and applications that can/will drive these economies. Is Zcash capable of being a part of this ecosystem right now?

No.

If features that enable this are on the Zcash roadmap, will they come to market faster than other protocols who are working on similar things? E.g. Namada, Penumbra, and Railgun? Will Zcash’s solutions be better?

I don’t know.

Both of these counter examples drive usage and value to cryptocurrency networks, and their native assets, through on-chain activity. Without the usage and exponential growth of on-chain Zcash transactions, we won’t see the same type of value accrual and price appreciation that the most dedicated of zodlers want.

The solution? Kill the zodler meme and provide easy ways for the Zcash community to acquire and use ZEC permissionlessly (and without KYC) right now . Also enable people to create applications that invite a new wave of people to join the Zcash community.

If future protocol improvements drive more utility to Zcash, and enable more interoperability with other networks, great! However, we can’t simply wait for those changes to happen.

PS. This doesn’t mean use all the Zcash you hold. Maybe earmark 10-20% of your holdings for usage of on-chain Zcash applications, and more of your time to help contribute to programs driving this usage. Contributing too hard? Let people know why and what changes they could implement to make that easier for you.

Adoption

I don’t have an answer for this. My mind says make this change to the dev fund to start a wave of new adoption:

  • Create a reasonable, but radical, change that provides immediately worthwhile jurisdictional decentralization, responsible checks against power, and distributes ZEC to more people through structured, contributor-centric programs.

This change doesn’t necessarily build the killer application, or use case, that drives Zcash adoption. But, it gives more people a chance to use Zcash and possibly create that application for themselves.

When I created ZecHub, I just wanted to create a contributor-centric, education platform that wouldn’t die if I stopped working on Zcash full-time (which I have). The indirect result of ZecHub is now people, who can’t buy Zcash through centralized exchanges, have a means to acquire Zcash through contributing to ZecHub.

I’m not going to spout off some techno-colonialist statement claiming this was my intention. It was just a result of creating a permissive, open-source model.

But Zcash is open-source! Yes, but is it permissive?

I don’t think it is. So I’d argue we should make it easier for users to directly access the block reward and build cool applications that onboard more people. I think this has a better chance of driving adoption than our current model (or any slight iteration of it).

Closing thoughts

I think Zcash has a short time period (6~ months) to change course. I also think the changes need to be drastic (although reasonable).

My biggest takeaway from Zcon4 was that the community needs to drive this change. Developers and protocol maintainers are busy with code, and the people at the top of the Zcash social hierarchy have their own preferences and biases. Regarding bias, there’s nothing wrong with that, but it must be contested with another set of bias. That of the community.

This is the only way the Zcash community will actually change anything. This is the only way Zcash has any non-zero chance at driving adoption. And, this is the only way the price of Zcash will ever recover.

Kill the “zodl” meme, drastically change the development fund, and give more power to the Zcash user.

And while people have claimed I’ve “quit” or “left”, I’ll continue working in the background to help drive the change I want to see.

God speed.

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What about ZEC being deflationary? Do you think that’s an issue? Deflationary assets tend to be held longer than inflationary assets…

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WRT Zcash, I don’t think it drives adoption that way due to poor price performance.

So, theoretically, if Zcash drives adoption solely as a store of value, it ends up in the same situation Bitcoin is in right now. Trying to figure out how to pay for network security and preserve 21m supply cap.

The supply cap won’t exist if a substantial zcash fee market isn’t created. Fee market depends on usage.

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Excellent post @januszgrze although I’m a user of the Zodl meme, I also agree with you that it doesn’t exactly portray the kind of values that we espouse to here in Zcash. (we want participation, building, exchange, interaction)

ZEC is not deflationary. The supply increases by about 9-10% annually right now, and after the November 2024 halving the inflation rate will still be 4-5% annually. ZEC will not be *hand waving *deflationary in a practical sense (imo) until the inflation rate drops under 0.50% annually (which is about 15 years from now). ZEC today is in relative terms (see ETH is actually deflationary today), a very inflationary crypto currency unit.

Do you also mean
the supply cap won’t matter if a substantial fee market is created

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Totally agree. It’s the most try-hard, forced, unoriginal term. Kill it with fire.

And whoever said we have a bunch of meme artillery (in another thread), couldn’t be further from the truth. And let’s keep it like that – I don’t want memes conflating my money.

