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Update Blocktown ZIP Draft for Dev Fund

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JamesTodaroMD 2019-08-31 09:04:36 -04:00 committed by Daira Hopwood
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Blocktown ZIP Draft for Dev Fund
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@ -88,43 +88,46 @@ License: MIT</pre>
</section>
<section id="motivation">
<h2>Motivation</h2>
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 1] and formalized further in a blog post on August 23, 2019 [6 1], 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 and second halving 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.
Rationale
The rationale behind this proposal is as follows:
• To provide financial resources for research, development, and any other technical work connected to software upgrades/maintenance of the Zcash protocol, as well as non-technical initiatives including marketing, design, events, regulatory outreach, education, governance, and any other form of business that contribute to the success of the Zcash network;
• To increase decentralization and network security of the Zcash network;
• To increase decentralization through greater community involvement in Zcash governance and resource allocation;
• To establish basic rules of governance and accountability regarding the deployment of funds in the Zcash Development Fund;
• To encourage transparency and cooperation among Zcash stakeholders and strengthen the community’s governance capabilities moving forward.
Discussion
Recognized objections to this proposal include:
• This proposal is not in accordance with the current Zcash protocol, which is programmed to allocate 100% of the coinbase to miners upon the first halving in 2020. However, at least during the next few years of Zcash’s infancy, we believe it is advantageous to have a funded and dedicated development team.
• The funding mechanism in this proposal is a Zcash Development Fund consisting of 10% of newly issued ZEC from block rewards after the first halving. This is in contrast to other proposals that allocate 20% of the mining rewards to the Zcash Development Fund–presumably a popular selection because the original Founder’s Reward was also set at 20%. For reasons we have explored in depth [7] and summarized [8], we believe 10% instead of 20% is superior for network security, decentralization, uniting the Zcash community and renewing interest in ZEC.
• Various parameters of governance in approving Applicant requests for funding from the Zcash Development Fund.
• The inclusion of a third entity in governance. One notable objection is the possibility of collusion between Third Entity and either the ECC or ZF that would result in a “usurped” Zcash Development Fund. We believe that the process for a community elected Third Entity, however, will mature over time–giving the community and Zcash stakeholders that important third opinion in deciding the proper allocation of funds. As demonstrated by the resilience of the bitcoin network and community, well-formed communities tend to resist any collusion with corporations and controlling entities that do not promote the direct success of the network. Moreover, the inclusion of a Third Entity has the advantage of offering a “tie-breaker” in the event of a deadlock vote between the ECC and ZF and/or a situation where one entity holds the other hostage, which is a possible scenario in a 2-of-2 multisig agreement.
• This proposal does not have a clause dictating that a Recipient must abstain from voting. If a Recipient must abstain from voting in a 2-of-3 multisig governance system, then this could–as in the case of 2-of-2 multisig–result in an entity holding another hostage. For example, if the ECC refuses to fund the ZF until the ZF complies with the ECC’s demands, then the ECC has the power to deadlock any vote to fund the ZF, which requires the ECC and Third Entity to both vote approvingly.
Aspects of this proposal, particularly the Terminology and Specification sections, were adapted and expanded definitions and concepts put forth in Placeholder’s dev fund proposal from August 22, 2019 [9].
References
[1] Key words for use in RFCs to Indicate Requirement Levels, <a href="https://tools.ietf.org/html/rfc2119">Key Words</a>
[2] The Zcash Network Upgrade Pipeline, <a href="https://electriccoin.co/blog/the-zcash-network-upgrade-pipeline/">NU Pipeline</a>
[3] Zcash Foundation Guidance on Dev Fund Proposals, <a href="https://www.zfnd.org/blog/dev-fund-guidance-and-timeline/">ZIP Guide</a>
[4] ECC Initial Assessment of Community Proposals, <a href="https://electriccoin.co/blog/ecc-initial-assessment-of-community-proposals/">ECC Initial Assessment of Proposals</a>
[5] Proposal for the Zcash 2020 Network Upgrade (topic on the Zcash community forum), <a href="https://forum.zcashcommunity.com/t/proposal-for-the-zcash-2020-network-upgrade/34503">Zcash Forum Blocktown Proposal</a>
[6] Blocktown Proposal for Zcash 2020 Network Upgrade, <a href="https://medium.com/blocktown/blocktown-proposal-for-zcash-2020-network-upgrade-fdec1e9d507c">Blocktown Proposal for NU4</a>
[7] Proposal for the Zcash 2020 Network Upgrade, <a href="https://medium.com/blocktown/proposal-for-the-zcash-2020-network-upgrade-fcd320a5d6f5">Initial Blocktown Proposal</a>
[8] Executive Summary: Blocktown Proposal for Zcash 2020 Network Upgrade, <a href="https://medium.com/blocktown/executive-summary-blocktown-proposal-for-zcash-2020-network-upgrade-84ff20997502">Blocktown Proposal Executive Summary</a>
