2024-07-03 12:30:43 -07:00
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::
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ZIP: Unassigned
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2024-07-03 20:43:39 -07:00
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Title: Block Reward Allocation for Non-Direct Development Funding
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2024-07-03 12:30:43 -07:00
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Owners: Kris Nuttycombe <kris@nutty.land>
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Jason McGee <aquietinvestor@gmail.com>
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Original-Authors: Skylar Saveland <skylar@free2z.com>
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Credits: Daira-Emma Hopwood
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Jack Grigg
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Status: Draft
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Category: Consensus
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Created: 2024-07-03
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License: MIT
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Pull-Request: <https://github.com/zcash/zips/pull/866>
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Terminology
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===========
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The key words "MUST", "REQUIRED", "MUST NOT", "SHOULD", and "MAY" in this
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document are to be interpreted as described in BCP 14 [#BCP14]_ when, and only
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when, they appear in all capitals.
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Abstract
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========
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This ZIP proposes several options for the allocation of a percentage of the
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2024-07-03 13:41:58 -07:00
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Zcash block subsidy, post-November 2024 halving, to an in-protocol "lockbox."
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2024-07-03 20:50:32 -07:00
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The "lockbox" will be a separate pool of issued funds tracked by the protocol,
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as described in ZIP <TBD>: Lockbox for Decentralized Grants Allocation
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[#zip-lockbox-funding-streams]_. No disbursement mechanism is currently defined
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for this "lockbox"; the Zcash community will need to decide upon and specify a
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suitable decentralized mechanism for permitting withdrawals from this lockbox
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in a future ZIP in order to make these funds available for funding grants to
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ecosystem participants.
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2024-07-03 12:30:43 -07:00
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The proposed lockbox addresses significant issues observed with [#zip-1014]_,
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such as regulatory risks, inefficiencies in funding organizations instead of
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projects, and centralization. While the exact disbursement mechanism for the
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lockbox funds is yet to be determined and will be addressed in a future ZIP,
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the goal is to employ a decentralized mechanism that ensures community
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involvement and efficient, project-specific funding. This approach is intended
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to potentially improve regulatory compliance, reduce inefficiencies, and
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enhance the decentralization of Zcash's funding structure.
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Motivation
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==========
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Starting at Zcash's second halving in November 2024, by default 100% of the
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block subsidies will be allocated to miners, and no further funds will be
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automatically allocated to any other entities. Consequently, no substantial new
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funding may be available to existing teams dedicated to furthering charitable,
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educational, or scientific purposes, such as research, development, and
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outreach.
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It is important to balance the incentives for securing the consensus protocol
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through mining with funding crucial charitable, educational, and scientific
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activities like research, development, and outreach. Additionally, there is a
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need to continue to promote decentralization and the growth of independent
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development teams.
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For these reasons, the Zcash Community wishes to establish a new Zcash
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Development Fund after the second halving in November 2024, with the intent to
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put in place a more decentralized mechanism for allocation of development
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funds. The alternatives presented here are intended to address the following:
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1. **Regulatory Risks**: The current model involves direct funding of US-based
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organizations, which can potentially attract regulatory scrutiny from
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entities such as the SEC, posing legal risks to the Zcash ecosystem.
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2. **Funding Inefficiencies**: The current model directly funds organizations
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rather than specific projects, leading to a potential mismatch between those
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organizations' development priorities and the priorities of the community.
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Furthermore, if organizations are guaranteed funds regardless of
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performance, there is little incentive to achieve key performance indicators
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(KPIs) or align with community sentiment. A future system that allocates
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resources directly to projects rather than organizations may help reduce
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inefficiencies and better align development efforts with community
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priorities.
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3. **Centralization Concerns**: The current model centralizes decision-making
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power within a few organizations, contradicting the decentralized ethos of
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blockchain technology. Traditional organizational structures with boards and
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executives introduce a single point of failure and limit community
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involvement in funding decisions.
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4. **Community Involvement**: The current system provides minimal formal input
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from the community regarding what projects should be funded, leading to a
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misalignment between funded projects and community priorities.
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5. **Moving Towards a Non-Direct Funding Model**: There is strong community
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support for a non-direct Dev Fund funding model. Allocating funds to a
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Deferred Dev Fund Lockbox incentivizes the development of a decentralized
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mechanism for the disbursement of the locked funds.
