Shielded Labs: An Independent, Non-US Organization

Governance
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Hi everyone,

I wanted to provide some updates about Shielded Labs related to funding and the initiatives it will focus on in the months ahead.

Funding

I am happy to announce that Shielded Labs has received funding to help bootstrap its operation.
We received a generous donation from an individual who is aligned with Zcash’s mission and values. Although they wanted to remain anonymous, this individual firmly believes in the importance of layer-one privacy and the critical role it plays in preserving individuals’ autonomy and financial freedom. Shielded Labs is very grateful for their generous donation and for their commitment to advancing the decentralization of Zcash. We plan to use this donation to fund our first development project, the Zcash Sustainability Fund.

Overall, funding is still very limited. I’ve spent the past few months trying to raise donations, but it has been difficult given the challenging market environment. Since Shielded Labs is a non-profit, donors do not receive an equity interest or ownership stake in the organization, which makes fundraising more difficult. In the coming months, I will continue outreach efforts and actively engage with potential supporters to secure the financial support necessary for our mission. Shielded Labs is also interested in exploring grant opportunities, possibly including the Zcash Foundation’s Minor Grants Program.

Initiatives

Development

Shielded Labs recently announced that it is partnering with the European-based Equilibrium Group to develop the Zcash Sustainability Fund. Please read our proposal and provide your thoughts, feedback, and suggestions. We will allow a comment period for at least one month. If there is general community support and no significant objections, we plan on starting development shortly thereafter.

If we can obtain additional funding, there are two other development projects we are interested in pursuing. First, we are exploring covenants that would introduce programmable logic into Zcash transactions to allow users to define specific rules and conditions that must be met before funds can be accessed. Covenants would give users advanced security features that enable custom spending policies, create time-delayed transactions, and provide immediate response options in case of compromised keys. For example, a time-lock vault could impose a time-based constraint on spending Zcash, ensuring that funds remain unspendable until a specified period has passed. This mechanism also provides protection against immediate spending and offers users a chance to detect compromises and take appropriate action. We’re also interested in developing a feature that serves as an emergency measure to lock funds when the owner suspects a private key compromise.

In addition, Shielded Labs is interested in developing a coinholder voting mechanism. To be clear, we do not endorse pure on-chain governance; however, we recognize the importance of providing a means for coinholders to participate in the governance process. As Zcash becomes more decentralized, we need additional ways to determine community consensus. Such a mechanism would allow coinholders an opportunity to express their preferences and participate in the decision-making processes that shape the evolution of the Zcash network. Aditya wrote an RFI for a coinholder voting mechanism last year while he was on the Zcash Community Grants (ZCG) committee, which provides a valuable blueprint for the design of a secure and private mechanism.

User Adoption

User adoption is one of Shielded Labs’ core initiatives. In the immediate term, I would like to focus on two key areas:

First, there has been several discussions on the forum about getting more people to use Zcash. One specific initiative @earthrise recently proposed is Zcash being adopted as the de facto currency within a niche community that has historically grappled with censorship by established payment processors or has unique privacy requirements conventional payment processors cannot fulfill. Shielded Labs can play a role in providing structure to this project to transform these discussions into actionable items that can be implemented. To facilitate this, I will establish a User Adoption Working Group that meets on a regular basis to deliberate on strategies and identify specific communities where Zcash can be effectively introduced. These meetings will prioritize tasks, delegate responsibilities, and establish clear deliverables, ensuring focused and effective efforts. Through consistent communication and collaboration, we can optimize our impact and achieve successful outcomes that increase user adoption.

Second, as a member of the ZCG committee, I have come to realize that one important aspect of the program is currently lacking adequate support. While the Zcash Foundation does an excellent job administering the ZCG program and supporting the grant process, there is a notable absence of dedicated post-approval assistance for grantees. Shielded Labs can play an important role by providing ongoing assistance, mentorship, and resources to grantees to ensure that the potential of these projects is fully realized. For example, we can assist @pitmutt with outreach and marketing efforts to encourage adoption of Zgo among payment providers. We can also partner with QEDIT to create educational and promotional materials that communicate the value of Zcash Shielded Assets to a wider audience. If any grantees are interested in post-approval support, please reach out to me to discuss this opportunity further.

