[ZIP 1007] Dev Fund Supplemental Proposal: enforce devfund commitments with legal charter

DevFund Supplemental Proposal: Enforce DevFund Commitments with a Legal Charter

Dev Fund Proposal: Enforce Devfund Commitments with a Legal Charter

Background: Future of ZCash dev funding

Advocate: lex-node


The key words “MUST”, “MUST NOT”, “SHOULD”, “SHOULD NOT”, and “MAY” in this post are to be interpreted as described in RFC 2119.


This proposal is supplemental to any Development Fund Proposal which requires or purports to require that the Electric Coin Company (ECC) and/or the Zcash Foundation (ZF) MUST or MUST NOT use development funds in particular ways or MUST or MUST NOT take other related off-chain actions (such requirements, Covenants).

For example, the proposal 20% to a 2-of-3 multisig with community-involved governance provides that “[f]unds accruing to the Zcash Development Fund MUST be used only for … technical work directly connected to the various software implementations of the Zcash protocol.” However, once development funding is approved and implemented via a hardfork, there will be no enforcement mechanism to ensure that the ZF and ECC abide by this requirement.

This proposal aims to provide such an enforcement mechanism. If this proposal is adopted, then the ECC and/or ZF, as applicable MUST enter into a legal agreement which would entitle ZCash (ZEC) holders to enforce ECC’s/ZF’s performance of any Covenants. For purposes of this proposal we will refer to the legal agreement as the “DevFund Charter” or “Charter” for short, but it MAY also be styled in other ways–e.g,. as a Constitution, Bylaws, Fund Governance Agreement, etc.

All ZEC holders MUST be express contractual beneficiaries of the DevFund Charter, but the DevFund Charter MAY provide that an enforcement action requires the support of the holders of a plurality, majority or supermajority of ZEC. ZEC held by the ZF, ECC and their officers, directors, employees and/or affiliates SHOULD be excluded from the denominator in calculating the requisite plurality, majority or supermajority of ZEC.

Legal enforcement MAY occur in a court of law, non-binding mediation or binding arbitration. The DevFund Charter MAY also provide rights to other ZCash community constituencies, such as specified miners or the “Third Entity” contemplated by the 20% to a 2-of-3 multisig with community-involved governance proposal referenced above.

Motivation & Rationale

Because ZEC holders do not have specific legal rights against the ECC or ZF, but MAY wish to condition renewed on-chain development funding on the ECC’s or ZF’s agreement to use the development funds in certain ways, ZEC holders SHOULD have the legal right to enforce ECC’s/ZF’s compliance with those agreements.

Out of Scope

This proposal does not address the merits, motivations or terms of any particular development funding proposal.

Requirements & Implementation

The following is a high-level summary of requirements and implementation of the proposal:

  • If a development funding proposal receives sufficient community support and requires certain Covenants on the part of ECC or ZF, then one or more attorneys SHOULD be engaged to draft a Charter that reflects those Covenants, and the Charter MUST become legally effective & binding at the same time as the other aspects of the development funding proposal are implemented on-chain (e.g., at the same time as a hardfork, if a hardfork is required to implement the development funding proposal).
  • Each pending development funding proposal SHOULD be amended to specifically describe any Covenants that the ECC, ZF or any other relevant person or entity would be required to agree to as part of such development funding proposal.
  • The community SHOULD further discuss the potential details of the Charter, including:
    • whether a plurality, majority or supermajority of ZEC are required to approve an enforcement action against ECC or ZF;
    • logistics and technical implementation regarding the Charter, such as on-chain signalling/voting for enforcement;
    • remedies under the Charter, such as “specific performance” (getting a court to order ZF or ECC to comply with a covenant), discontinuation or reduction of development funding (which MAY occur by having Covenants that the ZF or ECC will prepare a hard-fork that discontinues or reduces development funding if so requested by holders of the requisite plurality, majority or supermajority of ZEC), etc.

Possible Objections / Answers

  • #1 “Code is Law; This is Just Law!”