What about ZEC being deflationary? Do you think that’s an issue? Deflationary assets tend to be held longer than inflationary assets…

What about this? What about that? I think you need to worry about things like adoption before this theoretical academic banter.

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Not necessarily. I mean the supply cap isn’t sustainable / secure unless we create a fee market.

For example, if there’s a limited number of ZEC produced in new blocks, we need a substantial fee market to incentivize people to run validators and secure the network (in a PoS model).

So, if you want to maintain the 21m cap, you can’t really endorse the idea of zodling.

I’m okay with the idea of tail emissions, but it seems that people don’t like that.

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I think you fundamentally don’t understand what ZEC is; if you think its money for day to day transactions. I know you understand what you want it to be. And you blame the governance, the dev fund, marketing, centralization vs decentralization for its shortcomings. But at the end of the day its about the people who exchange their work for money. They are not stupid. I truly believe it is an impossibility for ZEC to be money for day to day transactions (on a global or even local scale; maybe ultra niche cultish scale. But even then people will convert very quickly to the local currency). You use Bitcoin as an example. Yet, Bitcoin does not have the intrinsic characteristics to be money used for day to day transactions either. So this is not a governance or dev fund issue. It is a vision issue. And a common understanding of what money is and the characteristics money should have. The last thing we need for the dev fund is more visions getting a piece of the blockchain rewards. Open up the blockchain as discussed more below!

The problem with ZEC as money is so simple that it makes it hard to even see. Money must have value and be exchangeable. And neither ZEC and BTC or any other crypto (other than something like Tether or a stablecoin) have the core underpinnings to work as a means of transacting where someone works an hour and get paid in crypto. It’s the volatility. And you cant get rid of it.

The incentive model to hold is not from the dev fund. It is from the characteristics of ZEC as a speculative asset. To strip out the speculation, you need to have it convertible on 1:1 basis with the USD or any currency. Do you realize what a massive leap it was for people to accept paper backed by gold? Now you are expecting people to accept ZEC backed by what? your vision? you expect people to just trust you? People are already wanting to increase the coin supply. So, you need to really think about what gives ZEC value, what makes it more trustworthly than the USD or Euro? To me, even if you made the perfect coin, it will never be able to take out the volatility. People need stability in their money in their daily lives.

This is not about how ZEC is acquired. If it was not acquired through a centralized exchange, do you really believe people will work for ZEC and ask their employee to pay them in ZEC? I completely understand your desire to hide the price and the volatility from people. But, you need KYC and access to the world. You cant try to be an isolationist and expect ZEC to succeed. Now you could do what you are saying with ZEC and also have a USDz or EUROz etc. that interacts with the rest of the world. And try to keep ZEC as something that works only inside the wallet. I think that could work very well. Especially if ZEC is the gas for a broad based stablecoin blockchain. It could have massive scale and useability.

I do not agree on opening up the block reward. This is a temporary funding mechanism for the blockchain and ZEC. I do agree 100% with opening up the blockchain. Instead of block rewards funding by ZEC holders. The people developing the apps should get the payments directly from the transactions they create. It would work similar to how Apple works in one way. In app purchases go roughly 30% to Apple for the platform and 70% to the developer of the app. This is an accepted type of value exchange. So if you create an app that has a $100 transaction from some cool use case, the buyer/seller would pay a $2 gas. That $2 gets split. 70% to the app creator and 30% to the blockchain. The blockchain share gets split further 50% ZEC and 50% miners/dev fund for example. People will want to pay the $2 gas if you build the features! We do it every day. I choose to use Visa when I could pay cash. So I pay 3% most of the time.

The huge benefit of the gas split mechanism, is you really get to see who believes in their vision. And you will get high quality ideas. Because the people creating the apps will be forced to think - how many transactions will this create? It will likely get rid of all of the noise where people really know deep down it wont create transactions. People the people creating the apps will be funding it on their own. Yes. there could be some dev fund assistance. But the lions share should be paid by the developer and they get the upside from creating apps that generate transactions. This frees up the foundation and ECC to focus on creating an open blockchain of money. To make it easy for people to build apps on top of the blockchain and not get distracted in “should we fund a cash register for a cannabis company”. You and I might even say, you give us a split on the gas, we will fund a business to let people pay in crypto (yes we already have this in AMP/SPEDN), but the point is more AMP/SPEDN companies will want to create on the blockchain (they take 1/2% on their side for this service).

ZEC privacy needs to be available to all regardless of their individual choices and risk tolerances. Especially when it comes to something so important as money.

