Proposal to create a Zcash Ecosystem Fund directly funded by the Founder's Reward


#1

Zcash Ecosystem Fund Proposal

At Zcon0 I proposed to modify the founders reward to create a new stream of funding for an investment fund that would provide support for people building cool things for Zcash users. Here’s the formal proposal, which is very short and simple, and an FAQ, which is a bit longer. This should not be treated as a final document, but rather as a “request for comments” to the Zcash community (miners, users, developers, founders, and everyone else who has any idea what the word “zcash” means!)

Time limit for discussion
Since this kind of thing is incredibly prone to bikeshedding, I propose that we discuss for 2 weeks, and then spend one week assessing whether consensus has been reached that this is worth doing. If my understanding of the founders reward distribution mechanism is correct, it goes to a single address multisig which is then manually distributed to each recipient? If that is correct, I suggest that the mechanism be changed so that the reward is sent to each individual recipient automatically, and that the fund be added as a recipient of 1% of the FR. Since this requires a hard fork, I suggest this be added into the upcoming Sapling upgrade.

Proposal:

Currently the Zcash founders reward is distributed roughly as follows: 3% to the Zcash Foundation, 2.8% to the Zcash Company, and 14.2% to the 44 founders, advisors, and investors of Zcash. Of that 14.2%, 9% or roughly 2000 ZEC a month go directly to Zooko.

[Moderation edit for several errors of fact by @daira:

  • Until the first halving in October 2020, total issuance of ZEC is 219000 ZEC/month, and FR is 43800 ZEC/month, based on a (365/12)-day month.
  • The Zcash Foundation gets 6563 ZEC/month which is 15.0% of FR (3.0% of total issuance).
  • The Zcash Company gets 6125 ZEC/month which is 14.0% of FR (2.8% of total issuance).
  • The remaining FR distributed to employees, contractors, founders and investors is 31112 ZEC/month which is 71.0% of FR (14.2% of total issuance). The distribution to investors was front-loaded and they have already received all of their share.
    • Of this, Zooko’s FR is 2033 ZEC/month, which is 4.6% of total FR (0.93% of total issuance). It is not 9% of 14.2% of FR, which would be 2796 ZEC/month.

These figures are consistent with the slides shown in Zooko’s Zcon0 talk (https://twitter.com/bcrypt/status/1011602573873336320) subject to rounding errors.]

In the beginning such a distribution makes sense, because the founders contribution is most important at the start of a project. However, on an ongoing basis, it makes sense to shift more of the reward towards maintenance of the project, rather than perpetually rewarding the founders, some of whom have even largely moved on to other projects.

I propose to distribute 1% of the founders reward, or 2188 ZEC monthly, to a Zcash Ecosystem Fund tasked with investing in commercial projects that are complimentary to Zcash but which aren’t suitable for foundation grants. I further propose that the 1% is taken from the founders portion (not the Company or the Foundation’s portion) so as to not affect the ongoing operations of either entity.

[Moderation edit for error of fact by @daira: 1% of FR would be 438 ZEC/month.]

I think there is a funny side-benefit to this proposal which is that Zcash is often accused of being a centralized project run by its charismatic founding team—if a proposal which directly affects their finances in a negative way is passed by the community, that would be a solid proof that Zcash is more decentralized than its critics think.

FAQ

Why not just let the foundation give grants to these startups?

The foundation is moving too slowly. The risk of deploying money too fast from the foundation is that it runs out of money and can’t fund more promising stuff, and it seems to be this risk that the foundation board is most concerned with. I’m FAR FAR more concerned with an alternate scenario—the fund deploys capital too slowly, the Zcash ecosystem fails to mature fast enough, the value of ZEC falls, and the foundation dies with hundreds or thousands of suddenly worthless ZEC on its balance sheet. The fund, by contrast, will rapidly deploy capital into promising projects, and stands to make a return from them rather than just giving them “free money.”

Who runs the fund and do they get paid?
I am happy to advise the fund in the beginning, for free. I should not be the person making investment decisions on a legal basis because I’m an American, and it’s best that we have at least one Zcash affiliated entity be controlled by non-Americans, so I would propose that one of my partners in China or Japan are the manager of record for this fund. I propose to allow 2% of the 2188 ZEC to be used for management expenses, including creating a legal entity, drafting investment documents, etc—if there is excess annually, it should be returned to the fund and used for investment.

What do we do with the fund returns?
I propose that the fund returns be re-invested into new startups, perpetually, creating an evergreen source of funding for zcash related stuff.

What are the metrics for success or failure
The fund should be measured on two KPIs, fund returns and the price of ZEC. Of course, the price of ZEC fails to perfectly capture value added to ZEC, and more importantly there are many many other entities contributing to ZEC’s value, but at the very least if ZEC goes down despite the fund’s best efforts, I think we can say its been a failed experiment. On the other hand, if ZEC’s price appreciates and the startups funded by the ZEF are successful, the fund should be judged a success.