    • Objection: Relying on off-chain legal mechanisms is contrary to the cypherpunk ethos and/or the mission/ethos of ZCash.
    • Answer: This is a values judgment that some people may reasonably hold. However, one should also consider that “don’t trust, verify” is also a cypherpunk principle and that the off-chain nature of some requirements means that a code-based solution is currently not possible; therefore, a legal enforcement mechanism, while imperfect, may be preferable to no enforcement mechanism.
  • #2 “Social Coordination Impracticality/Risk”

    • Objection: ZEC holders prize anonymity, but legal enforcement of breached Covenants will require social coordination (people must agree to enforce the action, and someone must actually get a lawyer and go to court). Therefore, this mechanism will not be valuable to ZEC holders and could lead them to compromise their anonymity and thus be worse than useless.
    • Answer: The community should further discuss how, in practice, ZEC holders might securely coordinate to bring an enforcement action against ECC and the ZF if it were needed. Additionally, it should be considered that the mere possibility of legal enforcement due to the clear terms of a Charter may dissuade ECC and ZF from violating covenants and thus, paradoxically, having a Charter may also mean that no legal action ever becomes necessary. Additionally, the “class action” legal structure in some jurisdictions may mean that the ZEC holders community could find a ‘champion’ in the form of a class-action attorney, without ZEC holders being required to personally become involved or 'out themselves’ as ZEC holders (other than one willing ZEC holder as class representative).
  • #3 “This Will Just Waste Funding On Lawyers”

    • Objection: This Charter will be novel and bespoke, and lawyers may charge high fees to draft it and give assurances that it is enforceable. This wastes money that otherwise could be spent on ZCash development.
    • Answer: This is a valid concern. The ZCash community may be able to crowdsource an initial rough draft of the Charter from lawyers in the community or even non-lawyers who may be willing to do research and make an attempt at an initial draft. Lawyers could be involved primarily to issue-spot and formalize the initial draft. ECC and ZF may have law firms on retainer that could perform the work at favorable rates. Lawyers may be willing to work at discounted rates due to the unique opportunity and prestige of developing this innovative blockchain governance mechanism. Additionally, any legal fees may be small as a percentage of the overall value at stake, which may be considerable if a 5-20% development funding block reward is authorized.

Interesting proposal @lex-node

Welcome to the forums! :grin:


Most impressive ‘Hello World’ post, ever!

Makes sense for the process to have teeth, nicely done.


What does this mean exactly?

More than one, more than half or more than everyone else?

As part of implementing this proposal two primary things would be needed to determine if/when legal action could be taken against ECC or ZF for misuse of funds:

  • a method of enabling ZEC holders to vote in favor taking legal action;and

  • a threshold determining how what % of ZEC must be voted in favor of taking such legal action in order for the legal action to be authorized.

The language you quoted is about which THRESHOLD is set. Some possible standards:

  • the vote of 30% of outstanding ZEC is needed to authorize legal action
  • the vote of more than 50% of outstanding ZEC is needed to authorize legal action
  • the vote of more than 75% of outstanding ZEC is needed to authorize legal action

The technicalities of how a vote would be collected are the biggest questions in my mind, and since I’m not deep into ZCash I’m not aware of all of its technical abilities/limitations. Is there a reasonable way to avoid double-counting due to interim or shielded transfers of ZEC, for example? Another issue would be that any tokens held by ECC or ZF or its affiliates should likely be excluded from the denominator in calculating the relevant percentage, and I’m not sure how technically feasible that would be.

If token-based voting does not work, then perhaps we could figure out another mechanism that measures the sentiment/wishes of ZEC holders in some reasonable way.

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You’re going to have to define a Time parameter, we can’t just hard fork and then decide to sue the company the next day because enough people pooled their money together
The percentage pooled will have to at least cover the legal fees of suing and people who do that should understand that their money won’t ever come back to them because it’s going to pay for the legal process, (right?)
I don’t believe we should give a voice in the governance process to anybody based sloely on how much money they hold

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Not sure about the need for a ‘time parameter’. It’s not like you can sue just for no reason–there has to be a breach of contract first. i.e., the ZF or ECC must actually have violated a term of the charter. The threshold exists to dissuade nuisance suits. So I would say those two protections should be the protections against nuisance suits–not passage of time as such.

