Zcash DeFi: JGx7's NU6 Block Reward Proposal

Welcome to Zcash DeFi (The JGx7 ZIP) which is designed to ensure block rewards funding is used for three primary objectives: (1) to ensure block rewards and related funds are used for the purpose of supporting direct investments in the Zcash ecosystem; (2) bring DeFi to the Zcash blockchain; and (3) to minimize funding for non-Zcash related projects that do not have a direct benefit to ZEC or the Zcash blockchain and share with the community any windfall profits from such investments. Block rewards are a centralized source of funding provided by ZEC holders where miners are effectively a pass-through mechanism in order to get funds from ZEC holders to the development organizations (namely the Foundation and ECC) . Under this arrangement, miners sell ZEC under a prearranged 80/20 split where the miner receives 80% and the development orgs receive 20% of block rewards. This prearranged split was voted into place using a “consensus” polling mechanism of the Zcash community and not a vote where miners can decide to provide funding or change such funding % or values: therefore, block rewards are not a donation from miners to the development organizations. As such, when a person buys ZEC from miners, they (ZEC holders) are providing funds to the development organizations based on the ZEC price they (ZEC holders) are willing to pay for ZEC in order to further the interests of the Zcash ecosystem pursuant to the pre-arranged 80/20 split. This proposal also recognizes ZEC holders are the ones providing funds to the development fund organizations and that the organizations have a duty of trust as it relates to ZEC and the Zcash ecosystem.

Note: Block Reward, Block Subsidy, Dev Fund, Allocation, et al refer to the same item

Summary of differences between ZIP1014, ZIP GGuy, and Manufacturing Consent

ZIP GGuy propose(d) notably higher total block subsidy %s (60, respectively) than Zcash DeFi; which reduces the total subsidy to 20% - where all 3 current recipients are retained (except that ZCG is moved under ECC from the Foundation), and 1 new recipients (who is already a proven Zcash ecosystem grant recipient) are introduced; and increases total subsidy compared to Manufacturing Consent at 14%.

Manufacturing Consent does not intend to change any of the current governance practices that are being used among the ZF, ZCG, ECC, ZCAP, ZAC (forthcoming), et al.

Zcash Defi would like to see a change to governance practices. But, the change in practices would be defined under a separate ZIP and voted on separately. This proposal would only ensure that a change in governance would be voted upon in the near term.

Zcash Defi and Manufacturing Consent introduces a requirement that all block subsidy recipients are banned from engaging their block rewards into Crypto Hedge funding, Angel/ Seed Investing, or any other forms of speculative, non-Zcash related treasury activities.

Zcash Defi and Manufacturing Consent recommends a grace period for existing block subsidy organizations to phase-out any previously normalized forms of the above. (Speculative use of treasury assets; unrelated to Zcash)

Zcash DeFi would also block GGuy proposal to change the halving schedule.

Block Subsidy Allocation and Schedule

Zcash DeFi proposes that its block subsidy model begins at the second halving in ~November 2024, allocating the total of 20% of block subsidies, as follows:

7% for the ZF - The core infrastructure org in Zcash. They’ve got at least $6 million of BTC to sell down, plus a ZEC and USD. ZF to focus on core blockchain development. ZF should prioritize Zcash core blockchain development and deprioritize community and third party non Zcash related projects.

8% for the ECC & ZCG combined - The core protocol R&D Zcash org. They’ve got $20 million of StarkNet and Agoric to sell down. 3. ECC’s mission is ZcashD, Wallet & SDKs, and Documentation. Zcash - Electric Coin Company. ECC shall in its discretion decide how much funding ZCG should receive from either its $20m investment fund or ongoing block rewards. ECC has an aggressive buildout associated with its Zashi wallet and ZCG’s function as mainly a project manager via grants would be better suited to be under ECCs grant needs.
ECC shall seed Qedit with $4m for completion of ZSAs and a functional stablecoin(s).

0% for the ZCG – ZCG will be moved from under the Foundation to the ECC. ZCG has spent the majority of its funding on wallets and wallet related expense, media, and Qedit. If we spin off Qedit into its own org, then ZCG is left with funding wallets and wallet related expenses and media, which falls entirely under ECCs mandate. Therefore, it does not make sense to have ZCG under the Foundation because ZCG is focused on wallets and media which are not consistent with the Foundations role to fund core infrastructure projects.

5% for Qedit - they’ve demonstrated strong results, they move faster than the ECC/ZF can keep up with; Qedit should be invited to assume a permanent role, particularly to the context of ZSAs and Stablecoins which are proven assets in any DeFi ecosystem. ECC should invest a portion (the lesser of $4m or up to 20%) of its investment gains to fund Qedit.

