ZEC devfund loans

Governance
21

Of course, you understood that well. There would simply be no more grants as we have known them up to now. Moreover, I believe that the strategy could tackle the root of the problem.

In Germany there is an institution called KFW which grants such loans at special conditions.

From 3.48 %

  • p.a. effective annual interest rate
  • Financing of investments and running costs
  • Start-up and consolidation as a sideline or full-time business up to 5 years after start-up
  • Easy access to credit: KfW assumes 80% of the credit risk
  • No equity capital required

But only after careful examination and if the concepts are viable and bring returns

22

Let me see if I understand this correctly—and please correct me if I’m wrong because this all still seems counterintuitive:

ZEC-Denominated Loans

Is the proposal really that, instead of receiving grants in ZEC, organizations should take on debt in ZEC to fund public goods development for the Zcash ecosystem? That would effectively mean these teams are shorting ZEC to cover their expenses. If the price of ZEC goes up, they lose out. If it goes down, they profit. Isn’t that a direct financial incentive against ZEC appreciating in value? This feels at odds with the goal of strengthening the Zcash ecosystem.

Tax Benefits?

I keep hearing about some tax or accounting advantage. But, for example, if ZCG funds an organization to work on Zcash, whether via a loan or a grant, I hope the majority of the funds (say, 80% or more) are going to pay contributors (developers, researchers, etc.). That money is taxed as personal income in either case. The business just writes it off as an expense. Am I missing something? Or are we seriously suggesting the staff receive loans for their salaries too?

What About “Hedging” or “Loan Forgiveness”?

Yeah sure, the borrower could hedge the short position or the “loan” might be partially forgiven if certain milestones are met. But if you’re adding an entire layer of hedging or a built-in forgiveness clause, doesn’t that boil down to a complicated version of a grant anyway? Or worse, you’re piling on extra legal, accounting, and administrative costs just to replicate a straightforward grant structure.

Administrative Complexity & Overhead

Switching from grants to loans introduces significant administrative burdens. Instead of a relatively straightforward funding process, loans require credit assessments, legal compliance, repayment tracking, and default management. This adds legal costs, regulatory complications, and ongoing monitoring resources that could be better spent on ecosystem growth.

So can anyone clarify how this approach of ZEC-based loans is actually better than plain old grants? Because right now, it seems like an overcomplicated way to potentially discourage people from working on Zcash.

Sorry to be so blunt but I keep feeling this trending suggestion that if we want this project to succeed we should make these funding resources even harder to access and effectively limited them to a small few. I don’t think this is the way. Either way if anyone is interested in continue the discussion of loans I suggest we pivot to discussion to “ZEC miner loans” :wink:.

1 Like
23

It’s incredible that no one can conceive of using ZEC, only selling it. If selling the ZEC is the only thing that can be done with it then I guess the rest of your points do follow.

A lot of people seem to be thinking that this suggestion means to abolish one system and put something else in its place rather than adding to a repertoire of options. Sometimes a charity is the right entity, sometimes a C-Corp, sometimes a passthrough LLC, sometimes a partnership, sometimes a trust, … sometimes a loan, sometimes a grant, sometimes a gift, sometimes a capital contribution. The limits of what we can do are set by what is legal and compliant. A vibrant ecosystem would have a diversity of mechanisms and options and not try to seek The One Best™ option.

Tell me more about “ZEC miner loans”

3 Likes
24

I really want for there to be a circular economy where one can get by using only ZEC. At the same time, I work full-time on Zcash; I don’t have a side-hustle to earn the fiat that’s required to pay my bills. Is it only people who are independently wealthy enough that they can just HODL and use ZEC for those few things you can buy with it who can work on Zcash? I’m a pretty frugal person, and I buy with ZEC when I can, but most of what is for sale for ZEC are not things I need. Dare I say it, I literally need to be able to buy groceries (and pay my mortgage & power bills, etc.).

The value of ZEC can only arise from widespread use, and for that, ZEC has to be usable. And that’s what we, as dev fund recipients, are working toward. But the simple truth is that we’re not there yet - Zcash is perfect for a few use cases, but not enough of the world accepts it as payment for anyone working on Zcash to survive on ZEC without selling any.