Interesting point re: legal fees. I believe a class action atty would jump on any sufficiently material breach and take the case on contingency; if you can’t find a class action atty to take the case on that basis, that may suggest there’s not really a breach (again, this would help prevent nuisance suits). OTOH I could see an argument for funding a modest “fighting fund”, but think it would introduce too many meta-issues about governance of that fighting fund.

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You would have to evaluate for such a breach at some point in time which would need to be defined, who evaluates and determines if such a breach exists and how would they go about enacting this code law?

There would need to be a voting system. There would need to be a way for any ZEC holder to propose that they believe a breach has occurred and to trigger a vote to determine if legal action should go forward.

On what basis of proof would justify legal action? Like I said an evaluation of a breach most likely conducted by an attorney would have to happen every so often
“I believe this and that” is not good enough to enact legal action, perhaps good enough to Warrant said evaluation but if it turns out to be frivolous are there legal ramifications for the Accusers?
If It was based on this evaluation I suppose not because an attorney would determine that breach as truth or not (but would their evaluation be left up to discussion?)

The foundation is already laid out fairly stringent reporting requirements for any recipient, holding them under threat of law is excessive and may stymie development (because its not like it wasn’t always a possibility before)

First of all, the Covenants should be clear so that it is readily ascertainable whether a breach has occurred.

Ultimately, all the problems/challenges you describe are the same as for any other contract. Generally speaking what happens is that when a party (or in this case, a collective of individuals having the role of a party) to the contract feels the contract has not been honored, they seek legal action based on their understanding of the contract–if they’re right or have a good argument, they can win in court or get a settlement; if not, they will not get a settlement, get a less good settlement or lose in court.

If absolute proof of a breach were required for bringing a breach action, then determining whether a breach action can be brought would be the same thing as the trial over the breach itself.

Donations are considered a measure of “good faith” (there are no strings attached), defining a legally binding contract for “acceptable donation usage” (for a non profit anyways) is illegal
The Foundation has laid out appropriate measures for keeping tabs about how it’s going and reconvening for voting a change
(If a miner doesn’t have a say in participation of a development fee then the ZFND wouldn’t support it anyways and y’all can have fun with that)

I see this as a ‘nuclear deterrent’ - something nobody would ever want to use but its existence shapes behaviour.

If a such deterrent is created by consenting parties its somewhat different, that demonstrates commitment to doing things correctly.

It should be very hard to press that big red button, which gets into the details etc.


If it were a non-optional tax that went to a for-profit entity Maybe im not sure
but like I said otherwise it would be illegal
There cannot be any expectation of goods or services in return for a donation hence you cannot Define what those goods and services could be and you could not legally enforce unfulfillment of those definitions because it was illegal to create them in the first place

Even as it stands it’s going to be difficult, the measure of good faith in the donation would lie with trusting the non-profit would do its best to seek to fulfill its objective statement
Extending further funding to that entity would consist of them convincing us it has been worth it and that’s it

I see this as a ‘nuclear deterrent’ - something nobody would ever want to use but its existence shapes behaviour.

Yep, I see it the same way.


Lex, are you planning to submit this as a ZIP? Should I add it to the lists of active proposals?

(I think you should.)

I thought that’s what I was doing haha. How do I submit it as a ZIP?

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It requires a bit of reading, but I bet you’re up to it :slight_smile: Here are the links you need:

Two relevant posts by @nathan-at-least:

Please let me know if you have any further questions! I am happy to help. I will add your proposal to the list of pre-ZIPs.

@mistfpga did you ever publish your C[ommunity]ZIP? I lost the thread on what happened with it.

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Erm, not 100% sure. Will check. in the mean time Im pretty sure this counts as a draft zip. drop me a pm if you would like some help @lex-node - I will do what I can.

@sonya is the 31st deadline 23:59:59 UTC? - or a different timezone? Thanks.