Today, we have entered a new era for Zcash, as we ushered in its second halvening and with it, the activation of Network Upgrade 6 (NU 6), which implemented a new Zcash development fund (Dev Fund). The new non-direct funding model (NDFM) replaces the old direct funding model (DFM), which was allocating 20% of all block subsidies between three entities: Zcash Community Grants (ZCG), Electric Coin Company (ECC) and Zcash Foundation (ZF).
With NU 6 deployed, 12% of the block subsidies are now routed to a “Lockbox”, where the funds will accumulate until the Zcash community reaches a consensus on a non-direct disbursement mechanism, ensuring support for vital projects driving Zcash development and adoption. The wallet addresses of ECC and ZF have been removed from the protocol, but ZCG will continue to receive an 8% allocation for an additional year to fund community initiatives through grants.
Zcash Halvening
NU 6 coincides with the second Zcash halvening—an event that reduces the block subsidy by 50%, from 3.125 ZEC to 1.5625 ZEC per block, lowering the rate at which new ZEC is generated. The Halvening is a significant economic shift that aligns with the principles of scarcity and value, similar to halving events in other major cryptocurrencies like Bitcoin.
Zcash Development Fund
The New Lockbox Mechanism
Developed in response to community input from the July voting session and outlined in ZIP 1015, the Lockbox mechanism is a pivotal aspect of the NU 6 upgrade, reflecting Zcash ecosystem’s commitment to community-driven governance. The Lockbox is a deferred funding pool designed to secure the Zcash Dev Fund, while the community works on a new non-direct funding model that aligns the funding of Zcash work with the wishes of the community.
Out With the Old
Under the old direct funding model, a number of specific wallet addresses were embedded directly into the protocol to fund Zcash development work through ZCG, and at ECC and ZF. This funding model lasted four years and expired today.
Earlier this year, ECC’s CEO Josh Swihart announced his plans to end direct funding for ECC. “Setting aside our financial self-interests at ECC, we believe the Zcash protocol should be set free. And that in setting the protocol free, we have the best chance of setting the world free. In that light, we have decided not to accept funds directly from the protocol under a new development fund. Our wallet address will no longer be codified in the protocol.”
Months of forum discussions followed, and after many debates, surveys, and polls, the community voted to end direct funding for all Zcash organizations, granting ZCG a temporary extension to keep the smaller projects going.
In With the New
While the old DFM ensured ongoing development within the Zcash ecosystem, it also introduced poor incentives, making it difficult to hold Dev Fund recipients accountable to the community that was funding them. In July of 2024 the community voted to move to grants-based funding, a non-direct funding model (NDFM) that requires Dev Fund recipients, regardless of their size and status, to submit concrete proposals, compete for funding, report on their progress, and deliver on their promises in order to continue to receive community support.
The transition to NDFM began with the addition of the Lockbox under NU 6, from which all funds will eventually be released through community consensus. The next step is to decide on and build out the fund disbursement mechanism for the Lockbox.
Hybrid Deferred Dev Fund
The community also voted to extend direct funding for ZCG by one year. Under the temporary Hybrid Deferred funding model 12% of the block subsidy will go to the Lockbox and 8% will be distributed to the Financial Privacy Foundation (FPF), for the express use by ZCG for community grants. This interim solution ensures that independent teams within the Zcash ecosystem continue to receive necessary funding while the Lockbox’s disbursement mechanism is finalized.
Looking Forward
For miners and users, the Halvening may affect market dynamics and profitability, as the reduced block subsidy impacts the economics of mining and holding ZEC. Developers and community members will benefit from increased involvement in fund governance, marking a significant step towards a more decentralized and community-driven ecosystem.
Today’s network upgrade marks a significant evolution in Zcash’s journey as we implement community-supported enhancements. We look forward to seeing how these developments will shape the future of Zcash.
Onward.