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Hmm.

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z.cash

I can see your point around this. Most people use stablecoins versus BTC (or anything else) when given the opportunity. Democratizing USD access is good.

this isn’t even remotely close to what I meant.

I would agree with this. So basically your response is saying make it easier for people to build apps. I’ve said that too.

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Point taken. I wasn’t exactly clear what you meant. So did not mean to misrepresent it. Importantly for cash or money to work on a broad scale, it needs massive, massive depth. That means hundreds of billions or more needs to be able to clear daily . The USD is insane in how much volume it can handle. So you should also think about this aspect of money. It needs to be able to hand a multi billion dollar sell and have someone on the other side to buy it. Do you really invision ZEC having this depth when you talk about reaching a billion people without some centralization?

Seems like a very high risk statement to make. People tend to associate cash as money. And Zcash is not money. It might be a token. And maybe adding the Z in front is the way to get around it. But the inference that Zcash is cash seem like a “hmmm”.

Yes we completely agree. The issue is who pays. I think a gas mechanism needs to be used and not the Dev Fund. Gas is more fair, its more direct, more democratic and more inclusive. People ideas need to fund themselves. Then there is no governance issue. ZEC creates some general rules on what they will allow. But people can create whatever they want. And their reward is the gas fees. They own what they create. People get excited when they can create things and reap the rewards.

Let me add why collateral is so important in money. There was a stablecoin that used algorithmic rules to try to maintain its peg. Investors knew that they did not fully back their coin 1:1. So they put on a massive mult billion short. Now average people dont like volatility. So when the coin went from $1 to 95%, they start to panic. So now you have the short seller selling and the token holder selling. And it starts a bank run. Ultimately the coin collapsed. And this is with at least some collateral. Then, came tethers’s turn. Again massive billion dollars shorts. Tether had the depth to cover and outlast the shorts. But if they could have also collapsed if their collateral was not liquid enough. So Zec with nothing is highly susceptible to a short attack IF people believe its money. Because when the shorts come in, the people will panic. And the depth of ZEC is very thin. It probably has not happed to ZEC yet because its just too small. Once it gets to a multi billion value if ever, its starts to get big enough for people to challedge the ZEC is money thesis. And when they do, will ZEC have the utility or collateral to protect ZEC holders? Why does BTC work? That the million dollar question…Could it be backed by the government? Someone/group/?? with very deep pockets has to be supporting it.

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Don’t worry. FOMO kicking in:

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This thread has totally derailed.

the whole point here is

Zcash should be CASH. It should be an anonymous peer to peer currency that is USED.

It is not Zgold or Zproperty.

Thus we should spend money in the dev fund towards projects that enable, push and promote the actual movement of Zcash.

The avalanche Zcash bridge is a great example of this for example. Liquidity can move both ways.
What other examples are there?

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If cash is the objective, then I’ve got bad news for everyone who has ever bought ZEC coin(s).

They’re not worth thinking of an investment, so spend them all as soon as possible and take the loss on paper as a learning lesson.

There is a huge problem with treating ZEC as cash. Cash is designed to perpetually lose value; the only sorts of successful cash must lose value over time, otherwise they will be transformed into investments.

The problem is that Zcash is an ecosystem designed to fund itself based on the value of ZEC. With ZEC value dropping like cash, and with the emission rate getting cut in half next year, the obvious 2-3 year look ahead is more financial distress for the Zcash Foundation, Electric Coin Company, ZCG, and any other organization that is holding a large treasury of (Z)Cash.

If we really don’t want to assert that ZEC is a long term investment, then we’ve got to be exploring the risks, negative impacts, and mitigations of ZEC down at prices like $20, $10, or $5 and the past two cycles worth of ZEC investors all liquidating their coin positions.

Cash is designed to lose value. (Because it is regularly spent, and its supply is diluted)
Investments are to gain value. (Infrequently spent, supply typically limited)

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It’s an interesting discussion given that most fiat currencies aren’t backed by any tangible goods anymore, other than a centralized government.

ZEC as cash doesn’t fit that model because by nature it is supposed to be decentralized.

If I take $1 USD, I can buy things within the US based upon the US government backing the value of that $1. I can also take that dollar to another country (as I did a few weeks back to Canada) and that $1 has more value based on the US/Canadian exchange rate, which fluctuates throughout each day.

