zips/zip-1009.rst

::

  ZIP: 1009
  Title: Five-Entity Strategic Council
  Owner: Avichal Garg <avichalgarg@electriccapital.com>
  Status: Obsolete
  Category: Consensus Process
  Created: 2019-08-28
  License: MIT
  Discussions-To: <https://forum.zcashcommunity.com/t/dev-fund-proposal-5-entity-strategic-council-approach/34801>


Terminology
===========

*Key terms*

Developer Fund
   20% of the mined ZEC in the four-year period from approximately October 2020
   to October 2024, during which at most 5,250,000 ZEC will be minted.

Strategic Council
   A five-person committee that determines how to allocate the Developer Fund.
   Held accountable to the community via regular elections.

Executor
   An individual, group, company, or other organization that receives funding
   from the Strategic Council. They are responsible for excellent execution
   and held accountable by the Strategic Council.


Abstract
========

This proposal reserves 20% of newly minted coins in each block for a Developer
Fund. A five-person Strategic Council would be elected by the community every
two years. The Strategic Council would determine the high level strategy,
goals, and metrics to evaluate progress for the ecosystem on a six-month
cadence. The Strategic Council would be responsible for allocating funding to
Executors for the subsequent six months and summarizing the performance of
Executors in the prior six months. Executors would submit proposals to the
Strategic Council on a six-month cadence, including project plans, funding
plans, and how they will measure success on a scale from 1-10. At the end of
six months, Executors will grade themselves and the Strategic Council will
summarize what was accomplished with a target of 7/10 in every quarter on a
roll-up basis (a simple average of all of the outstanding projects for that
six months).


Out of Scope for this Proposal
==============================

* How to do 1 person = 1 vote (and perhaps we cannot or should not do this).
* How to structure the Strategic Council legally, i.e. should it be a Swiss
  Foundation and what sorts of legally binding responsibilities do the
  Strategic Council members have?


Motivation and Requirements
===========================

This is an attempt to put on my startup CEO hat and address the strategic and
execution challenges I believe have held back Zcash from realizing its full
potential.

**Principles & Observations Based on My Experiences (a.k.a. Biases?)**

Because layer 1 protocols are network-effect driven, without a quickly growing
network-effect in miners, developers, users, and liquidity, a layer 1 protocol
will ultimately collapse.

The primary driver of success in a network-effect business is how quickly you
grow the network effects.

To grow a network effect, you must have both the correct strategy and
excellent execution. If your strategy is not correct, no matter how well you
execute, you will fail. If your execution is not excellent, you will not be
able to assess whether lack of progress is due to poor execution or poor
strategy.

Thus, to build the network effects Zcash needs to succeed, we must answer five
questions:

1. Who determines the strategy?
2. How do they decide on the strategy?
3. How are they held accountable to having the correct strategy?
4. Who executes?
5. How are Executors held accountable to excellent execution?

*1. Who determines the strategy?*

* Volunteer-based approaches require the ability for individuals or entities
  to accumulate significant quantities of the underlying coin. Bitcoin did
  this through obscurity and Grin is accomplishing this through extremely
  high inflation in the early years. Zcash has moved beyond this phase and
  thus I do not believe a volunteer-based approach could be effective. Thus,
  a developer fund (or similar approach) is the only realistic option for
  Zcash today.
* Independent, high-quality governance enables better decisions and higher
  quality execution.
* We should ideally have the recipients of the funds be different entities
  than the governance body that allocates funds to avoid conflicts.
* Too few people in a decision-making process and people can collude. Too
  many and nothing gets done.
* Good governance and leadership is a significant time commitment and requires
  significant support/resources.
* There are a variety of perspectives that should be represented, including
  miners, developers, regulators, and users.

*2. How do they decide on the strategy?*

* Flexibility in how funds are used is important. Strategies and markets
  change over time and we should be able to evolve. Thus, we should not
  constrain how funds are used up front.
* There should be no constraint to using all of the funds in any given time
  frame.
* Creating and fostering decentralized ecosystem of miners and developers is
  important for the long-term health of the ecosystem.
* A regular and predictable cadence in planning and goal setting makes it
  easy for teams to build, ship, and recharge between intense periods of
  building.
* Transparency in the strategy, decision making of fund recipients, and how
  funds are distributed is paramount.

*3. How are they held accountable to having the correct strategy?*

* No organization or individual should have a permanent seat on a
  decision-making body. Regular elections enforce good behavior.
* Third-party audits of financial behavior enforce good behavior and create
  transparency.
* Bad actors should be able to be removed from any decision-making body for
  egregious violations of trust or misbehavior.

*4. Who executes?*

* Anyone should be able to participate in the execution.
* Over time the best executors should have reputation accrue and be able to
  receive more funds.
* There is value in having Executors distributed across geographies and
  across entities.
* There is value in identifying Executors who have long-term commitments to
  Zcash and will be available for long-term support and maintenance of their
  work.

*5. How are Executors held accountable to excellent execution?*

* Excellent execution comes from having verifiable hypotheses, backed up
  with data, and clear milestones.
* Executors need to submit concrete plans, with clear goals and metrics, and
  be judged according to both whether or not the goals were reasonable and
  whether they accomplished those goals (ideally in a measurable way using
  metrics).
* Execution is best measured by pre-defining success and failure criteria,
  prior to having been influenced by the challenges of the task at hand.


