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Create ZIP 1015 from the voted-upon funding allocation proposal draft.

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Kris Nuttycombe 2024-08-26 12:12:00 -06:00
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zips/draft-nuttycom-funding-allocation.rst → zips/zip-1015.rst
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@ -1,19 +1,19 @@
::
ZIP: Unassigned
ZIP: 1015
Title: Block Reward Allocation for Non-Direct Development Funding
Owners: Jason McGee <aquietinvestor@gmail.com>
@Peacemonger (Zcash Forum)
Kris Nuttycombe <kris@nutty.land>
Original-Authors: Skylar Saveland <skylar@free2z.com>
Credits: @GGuy (Zcash Forum)
Daira-Emma Hopwood
Jack Grigg
Status: Draft
Skylar Saveland
Status: Proposed
Category: Consensus
Created: 2024-07-03
Created: 2024-08-26
License: MIT
Pull-Request: <https://github.com/zcash/zips/pull/866>
Pull-Request: <https://github.com/zcash/zips/pull/881>
Terminology
===========
@ -27,32 +27,21 @@ Abstract
This ZIP proposes the allocation of a percentage of the Zcash block subsidy,
post-November 2024 halving, split between Zcash Community Grants (ZCG) an
in-protocol "lockbox." The "lockbox" will be a separate pool of issued funds
tracked by the protocol, as described in ZIP 2001: Lockbox Funding Streams
[#zip-2001]_. No disbursement mechanism is currently defined for this "lockbox";
the Zcash community will need to decide upon and specify a suitable
decentralized mechanism for permitting withdrawals from this lockbox in a future
ZIP in order to make these funds available for funding grants to ecosystem
participants.
in-protocol "lockbox." The "lockbox" is a separate pool of issued funds tracked
by the protocol, as described in ZIP 2001: Lockbox Funding Streams [#zip-2001]_.
No disbursement mechanism is currently defined for this "lockbox"; the Zcash
community will need to decide upon and specify a suitable decentralized
mechanism for permitting withdrawals from this lockbox in a future ZIP in order
to make these funds available for funding grants to ecosystem participants.
The proposed lockbox addresses significant issues observed with ZIP 1014
[#zip-1014]_, such as regulatory risks, inefficiencies due to funding of organizations
instead of projects, and centralization. While the exact disbursement mechanism
for the lockbox funds is yet to be determined and will be addressed in a future
ZIP, the goal is to employ a decentralized mechanism that ensures community
involvement and efficient, project-specific funding. This approach is intended
to potentially improve regulatory compliance, reduce inefficiencies, and
enhance the decentralization of Zcash's funding structure.
A number of previously proposed alternatives are listed at the bottom of
this document. Polling of the community was used to select among these and
other proposals. See the following Zcash community forum posts for additional
details:
* https://forum.zcashcommunity.com/t/dev-fund-polling-results-discussion-and-next-steps/48314
* https://forum.zcashcommunity.com/t/dev-fund-decision-time/48231/16
* https://forum.zcashcommunity.com/t/dev-fund-decision-time/48231/17
* https://forum.zcashcommunity.com/t/dev-fund-decision-time/48231/27
[#zip-1014]_, such as regulatory risks, inefficiencies due to funding of
organizations instead of projects, and centralization. While the exact
disbursement mechanism for the lockbox funds is yet to be determined and will be
addressed in a future ZIP, the goal is to employ a decentralized mechanism that
ensures community involvement and efficient, project-specific funding. This
approach is intended to potentially improve regulatory compliance, reduce
inefficiencies, and enhance the decentralization of Zcash's funding structure.
Motivation
==========
@ -173,7 +162,7 @@ Specification
(ZCG) to fund independent teams in the Zcash ecosystem.