Community Support

Community morale has reached an all-time low, and there is a growing sense of concern and dissatisfaction within the Zcash community regarding various aspects of the project. In order to build a stronger and more resilient ecosystem, it is important to acknowledge and address these issues. To that end, I would like to set up time with community members to share their feedback on what they believe is currently lacking and what they believe could be improved within Zcash. Your input is essential to shaping the future of Zcash, and I strongly encourage you to participate in this feedback process.

I would also like to offer my assistance as a resource to community members to help ensure the Dev Fund 2024 discussions are driven by the community and not existing Dev Fund recipients. If you need help brainstorming proposal ideas, seeking feedback on your proposals, finding like-minded individuals to collaborate with, or understanding how to engage effectively with the community, I can help provide guidance and support.

I am starting office hours where community members can schedule time to speak with me directly about these matters. To schedule a meeting, please book a time slot via Calendly. If you prefer something more private than Google Meet, please feel free to reach out to me via DM on the forum or Twitter, and we can arrange a meeting on Jitsi or Session. I look forward to connecting.

Conclusion

In addition to the initiatives mentioned above, I am also focused on recruiting more directors and contributors who are non-US citizens based outside the US. This is essential for building a truly geographically diverse and robust organization. There are a couple individuals I have in mind who I believe would make good board members, but I have been moving intentionally slow to maintain flexibility and explore various options. Nevertheless, this is a high priority, and I will keep you updated on the progress I make in this regard.

I am excited about the future of Shielded Labs and the role it aims to play in the development and decentralization of Zcash. In the short-term, Shielded Labs endeavors to be an independent contributor to protocol development and other ecosystem initiatives. In the long-term, it aspires to be a core entity that stands beside the Electric Coin Company and Zcash Foundation and makes Zcash stronger and more resilient in an increasingly uncertain regulatory environment. It will take time and additional funding to get there, and we’ll inevitably hit some bumps along the way, but I am confident we are on the right path and working towards success.

Thank you.

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I agree, having something more along the lines of an incubator would add a lot of value to the ecosystem.

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What a breath of fresh air!

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That’s exactly how I feel too!

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Hi @aquietinvestor ,
Each of the suggested activities is very important for Zcash and its ecosystem. I really hope you will be able to follow through on your intentions.

If there is something else that Shielded Labs could take care of that in my opinion is missing:

  • Regulatory aspect, see also the recent ban of private cryptocurrencies with Binance. Meet with European exchanges and help them understand how to read current regulations without exceeding them.
  • Lobbying institutions, promoting Zcash or even the “Grayscale Privacy Fund” ETF (link).

I know that these activities would require specific resources and some effort, but in my opinion it is something that is lacking in the current organizations.

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Hi @bloxster. Thank you for your feedback. I agree with you on the importance of regulatory outreach and promoting Zcash.

In terms of regulatory outreach, I agree that it should be an area of focus for Shielded Labs. While I currently lack the necessary funding and staffing resources to fully commit to this initiative, I have been engaging with European organizations involved in policy efforts related to crypto. I have spoken with members of the European Crypto Initiative and the Crypto Council for Innovation to discuss Shielded Labs and Zcash, and emphasized, for example, that Zcash’s shielded memo feature is designed to comply with GDPR’s travel rule. I will continue this sort of engagement.

One way to prioritize regulatory outreach is to add an attorney to the Shielded Labs board who is well-versed in European crypto policy matters and can effectively advocate for Zcash. I have been strongly considering this and am searching for the right candidate.

Regarding promoting Zcash, Shielded Labs has a “Narrative Development” initiative. The objective is to create informative reports that highlight the value proposition of Zcash and distribute them to relevant organizations and institutions. Due to resource constraints, I have currently prioritized the User Adoption initiative over Narrative Development. However, I hope to start the Narrative Development initiative later this year.

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Excellent proposals! Best of luck!

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Great to hear from you, this all sounds great and I am excited to watch things develop. --In regards to Community Support I think hosting Twitter spaces may be interesting and help bring the community together to collaborate and discuss ideas. Does Shielded Labs have a Twitter page?