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By addressing these issues, this proposal aims to ensure sustainable,
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efficient, and decentralized funding for essential activities within the Zcash
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ecosystem.
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Requirements
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============
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1. **In-Protocol Lockbox**: The alternatives presented in this ZIP depend upon
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the Lockbox Funding Streams proposal [#zip-lockbox-funding-streams]_.
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2. **Regulatory Considerations**: The allocation of funds should minimize
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regulatory risks by avoiding direct funding of specific organizations. The
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design should ensure compliance with applicable laws and regulations to
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support the long-term sustainability of the funding model.
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Non-requirements
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================
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The following consideratiosn are explicitly deferred to future ZIPs and are not
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covered by this proposal:
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1. **Disbursement Mechanism**: The exact method for disbursing the accumulated
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funds from the lockbox is not defined in this ZIP. The design,
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implementation, and governance of the disbursement mechanism will be
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addressed in a future ZIP. This includes specifics on how funds will be
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allocated, the voting or decision-making process, and the structure of the
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decentralized mechanism (such as a DAO).
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2. **Regulatory Compliance Details**: The proposal outlines the potential to
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reduce regulatory risks by avoiding direct funding of US-based
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organizations, but it does not detail specific regulatory compliance
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strategies. Future ZIPs will need to address how the disbursement mechanism
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complies with applicable laws and regulations.
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3. **Impact Assessment**: The long-term impact of reallocating a portion of the
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2024-07-03 13:41:58 -07:00
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block subsidy to the lockbox on the Zcash ecosystem, including its effect on
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2024-07-03 12:30:43 -07:00
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miners, developers, and the broader community, is not analyzed in this ZIP.
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Subsequent proposals will need to evaluate the outcomes and make necessary
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adjustments based on real-world feedback and data.
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Specification
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=============
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The following alternatives all depend upon the Lockbox Funding Streams proposal
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[#zip-lockbox-funding-streams]_ for storage of funds into a deferred value
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2024-07-03 13:41:58 -07:00
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pool.
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2024-07-03 12:30:43 -07:00
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Some of the alternatives described below do not specify a termination height
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for the funding streams they propose. In these cases, the termination height
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is set to `u32::MAX_VALUE`. A future network upgrade is required in order for
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these streams to be terminated.
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Alternatives
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============
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2024-07-03 20:43:39 -07:00
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Alternative 1: Lockbox For Decentralized Grants Allocation (perpetual 50% option)
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---------------------------------------------------------------------------------
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2024-07-03 12:30:43 -07:00
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Proposed by Skylar Saveland
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2024-07-03 13:41:58 -07:00
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* 50% of the block subsidy is to be distributed to the lockbox.
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2024-07-03 12:30:43 -07:00
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As of block height 2726400, and continuing until modified by a future ZIP, the
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complete set of funding streams will be::
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================= =========== ============= ============== ============
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Stream Numerator Denominator Start height End height
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================= =========== ============= ============== ============
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``FS_DEFERRED`` 50 100 2726400 u32::MAX
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================= =========== ============= ============== ============
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Motivations for Alternative 1
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'''''''''''''''''''''''''''''
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2024-07-03 13:41:58 -07:00
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This alternative proposes a substantially larger slice of the block subsidy
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than is currently allocated for development funding, in order to provide
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a long-term source of funding for protocol improvements. It is intended that
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a future mechanism put in place for the disbursement of these funds to only
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release funds from the pool in relatively small increments and with a bounded
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upper value, to ensure that funding remains available for years to come.
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2024-07-03 20:43:39 -07:00
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Alternative 2: Hybrid Deferred Dev Fund
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---------------------------------------
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2024-07-03 20:43:39 -07:00
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Proposed by Jason McGee, Peacemonger, GGuy
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2024-07-03 13:41:58 -07:00
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* 12% of the block subsidy is to be distributed to the lockbox.
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* 8% of the block subsidy is to be distributed to the Financial Privacy
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Foundation (FPF), for the express use of the Zcash Community Grants Committee
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(ZCG) to fund independent teams in the Zcash ecosystem.
