Shielded Assets Discussion

[zooko]

Great suggestion! We at ECC had a conversation with Prof. Roughgarden as part of the process that led us to hiring the GMU group to analyze ZSA economics. Based on Prof. Roughgarden’s work on EIP-1559, it seems like something he excels at is analyzing a well-specified mechanism design in order to determine if there are “vulns” (in infosec terminology) or “perverse incentives” (in economics terminology). The EIP-1559 analysis paper linked above is an interesting read! (And it further assuages any concern I might have had that the EIP-1559-style design would introduce unexpected problems into Zcash.)

As discussed in this thread, we’re going to get a paper from the GMU team soon discussing a variety of possible mechanism designs for ZSAs. I think it would also be good to solicit additional ideas. In infosec, you want to hire multiple security auditors, because everyone overlooks something and hopefully if you hire multiple auditors, they’ll overlook different things from each other. Similarly here, the space of “what possible mechanism designs (tokenomics) could we employ, and what would the consequences be?” leaves a lot of room for different people’s ideas to be additive.

Anybody know any great tokenomicists? I feel like “tokenomicist” has gotta be a whole job description nowadays!

[zooko]

@Shawn

I just want to say this thread is a good example of the things I like best about the Zcash community.

Great perspectives, thoughtful and passionate debate, respect for each others opinions.

Well said, Shawn! I’m really glad to see this conversation going on.

I just want to re-iterate why ECC cares so much about ZEC.

ECC’s mission is to empower people with economic freedom. Every human deserves dignity and security, and for their consent to be honored. But our current three-year roadmap is about “Building a world-class UX for ZEC”. Why ZEC?

It’s because ZEC is the engine of the sustainable growth of our mission.

Thanks to the Zcash community’s donation of the Dev Fund, ZEC is the primary support for all of our work.

.-----. → .-----.
| ZEC |   | ECC |
`-----'   `-----'

Now inasmuch as our work supports ZEC, this becomes a positive feedback loop! A virtuous cycle.

.-----. → .-----.
| ZEC |   | ECC |
`-----' ← `-----'

The same is true of the (increasing number of!) other orgs supported by the Dev Fund, and in fact the same is true of every company that supports ZEC (also increasing!), all the (numerous, farflung, and increasing) zodlers, and in general the entire Zcash ecosystem and community.

.-----. → .-----------.
| ZEC |   | community |
`-----' ← `-----------'

This is a much better structure for sustainable and mission-aligned development, than the alternative (which a lot of other tokens use) in which funding comes from some outside source, like a big company, foundation, investors, or a rich donor.

.-------. → .-----------.
| donor |   | community |
`-------'   `-----------'

That unidirectional — non-feedback loop — model is not inherently sustainable, and the priorities and preferences of the donor will always “leak in” to the work that the community is able to do, potentially undermining the community’s mission. (In economics, this pattern is called “capture”.)

So that’s why ZEC is the core of ECC’s strategy — because we’re here for the long-haul and for the history-changing mission.

ZEC is the engine of the sustainable growth of our mission.

.-----. → .-----------.
| ZEC |   | community |
`-----' ← `-----------'

[Rucknium]

I’m an economist. I can try to be another set of eyes on the GMU team’s work. How useful I could be sort of depends on what “economic toolkit” they are using, though.

[pkr]

Paging @vbuterin since I’d be really interested in his thoughts on tokenomics on a PoS network.

[pitmutt]

I agree with this.

Based on what I saw through 2021 on Secret Network as they released their SNIP-20 (ERC-20 equivalent) tokens and NFTs:

• The ERC-20 tokens with incentives provided by Secret Network moved into wrapped assets, those without incentives did not get much attention.
• Once the first DEX launched, there was an inflow of users and TVL as it seems that providing liquidity and arbitraging tokens between chains is a popular activity. It was large and sudden enough that it required a concerted effort to scale the network up.
• The BSC bridge and the corresponding wrapped tokens were launched with a much smaller inflow of users or TVL. My theory is that the people that bridged Ethereum tokens did so more to avoid paying exorbitant fees in their trading than the privacy narrative. BSC users didn’t have that economic incentive.
• A second DEX launched, causing some competition for the liquidity, rewards been paid in each team’s SNIP-20 token.
• Most of the second half of 2021 was dominated by teams creating NFTs.
• A new protocol to wrap BTC into Secret Network will be launched in Q1 2022, should be a great opportunity to see the market reaction.

Selfishly, I’d love to have ZSAs to add loyalty points/coins to ZGo. I find these tokens more interesting because their value is not determined by how much you could get by bridging it out of the Zcash chain to somewhere else where you can sell it for X, rather by the fact that N loyalty coins gets you a coffee at a merchant.