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I really like the idea of having a Twitter spaces event to discuss Community Support. @shieldedlabs is the Twitter handle, but there hasn’t been any activity yet. I’ll look to start using it in early July. On that note, i’m looking to find someone to help run the Twitter page. Please reach out if you’re interested.

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I’d be interested to hear about tax-exemption status for the non-profit

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Shielded Labs does not currently have tax exempt status, but is taxed as a non-profit on a cost+ basis.

After Shielded Labs was organized, I applied for tax exempt status on the advice of Swiss legal counsel. However, after three or four months of deliberation, the tax authorities rejected the application. I was surprised with the outcome because Shielded Labs seemed to meet all the requirements for tax exempt status.

Shortly after the rejection, I spoke to the COO at Nym, which is also based in Switzerland. He said it was a mistake for Shielded Labs’ legal counsel to advise me to apply for tax exempt status right away; that the tax authorities expect the organization to first prove it is meeting the requirements on an ongoing basis before applying. So, Shielded Labs intends to apply again at some point in the future.

As I mentioned above, Shielded Labs is taxed as a non-profit on a cost+ basis. What that means is if Shielded Labs receives CHF 500,000 in donations and has operational costs of CHF 350,000 in 2023, the “profit” for 2023 would amount to CHF 17,500 (350,000 x 5%). Shielded Labs would pay 7.75% profit tax on the CHF 17,500, amounting to CHF 1,356.25 (17,500 x 7.75%), which is equivalent to a tax rate of 0.39% (of the CHF 350,000 spent). There is also a negligible capital tax in Zug of 0.5% of profit.

Shielded Labs is not subject to capital gains tax. So, if it holds ZEC and the price increases significantly between the time the ZEC is acquired and the time it is liquidated to cover operational costs, there is no tax liability on the gains.

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I hope Shielded Labs will also consider other means of communicating its message. With the debacles on Twitter and Reddit (and I’m just waiting for Discord to follow suit), we need a presence outside of the walled gardens.

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It’s been our experience that most of the existing lobbying groups in the EU have been ineffective to date and not necessarily well aligned. We had been making progress on establishing PGP in the EU in partnership with Ledger for relationship-building and narrative development but had to back off due to the funding constraint.

It’s also been my experience that the promotion of the memo field in support of the travel rule falls on deaf ears. CASPs need a common mechanism for sharing information rather than using a Zcash-specific feature.

It’s been more effective to work with CASP/VASP compliance teams based in those jurisdictions to help promote and support a risk-based approach, along with enhanced due diligence if appropriate.

Another possibility is to engage with and help drive initiatives through the Universal Privacy Alliance, which will also be based in Switzerland where the narrative and regulatory work will be collaborative (and ideally cross-industry) and privacy-centric.

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Will be there a place to visit the shielded labs team in Switzerland?

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There is no reason for us to gather for our calls in any one of the walled gardens. We can broadcast to many endpoints with maintained open-source tools (which we already have) in a web browser. We can do this in a way that doesn’t require any centralized services.

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Any updates this year about Shielded Labs?

What sort of treasury strategy will it have? (ZEC & fiat only? or will it dabble in altcoin speculation/ investing like the ZF and ECC do?)

Is Shielded Labs going to appeal to the ecosystem to become a block reward receiver next cycle? (if the block reward model is kept)

Will non-profit status in Switzerland also hamper Shielded Labs’ ability to strategize about the value of ZEC? Does non-profit status impose other legal restrictions about how you can communicate about Zcash?

Have your initiatives stayed the same, since the June 2023 post above? Have any contexts changed/ new scope/ descoping?

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Hi @noamchom. Thanks for the questions. I’m tied up today, but will respond to your questions and provide an update later this weekend.

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Shielded Labs’ primary focus is supporting the development of the Zcash Sustainability Fund (ZSF). So far, we’ve completed the three ZIP specifications in Milestone #1 and are about halfway through the development work for implementation into Zebra. Market conditions have slowed down development, but I think we’re making decent progress.