What are the checks and balances on the fund
I propose the fund be allowed to run for 12 months, after which the Zcash Foundation is given the option to discontinue funding for it, and redirect its funding back to the founders.

Who are you?
I’m @wheatpond on twitter, and Eric Meltzer in real life. I’m a partner at INB, a large Chinese blockchain fund that is one of the founding investors in Zcash. I’m also a somewhat paranoid Jewish guy who thinks that private internet money is something that the world really needs.


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#2

NACK. The consensus rule changes included in Sapling were frozen and fully-implemented in 1.1.1 (over a month ago). Barring any discovered bugs, these are the consensus rules that will be released in 2.0.0 (in ~five weeks’ time) and activated as Sapling. Any change touching consensus rules would require a significant delay to ensure adequate time for implementation, review, and testing; at that point, we may as well just put those changes in the following network upgrade.

[Note: I am not commenting here on the proposal as a whole, just on the proposed timescale.]


#4

Fair, this is definitely not worth delaying Sapling for. I tried to edit the proposal to say we implement this at the next upgrade instead, but I can’t seem to edit posts. Anyway, I think that is the appropriate timeline.


#6

100% agree, even if the timetable has to be changed. There’s no reason things like the windows wallet dev drama needed to happen in the first place when the funding is already available.


#7

Yeah exactly. That was part of my rationale for upping this in my personal priorities and making sure I gave it a real shot: it’s crazy that happened, and we should be funding the hell out of projects like that because we (unlike most coins!) have a faucet of money we can point at useful stuff.


#8

Andrew points out that the community voted against tinkering with Zcash monetary policy. Do you guys think this counts? I think it might. Note that the vote was narrow, but was definitely in favor of not tinkering.


#9

changing the rules in the middle of the game is just a bad idea. your post has merit but is a no go from my perspective.


#10

https://twitter.com/zooko/status/1014958954156347392 further note that perhaps these community votes should not be considered binding


#11

NACK for the proposed timescale for the reasons given by @str4d, and NACK overall due to the erroneous statement of the current FR distribution and miscalculation of what 1% of FR would be. Also, NACK for “one of my partners in China or Japan are the manager of record for this fund”; I have no idea who that would be, and it doesn’t sound like a very accountable approach to choosing a fund manager.

Disclosure of interest: I am a founders’ reward recipient. And by the way I don’t consent to any of my share of the FR being redirected.


#12

In addition, baking the specific FR distribution into the consensus protocol doesn’t sound like a good idea from a technical or opsec perspective to me. Currently, the FR destination address changes every month (the 48 addresses over the 4 years of FR are fixed in advance). The operational security requirements imposed on the direct FR recipient are pretty substantial, since the FR addresses can’t be changed except by an emergency network upgrade. Adding new direct recipients would be imposing those opsec requirements on all of them, since each direct recipient would still be a juicy target.


Founder's Addresses and private keys
#13

So, it seems to me that this proposal is asking the Zcash Foundation to do something it doesn’t have the authority to do: that is, modify the terms of ZcashCo’s contracts with affected FR recipients, to the detriment of those recipients. (You can argue that it would increase the value of ZEC but I disagree, and actually the only relevant opinions here are those of the affected FR recipients and ZcashCo management.) This would require the consent of affected FR recipients which the Foundation doesn’t have. The proposal should therefore be closed.


#14

I agree with @daira that a change of this nature would have had to been done before launch rather than retroactively.

As far as the actual proposal, the ideas around who would decide what and why seems to have some serious centralization and trust issues that just wouldn’t be accepted.

Why not just give all of the FRs to @root and they can decide what happens? We can try it for a year and afterwards you can do whatever you want. /j /s :wink:


#15

NACK for the proposed timescale for the reasons given by @str4d, and

Again, not a formal proposal, more of a request for comments. Agreed initially proposed timescale doesn’t work, so I suggest we push to the next network upgrade after Sapling.

NACK overall due to the erroneous statement of the current FR distribution and miscalculation of what 1% of FR would be.

Please correct me if I’m wrong about the percentages or numbers here–the data isn’t as public as would be nice, so I had to base it off a screenshot of a slide someone sent me.

Also, NACK for “one of my partners in China or Japan are the manager of record for this fund”; I have no idea who that would be, and it doesn’t sound like a very accountable approach to choosing a fund manager.

Hah. Just a suggestion that whoever manages this fund (I am not at all attached to it being me or anyone affiliated with me!) should ideally not be US affiliated, since the rest of the Zcash org mostly is. Before anything was finalized, a fund manager or managers would have to be specified of course.

Disclosure of interest: I am a founders’ reward recipient. And by the way I don’t consent to any of my share of the FR being redirected.