As of block height 2726400, and continuing for one year, the complete set of
funding streams will be:
funding streams for Mainnet will be:
================= =========== ============= ============== ============
Stream Numerator Denominator Start height End height
@ -182,6 +171,15 @@ funding streams will be:
``FS_FPF_ZCG`` 8 100 2726400 3146400
================= =========== ============= ============== ============
The set of funding streams for Testnet will be:
================= =========== ============= ============== ============
Stream Numerator Denominator Start height End height
================= =========== ============= ============== ============
``FS_DEFERRED`` 12 100 2976000 3396000
``FS_FPF_ZCG`` 8 100 2976000 3396000
================= =========== ============= ============== ============
The stream allocated to Zcash Community Grants (ZCG) is intended to fund
independent teams entering the Zcash ecosystem, to perform major ongoing
development (or other work) for the public good of the Zcash ecosystem, to the
@ -338,266 +336,6 @@ 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.
Previously Considered Alternatives
==================================
Lockbox For Decentralized Grants Allocation (20% option)
-----------------------------------------------------------------------
Proposed by Kris Nuttycombe
* 20% of the block subsidy is to be distributed to the lockbox.
As of block height 2726400, and continuing for two years, the complete set of
funding streams will be:
================= =========== ============= ============== ============
Stream Numerator Denominator Start height End height
================= =========== ============= ============== ============
``FS_DEFERRED`` 20 100 2726400 3566400
================= =========== ============= ============== ============
Motivations for the 20% lockbox option
''''''''''''''''''''''''''''''''''''''
This alternative seeks to eliminate all direct funding of development
organizations in the Zcash ecosystem, in preparation for designing a more
decentralized and flexible approach to distributing funds allocated for
ecosystem development.
By eliminating all direct funding, this alternative fully aligns the incentives
of the various existing development organizations to efficiently work toward
the implementation of a new disbursement mechanism. At the time of this
writing, these existing organizations each have funds in reserve that will
enable them to continue operation for a period beyond the end of the previous
development fund that should, with efficient operation, be sufficient for a
decentralized disbursement mechanism to be implemented.
Lockbox For Decentralized Grants Allocation (perpetual 50% option)
------------------------------------------------------------------
Proposed by Skylar Saveland; previously listed as Alternative 1 prior
to community polling.
* 50% of the block subsidy is to be distributed to the lockbox.
As of block height 2726400, and continuing until modified by a future ZIP, the
complete set of funding streams will be:
================= =========== ============= ============== ============
Stream Numerator Denominator Start height End height
================= =========== ============= ============== ============
``FS_DEFERRED`` 50 100 2726400 u32::MAX
================= =========== ============= ============== ============
Motivations for the perpetual 50% option
''''''''''''''''''''''''''''''''''''''''
This alternative proposes allocating a significantly larger portion of the block
subsidy to development funding than is currently allocated, aiming to establish
a long-term source of funding for protocol improvements. The disbursement of
these funds will be governed by a mechanism to be determined by the community
in the future, ensuring that the funds are released under agreed-upon constraints
to maintain availability for years to come.
The proposed lockbox funding model for Zcash's post-NU6 halving period allocates
50% of the block reward to a deferred reserve, or "lockbox," designated for
future decentralized grants funding. This approach is designed to address several
critical motivations:
.. Note: some of these are similar to the general motivations.
1. **Regulatory Compliance**:
- **Reduction of Regulatory Risks**: Direct funding to legal entities poses
significant regulatory risks. Allocating funds to a decentralized lockbox
mitigates these risks by avoiding direct funding of any specific
organizations. This alternative represents the strongest regulatory
posture, as it reduces the likelihood of legal challenges associated with
funding centralized entities directly.
- **Potential Minimization of KYC Requirements**: The current funding
mechanism involves 100% KYC for recipients, which can be detrimental to
security, privacy, resilience, and participation. A sufficiently
decentralized disbursement mechanism could reduce the need for recipients
to undergo KYC with a controlling entity. This would preserve privacy and
encourage broader participation from developers and contributors who value
anonymity and privacy. By shifting from direct funding of specific legal
entities to a decentralized funding model, we create a more secure,
private, and resilient ecosystem. This potential future difference
enhances the robustness of the Zcash network by fostering a diverse and
engaged community without the constraints of centralized direct funding.