Specification
=============

*1. Who determines strategy?*

* A five-person/entity board -- Five people is better than three to minimize
  collusion.
* Strategic Council should get two-year term so we can pivot people in the
  middle if necessary. No permanent seats.
* For the purposes of voting to determine seats (not having seats vote on
  issues): one of the five seats should be allocated for miners and signaled
  through nodes. One of the five should be weighted by ZEC holding so
  1 ZEC = 1 vote. Three of the five should be 1 person = 1 vote.
* Elections should be open such that any person or entity can run for a seat.
* The board is a paid position from Dev Fund emissions. Compensation TBD.

*2. How do they decide?*

* 20% of block rewards are allocated for the Developer Fund.
* There should not be any limit up front on where money can go. Perhaps one
  year it makes sense to invest entirely in protocol and another year it
  makes sense to invest in user adoption via content marketing, SEO, SEM,
  etc.
* Every six months, the board has a responsibility to publish an update to
  the strategy, key metrics that are being tracked, and key metrics to hit
  as goals in the next six months. This will require feedback from the
  community but ultimately the board needs to decide on and own the strategy.
* Every six months, the board runs a process whereby anyone can submit
  proposals for how they would best accomplish these strategic objectives
  and hit those metrics and milestones.
* No more than 33% of funds can go to one entity for development purposes.
  This enforces broad decentralization and encourages the ecosystem to
  identify new participants.

*How are they held accountable for having the correct strategy?*

* Elections every two years from the community.
* All decisions and finances are audited by a third-party audit firm.
* There is an annual meeting of all stakeholders (perhaps at Zcon?) for
  feedback, Q and A of the board, and a walk through of what has been
  accomplished in the last six months and what the proposals are for the
  next six months for feedback. The other six-month cadence meeting for
  the Strategic Council to present its plans and receive feedback can be
  virtual.

*4. Who executes?*

* Individuals, teams, or companies from anywhere can submit a proposal that
  aligns with the strategy (or doesn’t), a budget for what they want to do,
  and their success criteria on a scale of 1-10 (see below).
* Executing Entities can submit plans that may take longer than 6 months
  to complete as the reality of hiring and funding employees may dictate
  longer term financing commitment. The Strategic Committee should have
  discretion to allow for these sorts of investments but should require
  intermediate milestones and grading on the 6-month time horizon as well.
* Companies that have sustainable business models and can support or
  subsidize engineers to work on Zcash or that have adjacent businesses
  that would benefit from investment in this technology should be encouraged
  to participate, i.e. the way Square is supporting Bitcoin we should have
  companies supporting Zcash.
* Ideally the board also encourages non-technical execution such as education,
  video series, regulatory progress, etc.

*5. How are they held accountable to excellent execution?*

* At the end of six months all proposals are graded 1-10. Each team would
  pre-agree to what would would result in a 0, 3, 7, 10/10 and then they
  can move it up or down a little once results are due in 6 months. If they
  pre-agreed to some definition of results that is a 3 and then tried to
  give themselves an 8, it would look fishy and could impact future funding.
* The Strategic Council should target an average score of 7/10 for that
  six months across all Executors. If we score too high, we are not being
  ambitious enough in our goals. If we score too low, we were trying to do
  too much or had a fundamental misunderstanding of our goals.
* Over time the Strategic Council decides who gets funds so under-performers
  will be culled. Thus Executors are held accountable by the board and the
  board is held accountable by the community.

Issues & Further Discussion
===========================

*Raised objections, issues, and open questions:*

* How might we create a process to amending this process? We may want 4/5
  of the Strategic Council to approve changes or 2/3 of ZEC holders to be
  able to amend the Strategic Council’s charter.
* How do we recall or impeach the members of the Strategic Committee prior
  to the end of their term if necessary?
* I’m sure there are many other points of ambiguity and improvements we
  could make. There may even be critical design flaws or failures in this
  system. Feedback is appreciated.

References / Background
=======================

.. role:: editor-note

* https://www.zfnd.org/blog/multisig-governance/
* https://forum.zcashcommunity.com/t/placeholder-considerations-resources-governance-and-legitimacy-in-nu4/34045
* https://electriccoin.co/blog/ecc-initial-assessment-of-community-proposals/
* https://medium.com/@socrates1024/here-are-a-couple-of-points-on-framing-the-discussion-of-a-potential-new-dev-fund-in-zcash-c13bcbf4ed5b
* https://forum.grin.mw/t/solved-early-disappointments/3682
* https://www.electriccapital.com/ (for disclosure of investments we’ve made).

:editor-note:`these should be made into inline references.`

Change Log
==========

* 2019-08-27 Initial draft - thanks to @jubos, @puntium, @zooko, @joshs, and
  Jack Gavigan for helping me more clearly articulating my ideas and helping
  get them formatted properly for a ZIP. These ideas are solely mine and were
  not influenced by any of these individuals.
* 2019-08-28 Updated to be in ZIP format.
* 2019-09-15 Finally turned in to a pull request on GitHub and incorporated
  feedback from @daira and @str4d.