Proposal for a Community + Coin Holder Funding Model

Governance
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This proposal outlines a funding model that gives the community and coin holders distinct voices in determining what, if any, grants are provided to support Zcash’s development and community efforts.

In this model:

  • 8% of the block rewards will be allocated to the ZCG for grants by and for the Zcash Community.

  • 12% of the block rewards will continue to accrue in the lockbox. Coin holders will determine how and when those funds are allocated. They may fund larger grant submissions, channel them to the NSM (Network Sustainability Fund), or leave the coins at rest.

Background

We need to decide on the lockbox expiration date this November. This is a two-part post: this proposal and a process for our next steps.

This proposal is an alternative to the zBloc proposal for coin distribution from the lockbox. After considering community feedback, I am also proposing a more straightforward mechanism for allocating grant funds for consideration. The implementation of either proposal would require the design and implementation of a lockbox distribution mechanism, likely using multisig.

As with the other proposal, this one aims to decentralize decision-making, hold stakeholders accountable for outcomes, be dynamic enough to allow for change, and provide clarity on decision-making. Additionally, this proposal would immediately increase the coin holder’s voice, minimize governance confusion, and simplify decision-making.

Proposal Specifics

This model would be activated for up to 4 years, allowing enough time to determine whether it should be changed or codified for longer.

During that period:

  • Miners would continue to receive 80% of the block rewards.
  • ZCG would continue to receive 8% of the block rewards.
  • Coin holders would control the remaining 12% of the block rewards.

This proposal empowers both the community (through ZCG) and coin holders to independently determine what, if anything, should be funded through development fund grants.

The Financial Privacy Foundation (FPF) would administer manage all coin holder voting. Shielded Labs, the Zcash Foundation and the Electric Coin Company would approved funds distribution with a 2 out of 3 threshold signature.

Anyone could submit a grant application to either the ZCG or coin holders. However, coin holders would only be asked to vote for grant applications above $500k after a 30-day community review and feedback period.

For coin holder votes, a minimum of 420k ZEC (2% of the total supply) must be voted, with a majority voted in favor, for a grant proposal to be approved. Upon approval, the grants would be paid from the lockbox to the recipient per the terms of the grant proposal.

Coin holders would not be obligated to fund grants and may call for a vote to allocate the coins to the NSM or use them for another purpose.

No organizations or individuals would be restricted from voting their coins.

Out of Scope

Any changes to the ZCG or its governance, such as its expansion to include more members, may be desired but are specifically outside this proposal’s scope.

[EDIT]

Removed the FPF from key administration for funds distribution. Added Shielded Labs, ZF and ECC.

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I think that one organization is too much and to be honest I prefer a foundation to a company.

That’s one thing. Now we come to the individual positions. I think you, Josh, should be given responsibility in the zcash foundation and manage everything from there. Of course, peacemonger should also be a part of it. In the course of this merger, the areas of responsibility should be reassigned and, of course, this should also mean different or, to put it bluntly, lower salaries mean for certain people. In my opinion, the costs for personnel at zcash are too high.

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I’m not sure what you mean.

Maybe. At ECC, we attempt to benchmark against the market. The market for strong cryptographers and devs is highly competitive. I would rather attract the best, with strong mission alignment, than average or below average talent.

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where is the Foundation?
i wonder what is Andrew Miller’s list of goals

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wait, so is this kicking the can out another year?
i swear that last year I saw it typed out a bunch of times that there wouldn’t be a bunch of new rolling 1 year Dev Fund renewal debates???

can we really keep dumping so much community mindspace into this debates on a yearly basis… I say nope.

Last year you all pitched this thing as a 1 year project, the community voted against the 2 year and 4 year proposals… so why take back on your word so fast already? trust will deteriorate more rapidly than it already seems to lately if we have to do another dog and pony show like this just to keep the Dev Tax going another year or two

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Very incremental. I appreciate it :heart_eyes:. Due diligence below :pray:.

  1. My gut feels that 2% seems high. Do we have any evidence from other long lived cryptocurrency ecosystems that this level of voting participation is achievable under normal circumstances?

  2. For users and/or organisations with large amounts of cold ZEC at rest, I assume under normal circumstances their risk tolerance will preclude them from participating in the voting process. We, of course, should care about these users too because, at least in part, privacy comes from money at rest, and I believe we should never discourage money at rest. How do we, now or in the future, mitigate against making them second class citizens?

Stream of consciousness
Ledger and Keystone could help on this front. Alternatively maybe there are ways to airgap a “seeds to vote” process :thinking:. Maybe a temporary keystone restore, vote, then wipe is tolerable? Anyone investigated keystone’s ability to participate in frost? Can a frost signing process occur over days? I imagine a single keystone “sign” a day might fit within some cold storage policies. Example: Day 1: sign the vote with my local keystone then secure it again, Day 2: retrieve and sign with a remote keystone, etc. Maybe a raspberry pie with fried bluetooth/wifi + camera is the other option? Sounds like the name of a @hanh livestream tbh :pray: :pray: :pray: :joy:.

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I disagree.The community voted in favor of funding. We also voted for a one year lock-up to determine the means of allocation.

There is nothing in this proposal that suggests “kicking the can” for another year.

If you do not want any funding for work from block rewards, simply vote against it in the polls and/or with your coins.