2. **Ensuring Sustainable Development Funding**:
- **Need for Continuous Funding**: Zcash has numerous ongoing and future
projects essential for its ecosystem's growth and security. Without a
change, the expiration of the devfund will result in 100% of the block
reward going to miners, jeopardizing funding for development. The proposed
50% lockbox allocation ensures that funds are directed towards sustaining
and improving the Zcash ecosystem through a wide array of initiatives.
These include protocol development, new features, security audits, legal
support, marketing, ZSAs (Zcash Shielded Assets), stablecoins,
programmability, transitioning to a modern Rust codebase, wallets,
integrations with third-party services, improved node software, block
explorers, supporting ambassadors, and educational initiatives like
ZecHub.
- **Balanced Incentives for Network and Protocol Security**: While miners
have been essential in providing network security through hashpower,
allocating 100% of the block reward to mining alone overlooks the crucial
need for development, innovation, and protocol security. By investing in
these priorities, we enhance the long-term health and value of the
protocol, which ultimately benefits miners. A well-maintained and
innovative protocol increases the overall value of the network, making
miners' rewards more valuable. This balanced approach aligns the interests
of miners with the broader community, ensuring sustainable growth and
security for Zcash.
3. **Efficiency, Accountability, and Decentralization**:
- **Reduction of Inefficiencies**: Traditional funding models often involve
significant corporate overhead and centralized decision-making, leading to
inefficiencies. The prior model provided two 501(c)(3) organizations with
constant funding for four years, which reduced accountability and allowed
for potential misalignment with the community's evolving priorities. By
funding projects directly rather than organizations, we can allocate
resources more efficiently, ensuring that funds are used for tangible
development rather than administrative costs. This approach minimizes the
influence of corporate executives, whose decisions have sometimes failed
to address critical issues promptly.
- **Increased Accountability**: A presumed grants-only mechanism, to be
defined in a future ZIP, would necessitate continuous accountability and
progress for continuous funding. Unlike the prior model, where
organizations received guaranteed funding regardless of performance, a
grants-based approach would require projects to demonstrate ongoing
success and alignment with community goals to secure funding. This
continuous evaluation fosters a more responsive and responsible allocation
of resources, ensuring that funds are directed towards initiatives that
provide the most value to the Zcash ecosystem. By increasing
accountability, this model promotes a culture of excellence and
innovation, driving sustained improvements and advancements in the
protocol.
- **Promotion of Decentralization**: The proposed non-direct funding model
stores deferred funds for future use, with the specifics of the
disbursement mechanism to be determined by a future ZIP. This could allow
the community to have a greater influence over funding decisions, aligning
more closely with the ethos of the Zcash project. By decentralizing the
allocation process, this approach has the potential to foster innovation
and community involvement, ensuring that development priorities are more
reflective of the community's needs and desires, promoting a more open,
transparent, and resilient ecosystem.
4. **Incentives for Development and Collaboration**:
- **Creating a Strong Incentive to Implement the Disbursement Mechanism**:
Allocating 50% of the block reward to the lockbox indefinitely creates
a powerful incentive for the community to work together to implement the
disbursement mechanism without delay. Knowing that there is a substantial
amount of funds available, stakeholders will be motivated to develop and
agree on an effective, decentralized method for distributing these funds.
- **Incentivizing Continuous Improvements**: The accumulation of a large
stored fortune within the lockbox incentivizes continuous improvements
to the Zcash protocol and ecosystem. Developers, contributors, and
community members will be driven to propose and execute projects that
enhance the network, knowing that successful initiatives have the
potential to receive funding. This model fosters a culture of ongoing
innovation and development, ensuring that Zcash remains at the forefront
of blockchain technology.
