Zcash Ecosystem Fund Proposal

At Zcon0 I proposed to modify the founders reward to create a new stream of funding for an investment fund that would provide support for people building cool things for Zcash users. Here’s the formal proposal, which is very short and simple, and an FAQ, which is a bit longer. This should not be treated as a final document, but rather as a “request for comments” to the Zcash community (miners, users, developers, founders, and everyone else who has any idea what the word “zcash” means!)

Time limit for discussion

Since this kind of thing is incredibly prone to bikeshedding, I propose that we discuss for 2 weeks, and then spend one week assessing whether consensus has been reached that this is worth doing. If my understanding of the founders reward distribution mechanism is correct, it goes to a single address multisig which is then manually distributed to each recipient? If that is correct, I suggest that the mechanism be changed so that the reward is sent to each individual recipient automatically, and that the fund be added as a recipient of 1% of the FR. Since this requires a hard fork, I suggest this be added into the upcoming Sapling upgrade.

Proposal:

Currently the Zcash founders reward is distributed roughly as follows: 3% to the Zcash Foundation, 2.8% to the Zcash Company, and 14.2% to the 44 founders, advisors, and investors of Zcash. Of that 14.2%, 9% or roughly 2000 ZEC a month go directly to Zooko.

[Moderation edit for several errors of fact by @daira: Until the first halving in October 2020, total issuance of ZEC is 219000 ZEC/month, and FR is 43800 ZEC/month, based on a (365/12)-day month.

The Zcash Foundation gets 6563 ZEC/month which is 15.0% of FR (3.0% of total issuance).

of FR (3.0% of total issuance). The Zcash Company gets 6125 ZEC/month which is 14.0% of FR (2.8% of total issuance).

of FR (2.8% of total issuance). The remaining FR distributed to employees, contractors, founders and investors is 31112 ZEC/month which is 71.0% of FR (14.2% of total issuance). The distribution to investors was front-loaded and they have already received all of their share. Of this, Zooko’s FR is 2033 ZEC/month, which is 4.6% of total FR (0.93% of total issuance). It is not 9% of 14.2% of FR, which would be 2796 ZEC/month.

of FR (14.2% of total issuance). The distribution to investors was front-loaded and they have already received all of their share. These figures are consistent with the slides shown in Zooko’s Zcon0 talk (https://twitter.com/bcrypt/status/1011602573873336320) subject to rounding errors.]

In the beginning such a distribution makes sense, because the founders contribution is most important at the start of a project. However, on an ongoing basis, it makes sense to shift more of the reward towards maintenance of the project, rather than perpetually rewarding the founders, some of whom have even largely moved on to other projects.

I propose to distribute 1% of the founders reward, or 2188 ZEC monthly, to a Zcash Ecosystem Fund tasked with investing in commercial projects that are complimentary to Zcash but which aren’t suitable for foundation grants. I further propose that the 1% is taken from the founders portion (not the Company or the Foundation’s portion) so as to not affect the ongoing operations of either entity.

[Moderation edit for error of fact by @daira: 1% of FR would be 438 ZEC/month.]

I think there is a funny side-benefit to this proposal which is that Zcash is often accused of being a centralized project run by its charismatic founding team—if a proposal which directly affects their finances in a negative way is passed by the community, that would be a solid proof that Zcash is more decentralized than its critics think.

FAQ

Why not just let the foundation give grants to these startups?

The foundation is moving too slowly. The risk of deploying money too fast from the foundation is that it runs out of money and can’t fund more promising stuff, and it seems to be this risk that the foundation board is most concerned with. I’m FAR FAR more concerned with an alternate scenario—the fund deploys capital too slowly, the Zcash ecosystem fails to mature fast enough, the value of ZEC falls, and the foundation dies with hundreds or thousands of suddenly worthless ZEC on its balance sheet. The fund, by contrast, will rapidly deploy capital into promising projects, and stands to make a return from them rather than just giving them “free money.”

Who runs the fund and do they get paid?

I am happy to advise the fund in the beginning, for free. I should not be the person making investment decisions on a legal basis because I’m an American, and it’s best that we have at least one Zcash affiliated entity be controlled by non-Americans, so I would propose that one of my partners in China or Japan are the manager of record for this fund. I propose to allow 2% of the 2188 ZEC to be used for management expenses, including creating a legal entity, drafting investment documents, etc—if there is excess annually, it should be returned to the fund and used for investment.

What do we do with the fund returns?

I propose that the fund returns be re-invested into new startups, perpetually, creating an evergreen source of funding for zcash related stuff.

What are the metrics for success or failure

The fund should be measured on two KPIs, fund returns and the price of ZEC. Of course, the price of ZEC fails to perfectly capture value added to ZEC, and more importantly there are many many other entities contributing to ZEC’s value, but at the very least if ZEC goes down despite the fund’s best efforts, I think we can say its been a failed experiment. On the other hand, if ZEC’s price appreciates and the startups funded by the ZEF are successful, the fund should be judged a success.

What are the checks and balances on the fund

I propose the fund be allowed to run for 12 months, after which the Zcash Foundation is given the option to discontinue funding for it, and redirect its funding back to the founders.

Who are you?

I’m @wheatpond on twitter, and Eric Meltzer in real life. I’m a partner at INB, a large Chinese blockchain fund that is one of the founding investors in Zcash. I’m also a somewhat paranoid Jewish guy who thinks that private internet money is something that the world really needs.