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As of block height 2726400, and continuing for one year, the complete set of
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funding streams will be::
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================= =========== ============= ============== ============
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Stream Numerator Denominator Start height End height
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================= =========== ============= ============== ============
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``FS_DEFERRED`` 12 100 2726400 3146400
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``FS_FPF_ZCG`` 8 100 2726400 3146400
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================= =========== ============= ============== ============
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Motivations for Alternative 2
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'''''''''''''''''''''''''''''
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* **Limited Runway**: ZCG does not have the financial runway that ECC/BP and ZF
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have. As such, allocating ongoing funding to ZCG will help ensure the Zcash
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ecosystem has an active grants program.
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* **Promoting Decentralization**: Allocating a portion of the Dev Fund to Zcash
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Community Grants ensures small teams continue to receive funding to
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contribute to Zcash. Allowing the Dev Fund to expire, or putting 100% into a
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lockbox, would disproportionally impact grant recipients. This hybrid
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approach promotes decentralization and the growth of independent development
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teams.
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* **Mitigating Regulatory Risks**: By minimizing direct funding of US-based
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organizations, the lockbox helps to reduce potential regulatory scrutiny and
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legal risks.
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2024-07-03 20:43:39 -07:00
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Alternative 3: Lockbox For Decentralized Grants Allocation (20% option)
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-----------------------------------------------------------------------
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2024-07-03 12:30:43 -07:00
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Proposed by Kris Nuttycombe
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2024-07-03 13:41:58 -07:00
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* 20% of the block subsidy is to be distributed to the lockbox.
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As of block height 2726400, and continuing for two years, the complete set of
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funding streams will be::
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================= =========== ============= ============== ============
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Stream Numerator Denominator Start height End height
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================= =========== ============= ============== ============
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``FS_DEFERRED`` 20 100 2726400 3566400
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================= =========== ============= ============== ============
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Motivations for Alternative 3
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'''''''''''''''''''''''''''''
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This alternative is presented as the simplest allocation of block rewards
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to a lockbox for future disbursement that is consistent with results of
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community polling.
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2024-07-03 20:43:39 -07:00
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Alternative 4: Masters Of The Universe
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--------------------------------------
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Proposed by NoamChom (Zcash forum)
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* 17% of the block subsidy is to be distributed to the lockbox.
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* 8% of the block subsidy is to be distributed to the Financial Privacy
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Foundation (FPF), for the express use of the Zcash Community Grants Committee
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(ZCG) to fund independent teams in the Zcash ecosystem.
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As of block height 2726400, and continuing for four years, the complete set of
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funding streams will be::
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================= =========== ============= ============== ============
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Stream Numerator Denominator Start height End height
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================= =========== ============= ============== ============
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``FS_DEFERRED`` 17 100 2726400 4406400
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``FS_FPF_ZCG`` 8 100 2726400 4406400
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================= =========== ============= ============== ============
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Motivations for Alternative 4
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'''''''''''''''''''''''''''''
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This alternative proposes a slightly larger slice of the block subsidy than is
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currently allocated for development funding, in order to better provide for the
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needs of the Zcash community.
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2024-07-03 13:47:25 -07:00
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Requirements related to direct streams for the Financial Privacy Foundation
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===========================================================================
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The following requirements apply to Alternative 2 and Alternative 4:
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The stream allocated to Zcash Community Grants (ZCG) is intended to fund
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independent teams entering the Zcash ecosystem, to perform major ongoing
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development (or other work) for the public good of the Zcash ecosystem, to the
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extent that such teams are available and effective. The ZCG Committee is given
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the discretion to allocate funds not only to major grants, but also to a
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diverse range of projects that advance the usability, security, privacy, and
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adoption of Zcash, including community programs, dedicated resources, and other
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projects of varying sizes.
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The funds SHALL be received and administered by the
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Financial Privacy Foundation (FPF). FPF MUST disburse them for grants and
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expenses reasonably related to the administration of the ZCG program, but
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subject to the following additional constraints:
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1. These funds MUST only be used to issue grants to external parties that are
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independent of FPF, and to pay for expenses reasonably related to the
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administration of the ZCG program. They MUST NOT be used by FPF for
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its internal operations and direct expenses not related to the
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administration of grants or the grants program.
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2. ZCG SHOULD support well-specified work proposed by the grantee, at
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reasonable market-rate costs. They can be of any duration or ongoing without
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a duration limit. Grants of indefinite duration SHOULD have semiannual
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review points for continuation of funding.