The block subsidy contemplated above can be flexed up or down by 2% per year based on performance . As such, a mechanism will be voted on separately to determine performance metrics and how to determine how well the organizations work together to further the Zcash DeFi objectives (and a respective orgs share should be increased or decreased). As such funding may or may not remain constant until the next-next halving ~November 2028, and unless otherwise impacted by TBD protocol changes.

A flexible funding model should be considered where organizations are rewarded for positive performance and funding reduced under certain predefined circumstances. Terms and performance metrics TBD.

Governance and Oversight

No modification to existing/ under development governance processes are proposed in this proposal. However, this proposal will require new governance proposals to be voted upon primarily in order to remove consensus voting and to ensure the board of directors of the orgs are more accountable for the development activities of their respective organizations.

The Zcash ecosystem needs less bureaucracy and more building of a DeFi ecosystem. As an ecosystem, we place good-faith in organizations to further the Zcash ecosystem and ensure the block subsidy recipients are working directly on Zcash blockchain.

Long-Term Sustainability and Decentralization

Long term sustainability is only possible with a value accruing to ZEC and/or directly into the Zcash ecosystem. The long term viability and sustainability is only achievable by introducing a gas/fee structure within an DeFi ecosystem where gas/fees are associated with transactions that are split between miners, the core blockchain as maintained by the Foundation (L1), the respective asset being transferred (the L2 asset) as contemplated by Qedit, the edge transactions (the wallet, CEX, DEX) as maintained by ECC, and staking as maintained by ECC when POS is implemented. The gas/fee should be calculated dynamically so as to consider the size of the transaction in bytes, amount in ZEC, and total all in cost of processing such transactions for the various layers involved in the transaction. This proposal doesn’t speculate about how to transition from block rewards to a market based decentralized funding and development ecosystem or the timing. It does seek to have the Foundation begin the process of working on a plan along with programmability and a DeFi ecosystem for Zcash.

While other proposals believe Decentralization is achieved by taking a sole source of funding from ZEC holders via block rewards, this proposal seeks to decentralize development by providing rewards via a gas/fee mechanism that pays for success as defined by transactions, and the related infrastructure required to process such transactions.

Additional Provisions

Blockchain DeFi includes the new provision regarding Crypto Hedge Funding, Angel Investing, Venture Investing, et al non-related Zcash behaviors without the direct approval of the board of directors, only if the organization has funding to cover more than one year of expenses, and the organization is meeting its obligations and mission with respect to developing the Zcash ecosystem funding requirements. If such venture investing is approved by the organizations BOD, it should be explicitly stated that such gains on investments are for the benefit of the Zcash ecosystem and do not belong to any single organization regardless of the organization making the investment on behalf of ZEC holders. If the combined market value of such investments becomes greater than 6-months worth (or similar terminology) of block rewards to be received by the respective org making the investment, then the organization should distribute the investments to ZEC holders on a pro-rata basis as an air-drop.

To the extent legally permissible, anyone receiving block reward funding directly or indirectly shall be subject to a “no forking” clause and a non compete agreement for a period of up to 5 years (or otherwise agreeable terms not less than 3 years) after the last payment received from block reward funding.

General

The Dev Fund should encourage decentralization of the work and funding only when decentralization makes sense and does not create unnecessary administrative burdens on the block reward funding, by supporting new teams dedicated to Zcash with a longer term goal to fully decentralize development by introducing a market based gas/fee structure within a reasonable timeframe and in connection with ZSAs, stablecoins, and/or programmability. The Zcash Community should implement a continuous governance and fund adjustment mechanism, introducing a flexible governance structure for adapting the Development Fund allocation based on the ecosystem’s evolving needs.

The Dev Fund mechanism should not modify the monetary emission curve as contemplated by GGuy.

The new Dev Fund system should be simple to understand and realistic to implement. In particular, it should not assume the creation of new mechanisms (e.g., election systems) or entities (for governance or development) for its execution; but it should strive to support and use these once they are built.

Acknowledgements

This proposal is a modification of @noamcham’s proposal, which is a modification of GGuy’s Proposal, which is a modification of Zooko Wilcox and Andrew Miller’s NU4 Zip 1

All existing sections of the inspiring ZIPs that have been removed, SHOULD be assumed to be intended as unchanged within the scope of Manufacturing Consent.

References

As needed, are available in the upstream ZIP(s) and will not be duplicated here.

6 Likes

I will never vote for this, ZCG has demonstrated solid performance in the ecosystem. It seems you only want to de-fund them so you can fund the stable coins angle. I appreciate your effort to submit this proposal none-the-less.

Good luck.

3 Likes

It’s called DeFi. stablecoins are one element; it also includes ZSAs, and eventually programmability and POS, and a gas/fee ecosystem to decentralize development and remove the barriers and negative outcomes associated with block rewards.

