I want to express my support for ZSAs and outline arguments that, in my view, have not yet been sufficiently discussed, as well as offer counterarguments to those who oppose them. Since a thread titled “Why I’m Against ZSAs” already exists, it seems reasonable to create a complementary one “Why I Support ZSAs.”
From the very beginning, I have been a supporter of ZSAs, and this position is not about stablecoins. I am a strong proponent not only of privacy, but first and foremost of decentralization. During the ICO era, the only project that truly captured my attention was a project by Pavel Durov’s team called Blackmoon. The core idea of that platform was the decentralized tokenization of equities, funds, and other securities. Even at that time, the idea was articulated that, through tokenization, brokers would no longer be necessary, and their role could be replaced by decentralized financial infrastructure.
Although the project did not succeed (Eric Idosen in this article is my pseudonym), and ultimately proved to be premature due to the absence of a sufficiently developed regulatory framework at the time, the idea of tokenization itself did not disappear.
In a 2019 article titled “Tokenization of Assets - the Evolution of Money” I explored how blockchain could make hybrid forms of money reality - assets that function both as instruments of exchange and stores of value.
Leading participants in traditional financial markets are increasingly speaking about a future in which the tokenization of securities on blockchain becomes the norm rather than the exception. For example, a Forbes article discusses how large brokerage firms are rethinking their business models through crypto technologies and are moving toward integrating distributed ledger systems into capital markets:
«Tenev’s tokenization push is a bit of a moonshot, and Europe, which has already adopted many of the crypto road rules still being debated in Congress, is Robinhood’s lab. “The experiment that we’re running in Europe is, What would Robinhood look like if it was rebuilt from the ground up entirely on crypto rails? Then we’ll see what the pros and cons are and bring the best of that EU app to the U.S. and the rest of the world,” he says.»
I sincerely believe that Zcash can be more than just a blockchain serving as the carrier of the ZEC monetary unit. It can become a universal blockchain for a wide range of use cases — not only for tokenized equities, but for any tokenized forms of value. In my view, this would ultimately benefit Zcash, and below I will explain why.
And while the regulatory landscape is still not ready, I believe that in the foreseeable future privacy will become a mandatory requirement for any decentralized settlement systems and brokerage infrastructure, because it is precisely privacy that ensures the security of asset holders. Therefore, Zcash must be prepared for this future.
Why would this be beneficial? At present, Zcash’s design is largely identical to Bitcoin’s in terms of halvings, the issuance algorithm, and the presence of mining. The architects of Zcash are well aware of this, and I agree with them: in the long term, a fixed supply cap of 21 million coins combined with low transaction activity leads to a collapsing incentive structure for mining and, as a consequence, to stagnation in the network’s hashrate.
Satoshi himself pointed to this issue in the sixth section of the Bitcoin white paper:
"The incentive can also be funded with transaction fees. <..> Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free."
Source: WP Bitcoin
Source: The Quotable Satoshi - Fees | Satoshi Nakamoto Institute
This issue is widely known as the security budget problem in Bitcoin.
Today, this problem is often implicitly ignored, yet it has not disappeared, and the point at which it will make itself felt in a tangible way is not far off.
This is precisely why the architects of Zcash are proposing a set of important changes intended to avoid the problems Bitcoin is likely to face in the future. First, this includes a gradual move away from costly mining that requires substantial financial investment in hardware and electricity, even when that electricity is generated from renewable sources. Second, it involves the introduction of a Network Sustainability Mechanism (NSM) along with changes to the transaction fee model.
In addition, many of us expect that built-in privacy will allow Zcash to evolve into a full-fledged decentralized processing network that can compete with fiat payment systems in terms of transaction volume. This, in turn, would make it possible to fund the treasury envisioned by the NSM and to preserve incentive mechanisms for staking or mining, should either of them continue to exist in some form in the future.
In summary, I believe that the broader the range of ways the Zcash network can be used, including transactions and fee-generating use cases, the more sustainable incentives we will be able to provide for holders and miners over time.
So why should we give up the potential universality that ZSAs can provide? I believe we should not do so if ZSAs are able to become an additional source of transaction fees in the context of an inevitable shift toward privacy-preserving blockchains.
Based on everything discussed above, I do not believe that some of the arguments raised today against ZSAs will necessarily remain problems in the future, even if they may appear that way at the present moment.
My key arguments in support of ZSAs:
- ZSAs will become relevant in the foreseeable future as privacy is increasingly recognized as an essential component of security for self-custodial storage and transactional activity.
- By that time, ZEC will be a sufficiently valuable asset, and wrapped assets will not pose a threat to it.
- ZSAs will add value to the Zcash network in the eyes of new users, while providing existing holders with additional rewards through transaction fees.
In addition, I could examine other risks as well, but I want to focus on the most common argument, namely the one concerning stablecoins. The main issue I see in the context of stablecoins is not a lack of interest from issuers. On the contrary, it is the potential ability to shield any assets, including stablecoins, via bridges from other networks.
This, in my view, represents the primary risk, as it creates a potential point of friction between Zcash and regulators. The concern is about stablecoins that fall outside of effective oversight and end up in a regulatory gray area. I am prepared to acknowledge that this introduces an additional risk factor that is not necessary for us at the present moment.
Issuers of stablecoins, for their part, have little incentive to care about privacy until regulators explicitly state that it is the only acceptable method for transferring value. As I noted earlier, I believe we will eventually arrive at this point. However, at present, the risks likely outweigh the potential benefits of launching ZSAs, and I agree with that assessment.
For this reason, I would not want to rush the implementation of ZSAs right now. At the same time, I believe it is important to remain in a constant state of readiness to deploy them at an appropriate moment.
P.S. I have clearly expressed my support for ZSAs before, and, as far as I remember, this was my first nomination post for ZCG on the forum.
I have always had the impression that there was a consensus within the community regarding the importance of ZSAs for the future of Zcash. That is precisely why, within the Zcash Community Grants committee, we have consistently supported QEDIT’s work in this direction.
The current disagreements, as I understand them, are largely tied to a newer argument framed as “diluting ZEC’s value proposition,” which I would describe more plainly as: “do not change anything, everything already works fine.” In my view, this reflects another mistake that is well known from Bitcoin’s experience, and one that we should avoid repeating if we want to prevent stagnation.
First, I did not say that, please do not make up quotes. Second, it’s pretty easy to understand that I’m saying that one of the reasons that number of comments is not a good metric is because that not everyone commenting in the other thread is against ZSAs. That does not preclude other reasons for number of comments being a bad metric.