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3. Priority SHOULD be given to major grants that bolster teams with substantial
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(current or prospective) continual existence, and set them up for long-term
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success, subject to the usual grant award considerations (impact, ability,
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risks, team, cost-effectiveness, etc.). Priority SHOULD be given to major
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grants that support ecosystem growth, for example through mentorship,
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coaching, technical resources, creating entrepreneurial opportunities, etc.
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If one proposal substantially duplicates another’s plans, priority SHOULD be
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given to the originator of the plans.
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4. The ZCG committee SHOULD be restricted to funding projects that further the
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Zcash cryptocurrency and its ecosystem (which is more specific than
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furthering financial privacy in general) as permitted by FPF
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and any relevant jurisdictional requirements.
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5. ZCG awards are subject to approval by a five-seat ZCG Committee. The ZCG
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Committee SHALL be selected by the ZF’s Community Advisory Panel or a
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successor process (e.g. as established by FPF). Elections SHALL be staggered
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to ensure continuity within the Committee.
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6. The ZCG Committee’s funding decisions will be final, requiring no approval
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from the FPF Board, but are subject to veto if the FPF judges them to
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violate any relevant laws or other (current or future) obligations.
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7. ZCG Committee members SHALL have a one-year term and MAY sit for reelection.
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The ZCG Committee is subject to the same conflict of interest policy that
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governs the FPF Board of Directors (i.e. they MUST recuse themselves when
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voting on proposals where they have a financial interest). At most one
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person with association with the BP/ECC, at most one person with
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association with the ZF, and at most one person with association with FPF
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are allowed to sit on the ZCG Committee.
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“Association” here means: having a financial interest, full-time employment,
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being an officer, being a director, or having an immediate family
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relationship with any of the above. The ZF SHALL continue to operate the
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Community Advisory Panel and SHOULD work toward making it more
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representative and independent (more on that below). Similarly, FPF should
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also endeavor to establish its own means of collecting community sentiment
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for the purpose of administering ZCG elections.
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8. A portion of the ZCG Slice shall be allocated to a Discretionary Budget,
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which may be disbursed for expenses reasonably related to the administration
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of the ZCG program. The amount of funds allocated to the Discretionary
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Budget SHALL be decided by the ZF’s Community Advisory Panel or successor
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process. Any disbursement of funds from the Discretionary Budget MUST be
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approved by the ZCG Committee. Expenses related to the administration of the
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ZCG program include, without limitation the following:
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* Paying third party vendors for services related to domain name
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registration, or the design, website hosting and administration of
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websites for the ZCG Committee.
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* Paying independent consultants to develop requests for proposals that
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align with the ZCG program.
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* Paying independent consultants for expert review of grant applications.
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* Paying for sales and marketing services to promote the ZCG program.
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* Paying third party consultants to undertake activities that support the
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purpose of the ZCG program.
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* Reimbursement to members of the ZCG Committee for reasonable travel
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expenses, including transportation, hotel and meals allowance.
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9. A portion of the Discretionary Budget MAY be allocated to provide reasonable
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compensation to members of the ZCG Committee. Committee member compensation
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SHALL be limited to the hours needed to successfully perform their positions
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and MUST align with the scope and responsibilities of their roles. The
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allocation and distribution of compensation to committee members SHALL be
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administered by the FPF. The compensation rate and hours for committee
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members SHALL be determined by the ZF’s Community Advisory Panel or
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successor process.
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10. The ZCG Committee’s decisions relating to the allocation and disbursement
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of funds from the Discretionary Budget will be final, requiring no approval
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from the FPF Board, but are subject to veto if the FPF judges
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them to violate laws or FPF reporting requirements and other
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(current or future) obligations.
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FPF SHALL recognize the ZCG slice of the Dev Fund as a Restricted Fund
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donation under the above constraints (suitably formalized), and keep separate
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accounting of its balance and usage under its Transparency and Accountability
|
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obligations defined below.
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FPF SHALL strive to define target metrics and key performance indicators,
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and the ZCG Committee SHOULD utilize these in its funding decisions.
