Zcash wasn’t bootstrapped like most other crypto projects. There was no ICO to fill the coffers for years to come. There was no series of large VC raises. It was born out of humble beginnings.
A portion of the “Founder’s Reward” funded the first four years of Zcash development, and the Zcash Foundation (ZF) was bootstrapped with individual donations.
The current development fund, conceived and activated in 2020, established Zcash Community Grants and provided continued funding for ECC and ZF. We are grateful for that funding and have attempted to steward it well.
Some love the development fund model, and some vilify it. To many, it became known as the “dev tax.” Recently, I have publicly expressed criticism of the model as currently designed.
Regardless of our own opinions, we are not beholden to the past.
We as a community get to choose the best path forward for Zcash, the protocol that I, and I know many of you also, believe to be the world’s best hope for true financial freedom: a world where anyone is free to transact, securely, and only revealing to the world what they choose to reveal.
However, for the world to find freedom through Zcash, Zcash itself must be free.
Zcash must be fully decentralized. It must be open. It must be liberated from political pressure and coercion. At its very core, in its source code, Zcash must embody autonomy, and it must welcome broad participation both in its use and stewardship.
The Zcash development fund will expire in November of this year, at this point, its recipients will stop receiving a portion of mining rewards and 100 percent will go to the miners. ECC, ZF, and the Zcash Grants Committee (and their grantees) will be forced to either find other funding sources — donations, grants, revenue-generating activities — or begin to ramp down.
And so we, the community, have a critically important decision to make:
We can simply let the development fund expire.
We can create a new development fund, with more or fewer recipients who directly receive future funding, by embedding the addresses of those organizations’ wallets directly into the protocol, as we have today. Several members of the community have proposed such options.
We can consider a funding model in which no organization is guaranteed funding with its address coded into the base layer. That might look like a decentralized grant model, similar to what I described here, or an alternative where funds are allocated through a DAO or other mechanism.
Letting the development fund expire may be the simplest solution. The downside to that model is that if organizations like ECC, ZF, and ZCG cannot raise enough funds through outside grants or donations, they may have to cut back on their activities or shut down completely.
Even if the community guarantees direct funding in the protocol for some organizations, the funding may not be sufficient for those organizations to continue as-is. In November, the amount of block rewards will be cut in half. If ECC and the Zcash Foundation were to continue to receive the same allocation as they do today, the proceeds would be insufficient to meet either’s financial needs at the current price of ZEC.
A well-designed grants-based model (whether deliverable-based or retroactive) has significant advantages, including increased decentralization and open competition for resources, stronger community alignment on Zcash priorities, increased resilience, greater accountability, and increased community voice.
To illustrate a few of these benefits:
Hardcoding organizations’ addresses into the protocol signals that some developers have favored status and a monopoly on a significant amount of guaranteed funds. In a grants model, more people are encouraged to apply for funding more equally, fostering greater participation and innovation.
Hardcoding organizations’ addresses into the protocol allows recipients to allocate those funds wherever they wish. This may be good in some circumstances but can often lead to inefficiencies and waste. A grants model will allow the community to provide funds for purpose. And grant structures can be designed to ensure accountability for desired outcomes.
Hardcoding organizations’ addresses into the protocol creates fragility. If an organization is forced to shut down due to funding or regulatory pressure or is captured or underperforming, funding will continue to flow to it until the community organizes a network upgrade. A decentralized grants model allows participants to spin up and shut down without affecting funding flows. Additionally, a decentralized grant model would allow greater participation and flexibility in determining what is funded.
A grants-based model has its challenges. Many open questions exist, including how decisions are made, how funds would be distributed, and the legal considerations of those participating in decision-making.
So here we are. We stand at a pivotal point in determining what Zcash is and what it will become. While there are varying perspectives on whether or not the development fund was a good idea, the fact that we now collectively have the opportunity to reevaluate and determine our path forward is not in doubt.
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.
We will support the following options:
(a) allowing the development fund to expire, or
(b) a model where development funds flow into a grants pool(s) that are managed in a decentralized way; and where grants are distributed based on deliverables or retroactively based on outcomes realized, or where miners or stakers can opt in or out of making contributions.
If the community chooses a grants model, we recognize that a design will take longer than is available for realization before the current development fund expires in November. We are open to either allowing it to expire while we collectively work on a model or extending the existing development fund for no longer than one year to enable the organizations to adjust their operating models while we design something new.
Now is the time to make our decision. As for us, we believe that for the world to find freedom through Zcash, Zcash itself must be free. Now is the time to codify the freedom we aspire to within the protocol. Now is the time to set Zcash free.