My proposal does not get rid of ZCG. It puts ZCG under ECC from the foundation, So it merely moves them. ECC has the right to give ZCG whatever they deem is the correct amount. I think ZCG project management is valuable and better aligns with the needs of ECC given most of the money is going to wallet related features/functions and marketing.

If the Foundation posted as a reply that they believe ZCG better fits with their needs, I would certainly modify the proposal as it relates to ZCG.

5 Likes

Thank you for the clarification. I believe a better option is for ZCG to be independent of either ECC or ZF.

5 Likes

Its important for ZGC to be seperate from ECC, because that will cloud transparency of where community fund allocation is spent. Ultimately I would like to see the grants council disbanded and for the ZCG treasury to be controlled by a proposal/coin weighted vote system.

Also I would like the ZCG to engage with contracters to build specific projects rather than waiting for someone to apply, which leads to many lack lustre proposals and time wasting

3 Likes

The coin weighted voting is what i would like to see happen for voting the board of directors of ECC and Foundation. Then they and the org will decide on the projects. The community is too small for community to decide on each and every grant. So the board of each org would be accountable and can be in or voted out every year. The money org should provide the same transparency as ZCG.

I don’t like ZCG as a separate org with a direct allocation because they don’t have the expertise we need to decide on key development needs. I also think ZCG has taken positions that are not good for the community; especially for ZEC such as a) proposing to change the halving schedule b) proposing to take from other orgs to increase its share of block rewards c) spending so much money on a zec is fiat for day to day transactions vision (too many wallets, and media) and non Zcash projects (social media).

So they are not really aligned with a DeFI vision so for that reason i think they really should be under the direction of ECC (wallets and media) because their allocation needs to be more flexible (not fixed) so Zcash core blockchain development has the funding it needs.

1 Like

Some remarks:

ECCs mission is not zcashd. Since months ago.

QEDIT is cool. But they haven’t deployed anything into production yet. They did audit ECC code for previous NUs and they are cool FWIW

ZCG has funded successful projects starting by everyone’s favorite: Ywallet. Then many others such as Zingo wallet, Zcash Block explorer, lightwalletd infrastructure everyone uses with a canary warrant, ZSAs, 12 audits by ZECSEC which probably saved more than 300k in audits while kept Zcash safe and they’ve also reviewed and rejected many projects as well. All with little compensation to the many hours they dedicate and the responsibility and liabilities they have over the treasury. To me, it makes no sense they are under ECC at all.

Defi is a cool means but it not an end on its own.

The fee thing is interesting. I don’t see how this manufactures consent. It criticizes current status but maintains it.

I’m confused

3 Likes

maybe it’s not the mission; but it is listed as 1 of 3 main areas…maybe they should update their website? zcashD also sounds like it’s a critical blocker to
moving forward. so it is fairly important as well.

I like YWallet. but i measure success based on downloads. maybe it has 5-7k unique downloads. i can’t see how any of the wallets can be considered successful based on an objective metric like downloads, transactions, sync times, or any other metric other than they happen to send and receive (in most cases). success for a wallet where we say we want billions of users would need hundreds of millions of downloads. now i’m not delusional, to me would settle on 1 million and call it a success. or even show downloads going up at a decent % every month. In my opinion ZCG has diverted funding from the core blockchain to non critical non zcash blockchain funding. I think that is just a historical fact. the blockchain roadmap has suffered as a result.

i’m not proposing anything new. others have made the identical proposals i am making many years ago. a strategic decision was made to not pursue blockchain improvements and i believe that was the wrong decision. We still have time to pursue what i and others before me believe is the right path forward. → DeFi, stablecoins. zsa, programmability and more

a very important point is this doesn’t change zec, it makes the ecosystem stronger and therefore makes zec stronger

i put ZCG under ECC because ECC states its main area of focus is wallets. I believe the foundation allocation needs to go to core
blockchain work. it doesn’t make sense to me for ZCG to divert funds from core blockchain which is the foundation focus to wallets when we are so far behind when it comes to the core blockchain development. especially with regard to pursuing a zcash DeFi plan.

just as important, we need money for the zcash community. ECC has 20m in excess funds to help out.
the time to step up and use it is now. if not now, when? the community is hurting and what’s the point of sitting on 20m if it’s not going to be used in a time of need. if ecc won’t fund qedit, they certainly should fund all wallets and media they deem necessary since wallets are their area of focus.

who said it’s an end? it’s a way to create an ecosystem and a platform. as i think you know, software never really reaches an end. but we do need DeFi to empower developers to help build out an ecosystem to transition legacy systems to the blockchain. my opinion is it will happen from the inside out. the idea of creating an island and hoping people will come is a very high risk strategy.

maybe you are confused because you are thinking of f another proposal “manufacturing consent”. my proposal is "Zcash DeFi. I did not set forth a fee structure as it’s not part of the allocation of rewards. i merely am bring it up as something to be defined later as a longer term replacement and short term addition to block rewards.