Open Letter to the Zcash Community
Bootstrap’s board is writing to place certain facts on the record regarding the Q4 2025 Coinholder-Directed Retroactive Grant approved for our organization. As fiduciaries of a 501(c)(3) public charity, we have an obligation to make reasonable efforts to secure charitable assets owed to our organization and to ensure that the community has the information it needs to evaluate what is happening.
What Happened
In the Q4 2025 Coinholder-Directed Retroactive Grants cycle—the inaugural round—coinholders approved five grants. Four have been disbursed. One has not: the grant of approximately $2.67 million approved for “Bootstrap Org / Electric Coin Company” for work ECC already performed over the preceding year. By design, retroactive grants under ZIP 1016 compensate a named applicant entity for completed work—they are not forward-looking investments in a team. This work was performed by ECC as a 501(c)(3)’s subsidiary, using resources that exist because of the organization’s tax-exempt status, which is why the disposition of these funds carries fiduciary obligations that cannot be set aside.
The Timeline
February 2025: Josh Swihart, then CEO of ECC (Bootstrap’s subsidiary), co-authored ZIP 1016, the framework establishing the Coinholder-Directed Retroactive Grants Program.
September 2025: ECC’s leadership submitted a grant application under that framework on behalf of “Bootstrap Org / Electric Coin Company,” seeking retroactive funding for ECC’s completed work.
November 2025: Coinholders approved the application, meeting the 420,000 ZEC quorum and simple majority requirements.
January 2026: Josh Swihart and the majority of ECC’s staff departed to form a new, for-profit entity (Znewco/ZODL).
February 2026: All other Q4 grants were disbursed. The Bootstrap/ECC grant was placed on hold.
ZIP 1016 Veto Constraints
ZIP 1016 provides Key-Holder Organizations with a veto power, but constrains it to specific grounds: (1) any single Key-Holder Organization may veto if funding would violate its own legal or reporting obligations, or (2) two or more Key-Holder Organizations may declare a principled objection based on potential harm to Zcash users or values antithetical to the Zcash community. Vetos are “intended for exceptional cases,” “SHOULD be accompanied by a thorough rationale,” and would “only occur if new adverse information came to light, or in the case of a change in the law or unanticipated legal proceedings.”
Bootstrap’s board will review any veto rationale against these requirements. If a rationale does not track to the specific grounds ZIP 1016 provides, we will evaluate appropriate next steps in light of our fiduciary obligations.
The Regulatory Concern
Bootstrap is a Delaware 501(c)(3) charity subject to IRS and state attorney general oversight. The Zcash Foundation is also a 501(c)(3). We want to ensure the community understands the legal framework that applies to the current situation.
Under IRC §4958 and Treasury Regulation §53.4958-3, a “disqualified person” includes anyone who held substantial influence over a tax-exempt organization within the preceding five years—by title or by function. This covers directors, officers, vice presidents, senior managers, and engineering leads. ECC’s former CEO co-authored the grants framework, submitted this grant application, saw it approved, departed to lead a new for-profit entity, and now seeks to have the approved funds withheld from Bootstrap while that entity draws from the same fund. Other senior members of ECC’s former team now associated with that entity may independently qualify. Under §4958(f)(1)(B), if more than 35% of the entity’s ownership is held by such individuals, the entity itself is a disqualified person—but each qualifying individual’s personal exposure (a 25% first-tier excise tax on the excess benefit, escalating to 200% if not corrected) exists regardless of any entity-level analysis.
If Bootstrap’s approved grant is vetoed, $2.67 million remains in the Coinholder-Controlled Fund, enlarging the pool available to other applicants—including an entity controlled by disqualified persons who would not have had access to those funds had the grant been disbursed as approved. The IRS evaluates economic substance. The formal separation of a veto and a subsequent grant application does not insulate the participants when the practical effect is that funds approved for a 501(c)(3) instead remain available to an entity controlled by that 501(c)(3)’s former insiders.
This is not a one-time issue. If the §4958 framework applies to this sequence of events, it would also apply to any future grant from the Coinholder-Controlled Fund that benefits the same disqualified persons or an entity they control. Each such disbursement would carry its own §4958 exposure—for the disqualified persons, for the entity (if it qualifies), and for any organization manager who participates with knowledge of the underlying facts. The community should consider whether establishing this dynamic serves anyone’s long-term interests.
For any 501(c)(3) that participates in this sequence, the consequences extend beyond intermediate sanctions. Treasury Regulation §53.4958-8 preserves the IRS’s authority to revoke tax-exempt status independently. State attorneys general have their own uncapped authority over charitable asset protection. An investigation arising from this pattern would not be contained to one organization—it would affect the entire Zcash ecosystem at a moment when privacy-focused projects are already under heightened regulatory scrutiny.
Governance Integrity
We want to raise a concern that extends beyond this particular grant and beyond Bootstrap.
The Coinholder-Directed Grants Program was designed with deliberate safeguards. Applications name a specific legal entity. They undergo a mandatory 30-day public review so the community can evaluate the applicant. Coinholders vote. The veto power is constrained to narrow, specified grounds with a required published rationale. These features were not accidental—they were built to ensure that the program is credible, predictable, and resistant to manipulation. Deliberate care was taken to avoid creating a legal entity responsible for the lockbox.
If the first-ever grant cycle demonstrates that approved disbursements can be withheld outside the framework’s own veto criteria, those safeguards lose their meaning. Every future applicant must ask: if my grant is approved, will I actually receive the funds? Every future voter must ask: does my vote matter, or can the outcome be changed after the fact? And every outside observer—including parties who may not have the ecosystem’s best interests at heart—will note that the governance framework did not hold when tested. For a privacy-focused project operating in a skeptical regulatory environment, the strength of the community’s governance is not an abstraction. It is one of the ecosystem’s most important defenses.
Bootstrap’s board has a responsibility to think about these dynamics, and we would be failing in that responsibility if we did not raise them. We believe the community shares the interest in ensuring that the governance mechanisms it has built are honored.
Bootstrap’s Position
We are placing our objection on the record. As fiduciaries of a 501(c)(3) charity, we are required to make reasonable efforts to secure charitable assets owed to our organization. We will review any veto rationale against the specific grounds ZIP 1016 authorizes and evaluate appropriate next steps in light of our obligations.
We want to get back to building. We are sharing this information so that every participant in the ecosystem can make fully informed decisions about what happens next.
We anticipate that this letter will draw sharp responses. The legal and governance frameworks described above exist independently of how anyone feels about them.
Respectfully,
The Bootstrap Board