[daira]

@Shawn

But the key to maintaining fungibility in that scenario would be for all ZSAs to use the same higher fee.

Yes, it’s a trade off in that looking at just fees on the chain a Tx could be attributed to “some ZSA transaction took place” vs “some regular Zcash transaction took place” but it would need further study to know if it’s worth the trade off.

To me it seems like a good compromise if it makes ZSAs “consume” more real Zcash to operate.

I’m strongly opposed to ZSA transactions being distinguishable from ZEC-only transactions. That would very severely curtail the anonymity set of ZSA transactions, especially in the initial stages of adoption.

[daira]

@tokidoki

“In the year 2100 the whales notice that the mining reward is basically zero, and there are fewer and fewer transactions happening on the slow, expensive, zero-privacy BTC network. So they decide to simplify and save money by shutting it down.” (Gavin Andresen in A Possible BTC Future)

I predict that will happen before 2040 (and that pressure from environmental activism will also be a significant factor).

[pacu]

@GGuy

I think those within ECC are incredibly smart deprioritizing ZSAs internally. This leaves ECC, as far as I can tell, as purer advocates for ZEC and its utility in the medium term over ZSAs. If ECC were implementing ZSAs the success of (and rhetoric towards) ECC may be largely tied to the success of ZSA. This may have been a bad thing as it takes away from all the other amazing current and future achievements of ECC.

I think it’s not correct to say that “those within ECC are incredibly smart deprioritizing ZSAs internally”. That leaves whomever takes on the challenge of implementing ZSA in a bad place, because you would be implying that it’s “not smart”. That’s totally inaccurate. ZSAs are a great initiative.

I personally believe ZSAs will bring, along with the huge range of new opportunities and use cases, a breeze of fresh air and also sort of a “relaunch” for Zcash. ZSAs is an improvement that’s relatively easy to appreciate being an average user.

Halo and no more trusted setup is a great breakthrough in cryptography and has huge implications for privacy of all mankind. But let’s also recognize that it’s hard to explain to “normie” friends over beers

So, if it’s not evident already. I’m really excited that the ZOMG decided to fund the ZSA grant.

That being said, I don’t feel that ZSA were de-prioritized or demoted in any way by ECC. Other work was determined to be higher in priority instead.

This blog post is pretty clear on breaking down the nature of the decision made.

It’s fine to feel uneasy about ZSA becoming a thing. It’s certainly a game changing feature. But I also think that it’s a feature that is being thought exhaustively and pursuing ZSA has not been a lightheaded decision at all.

[mrbabble2]

@pacu

I personally believe ZSAs will bring, along with the huge range of new opportunities and use cases, a breeze of fresh air and also sort of a “relaunch” for Zcash. ZSAs is an improvement that’s relatively easy to appreciate being an average user.

Halo and no more trusted setup is a great breakthrough in cryptography and has huge implications for privacy of all mankind. But let’s also recognize that it’s hard to explain to “normie” friends over beers

This is my qualm, I feel the community is treating ZSAs as a marketing stunt to users. What the users will appreciate and what is actually useful for Zcash are mutually exclusive.

I understand it is important to set the narrative. ZSA’s can definitely add to this narrative. But, is it the most effective one? Especially with a price tag of a million dollars. A much better route is educating users on Zcash from the ground up. Maybe it is building curriculum to teach students basic number theory or educating users on public key cryptography. Teaching them about privacy sets.

The users of Zcash tomorrow is the youth of today. Focusing on them will be much more rewarding in the long term.

@zooko That is great you already have reached out to Professor Roughgarden. Maybe his students might be interested in helping out?

[GGuy]

I’m 100% excited about ZSAs. I think they are going to play a very very large part to Zcash becoming one of the most utilised decentralized chains. POS, scalability, and privacy are the others.

@pacu

That being said, I don’t feel that ZSA were de-prioritized or demoted in any way by ECC. Other work was determined to be higher in priority instead.

I was using the term “deprioritizing” to refer to “lower the order for dealing with ZSA relative to other tasks.”. In no way was I trying to imply a party is not smart for developing/prioritizing ZSAs.

All I was trying to say was I like the scenario where ECC spends large amounts of resources on POS and scalability and the community outsource ZSAs. I would be less excited about the idea of ECC prioritizing ZSAs and the community outsourcing (or ECC delaying) POS and scalability work.

[Shawn]

@mrbabble2

But, is it the most effective one? Especially with a price tag of a million dollars. A much better route is educating users on Zcash from the ground up.

It seems that your concern is not so much about ZSAs themselves, but that so much money is currently being spent there and not being spent elsewhere?

