I’ve been studying accounting (US-based) for a few hundred hours recently. I just wanted to drop a quick note here. If devfund orgs used loans instead of (or in addition to) grants, there could be a lot of advantages here. A) there is no taxable event on the initial disbursement B) there is no downward price pressure C) encourages native circulation of ZEC instead of a government-mandated sell-off for every grant D) builds in demand for ZEC since loans could be denominated in ZEC
I haven’t been paying close attention recently and I’m about as busy and as spread then as a person can possibly be. It’s doubtful that I’ll have much time to explain or make a more in-depth argument. But, it suffices to say that I think this could be another game-changer idea for the ecosystem. You’re welcome!
Interesting idea… especially if it comes with the stipulation that interest and principal be repaid in ZEC. Not sure how acting as a lender would work with non-profit status though.
That’s what I was thinking too. As much as I like the idea of using grants to fund projects that benefit everyone and don’t necessarily provide a return to any specific person or entity, one of the most glaring issues with Zcash at the moment is the lack of incentives for self-sufficiency and long-term sustainability for projects in the community. Loans could be a very useful tool to align incentives of both developers and the community.
This seems like an idea worth experimenting with, to me. The ability to convert loans to an equity stake is also a great way for funding orgs to be able to maintain an interest in a project going forward.
I think the main point of this idea is that if a grant is approved, zec does not have to be sold directly in usd for tax reasons or do you also want to deposit the Zec as collateral and have loans taken out on it for the equivalent value? in any case I go even further. Perhaps the whole thing could be extended to the grant submitters(only loans in the future but loans are also linked to the fact that you have to pay them back). As a motivation to deliver meaningful things that also bring a return for zcash or then also necessary for the submitter to refinance the loan. I don’t know how the whole thing should look and whether it is possible but the community could think it even further.
If I understand your question, it matters because it’s not a grant, and needs to be paid back. Which means:
Projects that take the loan need to figure out a way to generate revenue to pay back the loan, meaning that they need to build some self-sufficiency into the project. Which also means that once the loan is paid back, there will be an existing mechanism in place to fund further development/maintenance.
Funds could be disbursed in ZEC (or USD) and then repaid in ZEC. So if some or part of the funds are converted to USD/BTC, ZEC needs to be purchased back at some future point in order to make loan repayments. Given market fluctuations it’s impossible to know what effect this would have on price exactly, but it’d be much better than grant recipients converting to USD and that value likely never returning to the ZEC economy.
I like the idea in theory, in practice there are some issues. The big ones that come to mind for me right off the bat are:
Basic loan issues. How to gauge credit-worthiness and set interest rates (assuming these low, rather than zero interest loans)? What steps should be taken to manage default risk?
Paying back a loan in the form of a volatile asset - what happens if ZEC moons and suddenly the debt burden becomes much more challenging? Conversely, if someone takes out a big loan, do they have an interest in tanking the price of ZEC to diminish the cost of their debt?
Taxes - yes, there are tax advantages to using debt as an instrument, but converting cryptocurrency to fiat (or another cryptocurrency) is a taxable event in most jurisdictions and essentially unavoidable if the loan is to serve the purpose of enabling people to build something that might otherwise be viable.
And of course there would need to be some kind of mechanism for depositing the repaid ZEC/interest back into the lockbox.
One significant difference, particularly for a U.S. individual or for-profit recipient, is the immediate tax liability associated with a grant. Receiving a grant typically results in taxable income, creating a USD tax obligation of approximately 20-35% of the grant’s USD value. To cover this tax bill, the recipient must liquidate a substantial portion of the grant into the market, which not only applies downward pressure on the asset’s price but also introduces complex tax reporting requirements, including cost basis calculations and potential capital gains or losses—often necessitating the services of a professional accountant.
By contrast, a loan does not create an immediate taxable event. While the recipient is obligated to repay the loan, there are compliant ways to deploy the funds without triggering a large-scale liquidation to cover taxes, thereby preserving the utility of the disbursement within the intended ecosystem.
Just dropping my 2 zatoshis :
I guess it’s an interesting idea worth exploring, but people usually sell their earned ZEC because they should spend money to live, eat and pay bills (or zec should be accepted literally everywhere).
Even using Flexa results, at one point, in someone converting Zcash into fiat.
My PoV is almost the same as @Angst01 and @hanh. But I thought that it might be interesting if loan was emitted in ZEC and should be repaid in ZEC but a value of the loan should still be expressed in fiat (USD for ex).
This mitigates risks tied to price fluctuations :
if price rises - there is less ZEC to repay. Moreover price appreciation could be used as a metric of project’s success as it is overall good for everyone in Zcash ecosystem.
if price fails, the entity should pay back more ZEC that was given to it. This is not so bad neither, because we get more ZEC into « treasury for loans » by buying back it from the market.
Haha, especially and particularly using the Flexa service which is not peer-to-peer or permissionless or available to the vast majority of people - not “crypto” at all really.
This is a very sad way of looking at things IMO. If what you say is true, https://z.cash/ shouldn’t say “encrypted electronic cash,” it should say something like “digital asset with special cryptographic features.” I don’t know what it should say. But, if it’s encrypted electronic cash you can use it natively without Flexa and without doing cost basis accounting for gains and losses every time you move it. Your statements make Zcash worthless except as a speculative asset (that is to say worthless).
If the accounting is in US Dollars then definitely forget the ZEC loan idea entirely. Why would you put this kludgy accounting nightmare in between everything you do? The point here is missed entirely. If you want to do accounting in USD then you have absolutely no reason to ever touch ZEC.
I totally support the idea and find it awesome.
And it would be easy to imagine and implement it, if only everyone was able to accept Zcash.
I mean, it looks like the idea is based on something that Zcash aims to achieve, but we are not there, yet.
For now, I can’t use it where I live. The only usage I have is playing around with a couple friends who accepted to participate with me in this « economic experimentation ».
And god knows, I always ask if I can pay with ZEC.
I guess that « electronic cash » status should be earned in the minds of the people and Zcash economy is yet to be constructed.
Just because we name it so does not mean it functions like that.
I’m not being pessimistic, it’s just a reality.
99% of people holding crypto atm are doing this to get more fiat in the future. It’s an issue for the whole crypto industry IMO.
Maybe loans will be one of the first steps to create internal economy of Zcash network state. Still, at one point we need a bridge into the real world (which is still very tied to fiat money, more or less depending of geographic area).
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