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To be clear, a benefit of this model is that those who hold and are most exposed to the ZEC price, have a greater voice in what, if anything, is funded.

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I think this is an excellent threshold for proposal approval. I would even raise it even more because I believe it motivates key developers to continue to be key holders.

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Josh, I find the current proposal to be very, very good. It’s balanced and fair because it takes into account the interests of holders and devs. In fact, they are synonymous in this proposal.

I also hold out the timid hope that the market will allow LockBox to become the community’s grand solution after the transition to PoS.

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What i mean is, I don’t think there’s a need for two institutions. But that doesn’t mean that the people who work there aren’t needed. But you can also turn two institutions into one.

I also like an Electronic Coin Foundation but the “company” bothers me extremely.

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Yes, as I understood it, they wanted to look for external sources of financing.
I would suggest that all reserves should be used up first. Start with Bitcoin and in the meantime look for new liquid sources that will continue to fund you guys once all funds are used up. In addition, the ECC should be dissolved and merged with the Zcash Foundation. After that, the positions in the ZCF should be redistributed, as well as the salaries. I would be in favor of @joshs taking the helm in the ZCF.

The fact is, no matter who, they all cost and consume more money than they themselves bring into the project through their work and that has to change. If they spend money, they have to earn it first. With Zcash, 99% of the money is just spent without generating new money and now comes the big awakening.

No more funding.

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That is good and right and it should stay that way, but can’t it be handled through an institution? I am really in favor of turning the ECC into the ZCF. The staff should continue to be paid appropriately, although I am also of the opinion that the reserves should first be fully used up and new liquid sources should be acquired in the meantime.

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Cosmos consistently have over 40% of their staked tokens (20% of circulating supply) voting. Other new Sapling chains like Penumbra and Namada also have around 20% of circulating supply voting in proposals.

Ideally, 10% quorum should be minimum but I understand that Zcash, based on Bitcoin, was not setup to give token holders much voice other than longing or shorting the tokens.

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to do a proper coin holder voting. all shielded wallets should be able to vote, not just ywallet.

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Be careful what you wish for. We don’t want to incentivize funded organizations to hold (ZODL) large reserves of ZEC. Instead, we’d prefer they request only the funds they truly need and responsibly utilize their existing ZEC. Excess, unused ZEC should remain in the lockbox—within reason—to ensure it’s available for future work and not simply stashed away by organizations. In other words, we want these teams to spend their resources effectively and direct a significant portion of available funds toward delivering the best possible outputs under the terms of their grants.

We also don’t want to punish organizations that operate in a “lean and mean” fashion—those that request funding only after they’ve exhausted their existing resources. At the same time, we don’t want to reward organizations that stockpile their ZEC and then request additional funding early and often, especially if they already have enough ZEC to cast a significant vote themselves.

On the other hand, if individual developers or contributors choose to hold onto (ZODL) the ZEC they earn through salaries and then vote, that can be a win-win: it aligns personal incentives with the project’s success while not letting organizational treasuries bloat.

Stream of consciousness:
@josh I’m a big supporter of both coin holder voting and an n-votes approach. If only there were a way to unlock the lockbox under either scenario—maybe an OR statement in the governance clause. For example, if a minimum threshold of coin holder participation isn’t reached, then the vote-holding organizations could decide the outcome (with the coin holder vote effectively counting as a single vote among the n voters). If the threshold is met, then coin holder votes would carry their intended weight. Alternatively, an even broader OR condition might allow funding to be unlocked if either coin holder majority or the vote-holding organizations approve a proposal. Just brainstorming :slightly_smiling_face:!

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All true, but in the Cosmos ecosystem, all holders know from the get-go that each token confers voting rights. In Zcash, at least before the transition to PoS, only those holders who constantly follow all the current news will know about it. And it is unlikely that there will be even 10% of such holders.

In addition, the idea of Dev Funds does not have a very good support among long term holders, as most people are convinced that funds have a negative impact on the price. I’m not even willing to argue otherwise. I always suggest comparing the completely similar Horizen model, which shows a much better price performance than Zcash. They’ve had a hybrid PoS implemented since 2020, never had any failures, have a full analog to ZSA, they have no 20% “tax” on issuance. The hash rate is catching up to our hash rate. And they’ve even done away with shielding. What’s the secret to that? Just something to think about. However, I’m in favor of the long-term preservation of the self-funding model of Zcash, for reasons of long-term community interest to be able to strengthen the infrastructure and not be anyone’s hand coin. Because ZEN is one person’s hand coin. His face has even was in the main wallet of this coin for a long time.

So, since there are not many supporters of the devfund, and there is no voting tradition yet, it’s reasonable to assume that we won’t get 10-40% turnout with a weighted vote.

And 5% turnout would be a good starting point, with a 2.6% approval rate, assuming we pass the 16 million coin milestone by then.

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I realize that this may affect incentives in different ways. But at the same time, I want all key developer entities to be incentivized to bring their ZEC reserves to the day when we have PoS and have an additional source of funding for their projects. And that there is a counter incentive not to convert unused resources into bitcoin or stablecoins as soon as they are received.

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Currently ECC is 100% owned by Bootstrap, a US registered 501(c)3. We do not operate as a for-profit entity.

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I hear you. My personal opinion is that anything implemented should be very simple and only appended if there is a clear need.

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