Noted

In addition, baking the specific FR distribution into the consensus protocol doesn’t sound like a good idea from a technical or opsec perspective to me. Currently, the FR destination address changes every month (the 48 addresses over the 4 years of FR are fixed in advance). The operational security requirements imposed on the direct FR recipient are pretty substantial, since the FR addresses can’t be changed except by an emergency network upgrade. Adding new direct recipients would be imposing those opsec requirements on all of them, since each direct recipient would still be a juicy target.

Am I correct in assuming the rotating addresses is to minimize the damage done if one is compromised? If that’s the case, then baking FR targets in could use the same approach (each FR recipient gets a 48 monthly FR distribution addresses)

So, it seems to me that this proposal is asking the Zcash Foundation to do something it doesn’t have the authority to do: that is, modify the terms of ZcashCo’s contracts with affected FR recipients, to the detriment of those recipients.

No, I am not proposing that the foundation does anything. I’m making a proposal to the Zcash Community, an amorphous and undefined group of people that I conceive of as including everyone who sends or receives ZEC, everyone running a fullnode, miners, and of course the members of the Zcash Co and the Zcash Foundation. This kind of messy decentralized consenus is a more robust way of making governance decisions than appealing to the authority of some foundation, and a big part of why I want to try this is as a “proof of decentralization” (or not) of Zcash.

(You can argue that it would increase the value of ZEC but I disagree, and actually the only relevant opinions here are those of the affected FR recipients and ZcashCo management.)

I disagree that the only relevant opinions here are FR recipients and Zcash Co management. That sounds very centralized–I think this proposal should be decided on by the community at large.

This would require the consent of affected FR recipients which the Foundation doesn’t have. The proposal should therefore be closed.

I think this requires broad community support, but disagree that it necessarily requires consent from every FR recipient.

Thanks very much for your pushback and thoughts on this, important feedback!


#16

I stated this on the ZCash ZCon0 Telegram group, and doing so here as well to maintain the record.

“I see it as:

Protocol and Cryptographic research/design (ZCash co)

Community and General welfare of protocol (ZCash foundation)

and this would propose a new pillar; a investor and speculator centric group focused on future value creation and financial sustainability (ZCash community fund)

I think these 3 core entities all getting a portion of the reward (similar to how @wheatpond described it) outlines a diversified, loosely coupled group of folks, all tightly coupled to the future of the ZCash protocol. Creating a solid basis by which to organically maintain governance as well”

———

It would seem the most crucial, immediate hindrances to this are technical and op sec issues relating to the implementation and receipt of any FR changes, as well who has the authority over such process now that the chain is live (understandably so). If those can be addressed (perhaps with a less invasive in-protocol change), and a more formal, organic agreement to have current FR recipients perhaps contribute a share to an initiative like this, if the community seems it useful, could be a worthwhile compromise, too. With slightly less social and technical overhead. Per my post above, this could create an interesting forked prong approach to governance (Technical research incentivized (zcashco), community growth and technical contribution (foundation), and the investment/speculator growth of asset and services built atop (community fund).

Imagine a figurative fork, with each prong one of the above entities. Each necessary to take a bite out of a figurative steak.

Just my 2 bits


#17

The data is pubblic and easy to calculate:
20% of 12.5 ZEC of every block goes to FR. That’s 2.5 ZEC per block.
Blocks happend every 2 minutes and 30 seconds, thats 576 blocks per day.
2.5 ZEC x 576 Blocks = 1440 ZEC per day @ FR
1% of this would be 14.4 ZEC per day, so 432 ZEC per month.

That’s part of the contract. I mean, no one was forced to pick up zcash and FR were clear from the beginning. So coming in here after 2 years of FR payed and stating it’s “very centralized” is hypocritical.

I strongly feel this is your only interest.


#18

In the name of open debate you’re crossing a line here, that doesn’t respect people’s safety and boundaries.

The founders’ shares are theirs, like your salary and savings are yours.
It is fine to suggest to someone - you should spend your money this way, you should donate to that cause, ect.
As a sidenote let’s recall that initially there was no foundation and the founder donations were so large that its budget is larger than the company’s now.

It’s not fine to pose as a question to the community - what should we do with this person’s money?
That question implies it’s the community’s decision and doesn’t require the person’s consent.
I.e., the question implies it is legitimate to steal from this person;
and thus is a pretty violent act.


#19

I fully agree. We’ve indulged this thread too long, it’s time to close it.

Link to further explanation of this moderation decision: https://www.reddit.com/r/zec/comments/8x259a/comment/e20t00k

[Edit: I stand fully by this decision and believe that reopening the thread is a mistake. As I’ve said before, Eric or anyone else was at liberty to post another thread with an acceptable (and less error-ridden) proposal; no-one was being “censored”.]


#20

#21

#22

As part-time admin, I override daira’s moderation decision to close this thread based on the emerging consensus that this post was not in clear violation of community guidelines for forum discussion. With all due respect to parties involved, further discussion can continue on this thread.


Community Poll: Unlocking "Zcash Ecosystem Fund" Forum Thread