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Direct Grant Option
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-------------------
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It may be deemed better, operationally or legally, if ZCG funds are not
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accepted and disbursed by FPF, but rather directly assigned to the
|
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grantees. Thus, the following mechanism MAY be used in perpetuity for some or
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all grantees:
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Prior to each network upgrade, based on the ZCG Committee’s recommendation, the
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|
FPF SHALL publish a list of grantees’ addresses and the total number of
|
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|
Dev Fund ZEC per block they should receive. ECC and ZF SHALL implement this
|
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|
list in any implementations of the Zcash consensus rules they maintain. This
|
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|
decision will then be, effectively, ratified by the miners as the network
|
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|
upgrade activates.
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Furthering Decentralization
|
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|
|
---------------------------
|
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FPF SHALL conduct periodic reviews of the
|
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|
|
organizational structure, performance, and effectiveness of the ZCG program and
|
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|
|
committee, taking into consideration the input and recommendations of the ZCG
|
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|
Committee. As part of these periodic reviews, FPF MUST commit to
|
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|
exploring the possibility of transitioning ZCG into an independent organization
|
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|
if it is economically viable and it aligns with the interests of the Zcash
|
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|
ecosystem and prevailing community sentiment.
|
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|
In any transition toward independence, priority SHALL be given to maintaining
|
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|
|
or enhancing the decentralization of the Zcash ecosystem. The newly formed
|
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|
|
independent organization MUST ensure that decision-making processes remain
|
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|
|
community-driven, transparent, and responsive to the evolving needs of the
|
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|
|
Zcash community and ecosystem. In order to promote geographic decentralization,
|
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|
|
the new organization SHOULD establish its domicile outside of the United
|
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|
States.
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|
Transparency and Accountability
|
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|
|
-------------------------------
|
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|
FPF MUST accept the following obligations in this section on behalf of ZCG:
|
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|
|
* Publication of the ZCG Dashboard, providing a snapshot of ZCG’s current
|
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|
|
|
financials and any disbursements made to grantees.
|
|
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|
|
* Bi-weekly meeting minutes documenting the decisions made by the ZCG committee
|
|
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|
|
on grants.
|
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|
|
* Quarterly reports, detailing future plans, execution on previous plans, and
|
|
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|
|
finances (balances, and spending broken down by major categories).
|
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|
|
* Annual detailed review of the organization performance and future plans.
|
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|
|
* Annual financial report (IRS Form 990, or substantially similar information).
|
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|
|
BP, ECC, ZF, FPF, ZCG and grant recipients MUST promptly disclose any security
|
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|
|
|
or privacy risks that may affect users of Zcash (by responsible disclosure
|
|
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|
|
under confidence to the pertinent developers, where applicable).
|
|
|
|
|
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|
|
All substantial software whose development was funded by the Dev Fund SHOULD be
|
|
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|
|
released under an Open Source license (as defined by the Open Source Initiative
|
|
|
|
|
5), preferably the MIT license.
|
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|
|
Enforcement
|
|
|
|
|
-----------
|
|
|
|
|
|
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|
|
|
FPF MUST contractually commit to fulfill these obligations on behalf of
|
|
|
|
|
ZCG, and the prescribed use of funds, such that substantial violation, not
|
|
|
|
|
promptly remedied, will result in a modified version of Zcash node software
|
|
|
|
|
that removes ZCG’s Dev Fund slice and allocates it to the Deferred Dev Fund
|
|
|
|
|
lockbox.
|
|
|
|
|
|
2024-07-03 12:30:43 -07:00
|
|
|
|
References
|
|
|
|
|
==========
|
|
|
|
|
|
|
|
|
|
.. [#BCP14] `Information on BCP 14 — "RFC 2119: Key words for use in RFCs to
|
|
|
|
|
Indicate Requirement Levels" and "RFC 8174: Ambiguity of Uppercase vs
|
|
|
|
|
Lowercase in RFC 2119 Key Words" <https://www.rfc-editor.org/info/bcp14>`_
|
|
|
|
|
.. [#zip-1014] `ZIP 1014: Dev Fund Proposal and Governance <zip-1014.rst>`_
|
2024-07-03 13:54:35 -07:00
|
|
|
|
.. [#zip-lockbox-funding-streams] `Lockbox Funding Streams <https://zips.z.cash/draft-nuttycom-lockbox-streams>`_
|