Why not do both?

The easy part is coming up with broad stroke ideas about how funds could be spent, the ZOMG website has a list of similar ideas including the ones you mentioned:

Zcash Community Grants

The hard part is coming up with a concrete plan and someone to reliably execute that plan.

[mrbabble2]

Agreed.

The ultimate goal of the ZSA grant boils down to increasing the demand for ZEC. The goal of any investment is to take 1 dollar and turn it into 5.

Here is some math I think that can shed more light on what I mean. Please correct me if I am wrong! I will use round numbers.

Hypothetically, let’s say the ZSA transaction fee is the same today as ZEC which is: 0.0001 (zec). This means that 10,000 ZSA transactions will create the demand for 1 ZEC.

1 (zec) / 0.0001 (ZSA transaction fee in ZEC) = 10,000 transactions

The ZSA grant which is for $1,000,000 means we would like to see ZSA’s create demand for at least 10,000 ZEC (taking today’s price of $100 per zec;).

10,000 (zec) * $100 (price of 1 zec) = $1,000,000 (price of grant)

If 10,000 ZSA transactions create the demand for 1 ZEC.

10,000 (transactions needed to create demand for 1 ZEC) * 10,000 (zec used for ZSA grant) =

100,000,000 ZSA transactions.

In conclusion, we would need to see 100 Million ZSA transactions (using todays ZEC price as of 01/24/22) before the grant pays off. I would love for someone to verify my logic.

[GGuy]

ZEC fees go to miners. Why do you think ZEC fees have any correlation to the success of ZEC investors/users?

Edit: Fees are a pretty arbitrary measure for the value of a transaction. You could equally use transaction amount which would add up to $1million much sooner (not that we can measure that ).

[GGuy]

Or are you talking about the 20% dev fund making its money back?

I’ve never thought about that being a measure of success. A genuinely interesting way to think about it .

Edit: try to forget I mentioned this. Anything that incentivising the community/ZOMG to raise fees is probably a bad idea .

[mrbabble2]

@Shawn My concerns are with both. The dilution of the ZEC narrative as well as the hazy economics around zec-demand creation from ZSAs.

@GGuy My understanding is that part of having ZSA’s ultimately will create demand for ZEC through fees. If the goal is not increased ZEC demand through ZSA’s, then it really is unclear for me what the reasoning for wanting ZSA is.

[gottabeJay]

We should aim for utility, functionality, usability (plus fun). I dont think artificially creating demand or hype is a good strategy and won’t be long lasting.

Marketing a good product that has utility, functionality, usability i’m all for, in fact I wish ECC/ZF would do [better] marketing. Fake hype for hypes sake, i’m not a fan.

Easy come, easy go.

If ZSA expands Zcashs’ use case, im in.

[GGuy]

@mrbabble2

@GGuy My understanding is that part of having ZSA’s ultimately will create demand for ZEC through fees. If the goal is not increased ZEC demand through ZSA’s, then it really is unclear for me what the reasoning for wanting ZSA is.

Sorry @mrbabble2, I was probably too quick to dismiss. Your right, we could indeed use fee*transactions as a measure and it’s probably useful .

Maybe there are other ways we can measure the success of ZSAs?

• Increase in number of ZEC transactions
• Increase in ZECUSD (or ZECBTC etc) price
• Increase in number of applications using Zcash
• Increase in community members
• Increase in number of new grant applications

But I think they are all very indirect measures so I’ll probably use a combination of a few to measure success .

[GGuy]

@mrbabble2

If the goal is not increased ZEC demand through ZSA’s, then it really is unclear for me what the reasoning for wanting ZSA is.

Let me tell you why I’m personally excited for ZSAs. I’m imagining a world where I can:

• Buy digital membership/subscription tokens on-chain (irrefutable proof of membership/subscription)
• Transfer digital memberships/subscriptions to a friends (think twitch)
• Hold all your private tokens on-chain (think pseudo private keys)
• Pseudo sign/verify timestamped data on-chain (think timestamp authority)
• Manage user authentication using only Zcash chain (think “Login with Zcash” button)
• On-chain voting systems
• On-chain IOU/like/thank-you tokens

Could some of these be done without ZSAs? Sure.
Are some of this beyond the ZSA of 2022? Probably.
Am I excited to explore the possibilities? Always.

[GGuy]

@GGuy

On-chain IOU/like/thank-you tokens

On a side note this is why the transparency pool is so important. Who wouldn’t want to show off all their @zooko “like” tokens .

[Autotunafish]

Not much of that excites me really for various reasons sry. But to answer your question, I wouldn’t want to show off my money nor have it stamped with such information in the first place.