ZIP: 10% of the block reward to a 2-of-3 multisig agreement between the ECC, ZF and a third entity
By: Greymatter Capital
Tags: Zcash, Privacy, Founders Reward, Blockchain, Zip

Motivation

The Zcash network is scheduled to undergo its first halving in October 2020, per current protocol specifications. At the time of the first halving, the codebase dictates that the Founder’s Reward, which consists of 20% of the ZEC from every block reward, will be terminated. Without codebase modification in the upcoming fourth network upgrade (NU4), 100% of block rewards would be claimed by miners thereon.

The two organizations presently leading development and maintenance of the Zcash network receive funds from the Founder’s Reward. These organizations, the ECC and ZF, have recently requested a source of funding after the first halving in order to continue operations for the foreseeable future. The source of funds could theoretically be from either a modification to the codebase dictating a Zcash Development Fund from block rewards or, alternatively, from external sources. The ECC has indicated though that it would “wind down or pivot” rather than accept funding from any sources that would give “special interests” control over the ECC [4].

Based on the ECC’s demands, the block reward appears to be the most agreeable source of resources for a Zcash Development Fund.

This proposal, originally published in the Zcash Community Forum on August 14, 2019 [5] and formalized further in a blog post on August 23, 2019 [6], outlines the funding mechanism and governance of such a Zcash Development Fund. Herein, we propose a feature of NU4 whereby 10% of the ZEC from every new block reward between the first halving (block height 840,000) and second halving (block height 1,680,000) would be directly deposited in a Zcash Development Fund.

For the period between the launch of the Zcash network in 2016 and the first halving, there has been a centralized 20% fee known as the Founder’s Reward taken from the block reward. Other active ZIP drafts advocate a Zcash Development Fund of 20% allocation from the block reward after the first halving. We believe that a cumulative eight years of centralized fees from the block reward at the identical rate of 20% would ultimately result in a narrow community that accepts the likelihood of a perpetual 20% fee on the Zcash network.

With a Zcash Development Fund that is only 10% of the block reward, a precedent will be set that a large centralized fund is not indefinite and will decrease faster than simply the rate of block reward halvings. Although this proposal specifically addresses the period between the first and second halving, this proposed feature may set a precedent whereby the percent fee from block rewards allocated to a Zcash Development Fund continually decreases every halving, e.g. 20% (FR) from 2016–2020, 10% from 2020–2024, 5% from 2024–2028, 2.5% from 2028–2032 (effectively quartering the ZEC allocated to a development fund every four years). We believe that this social contract could restore the community’s faith in the decentralization of Zcash as the network incentives align more closely with that of bitcoin’s over time. Alternatively, it is not unreasonable for the Zcash governance system to elect a 0% allocation for the Zcash Development Fund upon the second halving. For a more detailed exploration regarding the selection of 10%, please review the blog post Proposal for the Zcash 2020 Network Upgrade by Blocktown Capital [7].

Of note, we are not suggesting or implying that the funding from the Founder’s Reward and a Zcash Development Fund would be managed in a similar way or have similar directives. The Zcash Development Fund feature that we propose for NU4 does not allocate any funds to former angel investors, VCs or vested employees. Furthermore, the Zcash Development Fund would be subject to more explicit and transparent rules of governance, as outlined in the Specification section of this proposal.