In addition to the ZSF, Shielded Labs is also working on other, smaller projects related to user adoption, such as collaborating with ZecHub on a video explainer about Zcash Shielded Assets (ZSA), which is anticipated to be released within the next couple of months.

Shielded Labs currently holds the vast majority of its treasury in ZEC, with a modest exception of approximately $1,500 in ETH received as donations. I’m bullish on Zcash over the long-term, so I’d like the organization to maintain significant exposure to ZEC. Since the cryptocurrency market tends to move in volatile boom and bust cycles, I think it would be prudent to diversify a portion of our ZEC holdings into fiat during more bullish periods. Shielded Labs will not engage in “speculation” on altcoins; however, it may acquire such assets through donations.

My original intention was for Shielded Labs to become a recipient of the Development Fund after the next halving. However, I’m now undecided about proposing this. The ecosystem has changed significantly since Shielded Labs was first announced. Given that Zcash is currently in survival mode, I believe funding should prioritize collaborative efforts among established entities rather than supporting a new and unproven organization.

Market conditions have slowed Shielded Labs’ progress, both in terms of our activities and organizational development. For instance, I’ve struggled to find additional non-US individuals to join our board and contribute to our strategy. Currently, the board consists of two unpaid directors: myself, based in the US, and one other member in Sweden. Overall, I don’t think Shielded Labs has yet proven itself deserving of the Dev Fund. Other established organizations, such as QEDIT, are much more qualified for support.

Having said that, if there was enough community support for a non-US Zcash entity to protect the ecosystem against US regulatory pressure, I might reconsider Shielded Labs becoming a Dev Fund recipient. However, it doesn’t feel like that’s where the community’s interests are right now.

Lastly, I take pride in the fact that Shielded Labs is the only independently funded Zcash entity, with our entire treasury coming from donations. The idea of continuing as a donation-based organization is somewhat appealing; it could serve as a unique example for the ecosystem. However, the viability of this model heavily depends on the willingness of people to donate and, ultimately, a consistent long-term increase in the price of Zcash.

No, I do not believe that Shielded Labs’ non-profit status in Switzerland will hamper its ability to strategize about the value of ZEC. In fact, I think that both the ECC and ZF have historically been too conservative when discussing ZEC as an asset. There’s a fine line between overtly promoting ZEC and educating the public about Zcash’s value proposition.

For instance, I believe Shielded Labs could initiate an educational campaign that, in part, focuses on how Zcash, as an innovative financial technology, possesses store of value properties similar to Bitcoin. This would be a factual, educational approach rather than promotional. Our objective would be to inform and educate rather than to influence market behavior. Although we cannot (and would not) engage in “shilling” ZEC, I believe we are well within our right to educate people on why Zcash is a valuable technology.

The core initiatives of Shielded Labs have not changed; however, as noted above, the pace of our progress has been impacted by market conditions and funding constraints. I recognized from the beginning that building Shielded Labs into an established entity would not be an easy task, but I’m committed to continuing our efforts to support Zcash. This process will inevitably take time, and I appreciate the community’s patience, understanding, and support.

Thanks!

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I’m excited to announce that @zooko will be joining Shielded Labs as Head of Product, where he will help lead the development of Crosslink and transition Zcash to a hybrid proof of work/proof of stake consensus protocol. Zooko will also join Shielded Labs’ Board of Directors to assist with fundraising and strategic planning.

Additionally, we are pleased to share that Shielded Labs has received generous donations from Zcash holders and supporters including Cameron and Tyler Winklevoss, Vitalik Buterin, and the Anoma Foundation, as well as an anonymous donor. These contributions will help us execute on our mission, expand our initiatives, and partner with ECC to prioritize the development and implementation of Crosslink.

Funding

Shielded Labs is an independent, Swiss-based organization dedicated to supporting Zcash. Our mission is to develop new use cases for Zcash, increase user adoption, and contribute to protocol development. We are currently the only organization within the ecosystem funded solely by donations, without ever receiving direct or indirect funding from the Zcash Development Fund.