13 Likes
25

Thank you, I really appreciate your openness.

26

Possibly interesting idea.

  1. Must be compliant
  2. Devs must have access to fiat for living expenses
  3. Devs should have a big incentive for ZEC price to go up - some ZEC should stack on their behalf
  4. Taxes should be completely deferred or partially deferred and paid as efficiently as possible so that there is not constant liquidation to pay fiat taxes regardless of price

Here’s a creative approach that attempts to address all four goals:

Concept: ZEC-Backed Deferred Compensation with Borrowing Facilities

1. Form a For-Profit Entity That Holds the ZEC:

  • Structure: Establish a corporation (or subsidiary) that receives and holds the ZEC as a treasury asset rather than paying it out immediately.
  • Rationale: This entity acts as a custodian of the ZEC while enabling more flexible compensation structures.

2. Issue ZEC-Linked RSU-Style Awards:

  • Mechanism: Instead of paying ZEC outright (and triggering taxable income), the company grants its developers “ZEC-Linked Restricted Stock Units (RSUs).”
  • Vesting & Taxation:
    • The RSUs vest over a defined period.
    • Taxes are deferred until the developer chooses to “cash in” the RSUs (i.e., exchange them for ZEC or fiat), aligning with long-term incentives.
    • An 83(b) election might be considered if the developer wants to accelerate taxation at a lower valuation—subject to risk and advice.

3. Enable Liquidity via a Security-Backed Line of Credit:

  • Collateralization: The developer’s vested RSUs (or a portion of the corporation’s ZEC treasury) can serve as collateral for a market-rate, security-backed line of credit.
  • Outcome:
    • Developers access fiat funds for daily expenses (groceries, mortgage, etc.) without needing to liquidate ZEC immediately.
    • The borrowed funds are non-taxable events; taxes only occur when the RSUs are ultimately converted into ZEC or fiat.

4. Maintain Upside Incentives and Deferral of Tax Events:

  • Upside:
    • Developers maintain a stake in the value appreciation of ZEC via their RSUs.
    • They benefit if ZEC’s price rises since their eventual conversion (or eventual sale) is tied to a higher valuation.
  • Tax Efficiency:
    • The design defers the taxable event to a point in time when the developer chooses to convert the RSUs, potentially when long-term capital gains rates apply.
    • Borrowing against the RSUs avoids triggering income recognition, thus minimizing the need for “forced sales” to cover tax liabilities.

Compliance & Practical Considerations:

  • Regulatory Compliance:

    • The structure must adhere to securities regulations (for the RSU-style awards) and tax regulations (e.g., Section 409A for deferred compensation in the U.S.).
    • Work with legal and tax advisors to ensure that the credit facilities and collateral arrangements meet banking and regulatory standards.

  • Financing Arrangements:

    • Engage with banks or specialized crypto finance providers that are willing to offer credit lines collateralized by crypto assets or RSUs.
    • Interest rates should reflect market conditions, and the loan agreements should be structured to avoid adverse tax consequences for the developer.

  • Risk Management:

    • Developers must be aware of potential margin calls if the value of the collateral (i.e., the underlying ZEC/RSUs) fluctuates.
    • The company should consider mechanisms (like periodic revaluations or minimum collateral requirements) to protect both the developers and the financing institution.

Why This Might Be Better:

  • No Immediate Liquidation: Developers don’t have to sell ZEC at vesting to cover tax bills, thereby preserving their exposure to ZEC’s upside.
  • Deferred Taxation: The tax event is postponed until the RSUs are actually converted, ideally at a time when long-term capital gains treatment applies.
  • Liquidity Without Tax Impact: The credit line provides necessary fiat for living expenses without triggering a taxable sale.
  • Aligned Incentives: Developers continue to benefit from an increasing ZEC price, aligning their interests with the long-term success of the project.

This structure blends traditional deferred compensation with innovative crypto-backed financing, aiming to maximize tax efficiency while ensuring developers have the liquidity they need—and a strong incentive to see ZEC’s value increase.

This seems like it could be an interesting option if there is a sugar daddy with fiat who could carry the cost in the short to mid term.