Zcash doesn’t start with anything backing it other than injections of fiat currency exchanged for ZEC, which can then be converted to any number of other fiat currencies at a given exchange rate for whichever country or currency you’re converting to.

Unfortunately, this “identical crisis” has broader implications for the long-term success or failure of Zcash.

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this is the whole argument that the OP is making sir

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ZEC is a FIAT. And USD may be called fiat because it’s not technically backed by collateral. But i believe people are wrong about many of the the risks of the USD. It’s not just a piece of paper. The USD is backed by quite a lot. There are risks to the USD. But the saying “don’t fight the fed” has been a good one for a long time. I don’t see that changing in our lifetimes.

So this is a tough question for me; but maybe it’s not for you since you so strongly believe ZEC is money. If you say ZEC is money, what gives it value? not in price but why should someone trust it? if A) someone can come fork it at any time and copy the technology B) no government is involved to support it and C) its fiat itself and D) its so volitile. how do you get rid of the vol?.

If people lose faith in ZEC it’s because people don’t like losing money and it’s very hard to see why ZEC should have value. Zcash is a fork of bitcoin. Bitcoin says they are digital gold. the main difference is zcash is private. so private digital gold makes sense to me. and bitcoin has established itself as such. so who is causing the identity crisis when you say zec is something different? why is zec private cash and btc is digital gold?

I’m not convinced it’s as bad as people think. I think it’s designed to make it very difficult for someone to make billions of dollars and put it in a bank and sit on it. and not invest in society. That’s probably a good thing in a way. And more money supply is also needed because people invent things and a fixed money supply likely impairs growth. Especially when the population is growing.

Cash might lose value in some ways; but it’s purchasing power on a day to day basis in terms of what it can buy is not down as much as many people think. It is probably up in many ways… If you measure what you buy in terms of “labor hours” it’s not much of a decline at all. Yes we have inflation. But the number of hours you have to work to buy things doesn’t change as much for many many things. Do the math and check it out.

cash does a great job of holding its value over short time frames. 1-5 years. but as time goes on you have to invest to beat inflation. and new inventions along the way help out…so where does ZEC fit in? a cash replacement or invention that improves existing money?

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I agree with this. I actually think a name change may be in the cards. Much like Twitter => X, Zcash => Z, Zed, or Zero.

Zcash should be able to be used as a medium of exchange, or simply to store your wealth if you see fit.

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My opinion is that private digital cash is a bad mission objective because of the broad understanding that cash is a long-term losing value proposition.

Zcash (imo) seeks to create a private digital asset & labor & communications ecosystem, where its native coin can provide trivial cash-like features; but ZEC’s primary objective is to let individuals store/ sustain/ grow their wealth on a private (optionally), decentralized, permissionless, et al blockchain network.

Private Store of Wealth (via the asset: ZEC or ZSAs in the future) is the mission.
Trivial cash-like features with ZEC is a supporting alternative feature.

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Agree with the conclusion for a different reason. Cash needs to be simple. $1. Anything that moves above that or below is too complex. Ultra Ultra simple. Ultra Ultra stable and secure to be cash. On daily, weekly, monthly 5 year basis. If it moves up and down by 3% or more per day, its not cash.

ZEC can be the engine and become a great store of wealth long term; But it needs fuel generated by daily transactions in real cash.

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100% agree. I accumulate Zcash (as opposed to spending it) b/c I believe it’s a Swiss Bank Account without the Swiss Bank. It’s private store of value folks. Wake up. The “Zcash is (primarily) a cash mission” is a long-term losing value proposition IMHO too. Thank you @noamchom and @Jgx7 for communicating what I have been unable to communicate for many years (been on this forum since October 2016).

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I believe the point is that cash needs to be a square and small unit of 1.00 or 10.00 or 20.00 regardless of its local name/ nation/ geography.

ZEC cannot be normalized, neither locally or globally, to that sort of unit(s) of measure because its value is driven (and highly volatile) by global crypto trading markets.

Here again, is why we continue to emphasize how crucial it is that Zcash receives a Z-stablecoin layer via the ZSA implementation. ZUSD, ZEUR, ZCNY, ZCAD can all be instantiated from the ZEC layer into their local equivalents of 1.00

I disagree here, a proper non-national stablecoin can’t exist, because pricing is a national-local phenomena unique to each and the language of those prices is in the fiat of that nation-locality. The stablecoin layer(s) only exists so that extra-national crypto assets can interface with national-local fiat pricing mechanisms.

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