- **Aligning Long-Term Interests**: By tying a significant portion of the
block reward to future decentralized grants funding, the model aligns
the long-term interests of all stakeholders. Miners, developers, and
community members alike have a vested interest in maintaining and
improving the Zcash network, as the value and success of their efforts
are directly linked to the availability and effective use of the lockbox
funds. This alignment of incentives ensures that the collective efforts
of the community are focused on the sustainable growth and advancement
of the Zcash ecosystem.
Guidance on Future Requirements
'''''''''''''''''''''''''''''''
To support the motivations outlined, the following guidance is proposed for
this alternative. Future ZIP(s) will define the disbursement mechanism. These are
suggestions to achieve the outlined motivations and should be considered in
those future ZIP(s). It is important to note that these are ideas and guidance,
not hard, enforceable requirements:
1. **Cap on Grants**: Grants should be capped to promote more granular
accountability and incremental goal-setting. This approach ensures that
projects are required to define their work, goals, milestones, KPIs, and
achievements in smaller, more manageable increments. Even if a single
project is utilizing significant funds quickly, the cap ensures that
progress is continuously evaluated and approved based on tangible results
and alignment with community priorities.
2. **Decentralized Disbursement Mechanism**: The disbursement mechanism should
be sufficiently decentralized to ensure the regulatory motivations are
fulfilled. A decentralized mechanism could reduce the need for recipients to
undergo KYC with a controlling party, preserving privacy and aligning with
the ethos of the Zcash project.
3. **Governance and Accountability**: The governance structure for the
disbursement mechanism should be open and accountable, with decisions made
through community consensus or decentralized voting processes to maintain
trust and accountability. This approach will help ensure that the allocation
of funds is fair and aligned with the community's evolving priorities.
4. **Periodic Review and Adjustment**: There should be provisions for periodic
review and adjustment of the funding mechanism to address any emerging
issues or inefficiencies and to adapt to the evolving needs of the Zcash
ecosystem. This could include the ability to add or remove participants as
necessary. Regular assessments will help keep the funding model responsive
and effective, ensuring it continues to meet the community's goals.
By addressing these motivations and providing this guidance, this alternative
aims to provide a robust, sustainable, and decentralized funding model that
aligns with the principles and long-term goals of the Zcash community.
"Masters Of The Universe"
-------------------------
Proposed by NoamChom (Zcash forum), previously listed as Alternative 4
prior to community polling.
* 17% of the block subsidy is to be distributed to the lockbox.
* 8% of the block subsidy is to be distributed to the Financial Privacy
Foundation (FPF), for the express use of the Zcash Community Grants Committee
(ZCG) to fund independent teams in the Zcash ecosystem.
As of block height 2726400, and continuing for four years, the complete set of
funding streams will be:
================= =========== ============= ============== ============
Stream Numerator Denominator Start height End height
================= =========== ============= ============== ============
``FS_DEFERRED`` 17 100 2726400 4406400
``FS_FPF_ZCG`` 8 100 2726400 4406400
================= =========== ============= ============== ============
Motivations for "Masters of the Universe"
'''''''''''''''''''''''''''''''''''''''''
This alternative proposes a slightly larger slice of the block subsidy than is
currently allocated for development funding, in order to better provide for the
needs of the Zcash community.
Revisitation Requirement for "Masters of the Universe"
''''''''''''''''''''''''''''''''''''''''''''''''''''''
The terms for this Alternative should be revisited by the Zcash ecosystem upon
creation/ activation of a "non-direct funding model" (NDFM). At that completion
of an NDFM which accessess the lockbox funds, this ZIP should be reconsidered
(potentially terminated) by the Zcash ecosystem, to determine if its ongoing
direct block subsidies are preferred for continuation. Discussions / solications
/ sentiment gathering from the Zcash ecosystem should be initiated ~6 months in
advance of the presumed activation of a "non-direct funding model", such that
the Zcash ecosystem preference can be expediently realized.
References
==========