The Zcash Sustainability Fund
Shielded Labs is interested in developing and supporting the Zcash Sustainability Fund (aka Posterity Fund). Over the next month, we’d like to open up a discussion and encourage community members and ecosystem participants to ask questions and provide feedback on the proposal. Please refer to the following resources for background information: (1) ECC’s blog post announcing the Fund, (2) the draft ZIP written by Nate Wilcox, and (3) Nate’s twitter thread summarizing the Fund.
Please note that Shielded Labs believes the “Zcash Sustainability Fund” is a more appropriate name than the “Zcash Posterity Fund” because it accurately reflects the fund’s purpose of ensuring the long-term sustainability of the Zcash network. “Sustainability” conveys the idea of maintaining the network’s viability over time, whereas “Posterity” refers to future generations and does not necessarily capture the idea of ongoing network support.
Background
Recently, there has been increased attention around Bitcoin’s future security budget due to the possibility that miner revenue from transaction fees may not be sufficient to provide adequate network security after the block subsidy ends. Zcash faces a similar problem as its network is sustained by block rewards and operates with a supply cap of 21 million coins.
The Zcash Sustainability Fund (ZSF) addresses this issue by modifying Zcash’s issuance schedule and introducing a mechanism to direct funds towards sustaining the network. It preserves the 21 million supply cap and smooths out the emissions curve while maintaining an approximate issuance rate that replaces the four-year halving cycle. Fees deposited into the reserve are distributed over time in block rewards to help sustain the network.
In simple terms, the ZSF works like an algorithmic savings account or endowment. Funds are set aside for a specific purpose, to provide a sustainable source of block rewards for the Zcash network. Deposits can come from various sources, including transaction fees, which can be used to fund the network. Disbursements are governed by specific rules and policies that allow ecosystem participants to better plan for the long-term. In this sense, the ZSF is a reserve of funds that is managed separately from the circulating supply of ZEC to help ensure the long-term sustainability of the network.
The ZSF is not dependent on any specific consensus protocol, such as Proof of Stake, and can be implemented within the current Proof of Work consensus protocol. However, since it creates a mechanism for deposits that new applications or protocol designs can use to strengthen the long-term sustainability of the network, it may be an important step for future economic upgrades, such as a transition to Proof of Stake or Zcash Shielded Assets, and other potential protocol fees and user applications.
Shielded Labs
Shielded Labs was established with the aim of making the Zcash ecosystem more decentralized and more resilient. By developing and implementing the ZSF, it would be initiating the first network upgrade by an independent developer, which would demonstrate that Zcash is a permissionless network and also help lower the barrier to entry to serious development initiatives.
Shielded Labs believes the ZSF can help improve the long-term financial sustainability of the Zcash network. By creating a reserve that acts as an algorithmic savings account, the ZSF makes Zcash more resilient and helps ensure the protocol meets the future needs of its users. Moreover, the ZSF provides an opportunity for Zcash to continue to improve on Bitcoin’s design. Privacy and the development fund are two important features that define Zcash’s unique identity and differentiate it from Bitcoin. The ZSF allows Zcash to continue that tradition by providing a mechanism for long-term network sustainability while maintaining its supply cap and approximate issuance rate.
In addition, the ZSF is relatively easy to implement from a technical perspective, requiring approximately 6 to 8 months of development work with 1 to 2 engineers. My initial impression is that community sentiment is generally positive based on conversations I’ve had with community members over the past month. Overall, I believe the project is low hanging fruit that is well worth the effort in terms of the benefits it will provide. If community sentiment is in line with my initial expectations, I believe the ZSF would be a non-contentious network upgrade.
Next Steps
If the community supports this initiative, Shielded Labs will incorporate your feedback into a technical specification, which will be written into a ZIP, and look to start development later this year. Since the ZSF is independent from a transition to Proof of Stake, and also works with Proof of Work, implementing the ZSF earlier allows the reserve to accrue value sooner. To that end, it would be reasonable to set the activation block height to coincide with the next halving in Q4 2024.
Please provide questions, comments, and feedback, and let’s get a vibrant discussion going. Specifically, it would be helpful to know (1) general reasons why you support or oppose the ZSF, (2) any questions or concerns you have about the design of the mechanism, and (3) any questions you have related to the economics of the ZSF.
Thank you.