Given our unique position in the ecosystem, I announced earlier this year that Shielded Labs would not seek funding from the Dev Fund. Instead, we are committed to securing funding directly from Zcash holders and supporters. While we acknowledge the value the Dev Fund brings to the ecosystem by providing a reliable source of sustainable funding for development, we believe Zcash should also explore alternative funding sources. As a new and emerging organization, we believe our approach represents a significant evolution in funding Zcash development. Our goal is to remain independent, lead by example, and inspire other Zcash contributors to look beyond block rewards for funding.

Shielded Labs’ donations-based funding model marks the beginning of a new era for Zcash, and we’re excited about the possibilities ahead. The Zcash community is much larger than many realize, with a growing number of users, holders, supporters, and developers around the world. I believe this network will continue to grow significantly in the coming years. This growth will create opportunities for new sources of funding, providing an alternative approach to sustaining development.

Zooko

I first met Zooko in June 2021 when I was serving as a moderator in the Telegram community. During our first conversation, Zooko and I spoke for two hours and shared our long-term visions for Zcash. In particular, we both believed the ecosystem should better support ZEC holders. We were strongly aligned on the importance of ZEC the asset, which can create a positive feedback loop that drives adoption, development, innovation, and sustainability. Furthermore, Zooko and I both firmly believe that Zcash is not an academic experiment whose innovations will benefit other cryptocurrency projects rather than itself. Instead, Zcash is a highly functional protocol with the potential to become the mainstream alternative to Bitcoin as a private store of value and medium of exchange.

Over the past few years, Zooko and I have stayed in close contact, often discussing issues related to Zcash community and governance. After reading my Forum post in February where I first mentioned the possibility of continuing as a donations-based organization, Zooko reached out to support that idea and express an interest in joining Shielded Labs to help further decentralize development.

Zooko has been a pioneer in the crypto space since before Bitcoin existed and has long been a prominent figure in the cypherpunk movement. He’s an accomplished computer security expert that brings over two decades of experience in cryptography and decentralized systems. His unwavering belief in human freedom has driven his dedication to developing and supporting privacy-enhancing technologies.

I’m thrilled that Zooko is joining Shielded Labs and will contribute his skills and energy to advancing our mission. He will undoubtedly generate strong momentum for this organization. Although we’ve never officially worked together, we have a strong rapport that gives me confidence we will accomplish great things for Zcash.

Our shared goal is for Shielded Labs to become a core contributor to Zcash on par with ECC and the Zcash Foundation. A central part of our vision is to support projects that empower ZEC holders. We’re also exploring the possibility of integrating coinholders into some of our governance and decision-making processes. We’ll share more details in the coming months.

Operations

As mentioned above, Shielded Labs will partner with ECC to accelerate the development of Crosslink and transition Zcash to a hybrid PoW/PoS consensus protocol. Crosslink implements the Trailing Finality Layer, which ensures that once a block is finalized, it cannot be rolled back. This enhances the network’s security and enables new use cases such as safer cross-chain bridges and staking ZEC for protocol rewards, allowing holders to become users of the network.

Shielded Labs met with ECC last week to discuss the existing project roadmap. Our immediate plan is to hire three engineers to build a prototype, with Zooko overseeing the project as Head of Product and me serving as Executive Director of the organization. We’ll provide more specific details in the coming weeks, likely starting with the Arborist Call on August 22.

We’re also focused on delivering the Zcash Sustainability Fund (ZSF), which we started developing last year. The ZSF is a modification to the issuance mechanism that enables deposits of ZEC from the circulating supply into future block rewards to help sustain the network. The European-based Equilibrium Group is leading this development effort. They have nearly completed the Zebra implementation and are also working on an implementation for zcashd. Our goal is for the ZSF to be included in a network upgrade in Q1 2025.

Additionally, we have two new non-US members joining the Board of Directors, which we’ll announce next week. We will also have an open call for an additional non-US board member in the coming weeks. As Shielded Labs is a Swiss-based organization, our long-term goal is to have a globally distributed team, with a majority of non-US employees and board members.

Shielded Labs is excited for its next chapter and looks forward to continuing to support the Zcash ecosystem. We’ll provide additional updates to the community as our plans progress.

Thank you for your continued support.

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This is fantastic news. Congratulations to Jason and Zooko, and I can’t wait to see where things are headed with Shielded Labs!

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