[9] Dev Fund Proposal: 20% to a 2-of-3 multisig with community-involved governance, <a href="https://forum.zcashcommunity.com/t/dev-fund-proposal-20-to-a-2-of-3-multisig-with-community-involved-governance/34646">Placeholder ZIP Draft</a>
<p>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.</p>
<p>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].</p>
<p>Based on the ECC’s demands, the block reward appears to be the most agreeable source of resources for a Zcash Development Fund.</p>
<p>This proposal, originally published in the Zcash Community Forum on August 14, 2019 [5 1] and formalized further in a blog post on August 23, 2019 [6 1], 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 and second halving would be directly deposited in a Zcash Development Fund.</p>
<p>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.</p>
<p>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].</p>
<p>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.</p>
</section>
<section id="rationale">
<h2>Rationale</h2>
<p>The rationale behind this proposal is as follows:</p>
<ul>
<li>To provide financial resources for research, development, and any other technical work connected to software upgrades/maintenance of the Zcash protocol, as well as non-technical initiatives including marketing, design, events, regulatory outreach, education, governance, and any other form of business that contribute to the success of the Zcash network.</li>
<li>To increase decentralization and network security of the Zcash network.</li>
<li>To increase decentralization through greater community involvement in Zcash governance and resource allocation.</li>
<li>To establish basic rules of governance and accountability regarding the deployment of funds in the Zcash Development Fund.</li>
<li>To encourage transparency and cooperation among Zcash stakeholders and strengthen the community’s governance capabilities moving forward.</li>
</ul>
</section>
<section id="discussion">
<h2>Discussion</h2>
<p>Recognized objections to this proposal include:</p>
<ul>
<li>This proposal is not in accordance with the current Zcash protocol, which is programmed to allocate 100% of the coinbase to miners upon the first halving in 2020. However, at least during the next few years of Zcash’s infancy, we believe it is advantageous to have a funded and dedicated development team.</li>
<li>The funding mechanism in this proposal is a Zcash Development Fund consisting of 10% of newly issued ZEC from block rewards after the first halving. This is in contrast to other proposals that allocate 20% of the mining rewards to the Zcash Development Fund–presumably a popular selection because the original Founder’s Reward was also set at 20%. For reasons we have explored in depth [7] and summarized [8], we believe 10% instead of 20% is superior for network security, decentralization, uniting the Zcash community and renewing interest in ZEC.</li>
<li>Various parameters of governance in approving Applicant requests for funding from the Zcash Development Fund.</li>
<li>The inclusion of a third entity in governance. One notable objection is the possibility of collusion between Third Entity and either the ECC or ZF that would result in a “usurped” Zcash Development Fund. We believe that the process for a community elected Third Entity, however, will mature over time–giving the community and Zcash stakeholders that important third opinion in deciding the proper allocation of funds. As demonstrated by the resilience of the bitcoin network and community, well-formed communities tend to resist any collusion with corporations and controlling entities that do not promote the direct success of the network. Moreover, the inclusion of a Third Entity has the advantage of offering a “tie-breaker” in the event of a deadlock vote between the ECC and ZF and/or a situation where one entity holds the other hostage, which is a possible scenario in a 2-of-2 multisig agreement.</li>
<li>This proposal does not have a clause dictating that a Recipient must abstain from voting. If a Recipient must abstain from voting in a 2-of-3 multisig governance system, then this could–as in the case of 2-of-2 multisig–result in an entity holding another hostage. For example, if the ECC refuses to fund the ZF until the ZF complies with the ECC’s demands, then the ECC has the power to deadlock any vote to fund the ZF, which requires the ECC and Third Entity to both vote approvingly.</li>
</ul>
<p>Aspects of this proposal, particularly the Terminology and Specification sections, were adapted and expanded definitions and concepts put forth in Placeholder’s dev fund proposal from August 22, 2019 [9].</p>
</section>
<section id="references">
<h2>References</h2>
<p>[1] Key words for use in RFCs to Indicate Requirement Levels <a href="https://tools.ietf.org/html/rfc2119">Key Words</a></p>
<p>[2] The Zcash Network Upgrade Pipeline <a href="https://electriccoin.co/blog/the-zcash-network-upgrade-pipeline/">NU Pipeline</a></p>
<p>[3] Zcash Foundation Guidance on Dev Fund Proposals <a href="https://www.zfnd.org/blog/dev-fund-guidance-and-timeline/">ZIP Guide</a></p>
<p>[4] ECC Initial Assessment of Community Proposals <a href="https://electriccoin.co/blog/ecc-initial-assessment-of-community-proposals/">ECC Initial Assessment of Proposals</a></p>
<p>[5] Proposal for the Zcash 2020 Network Upgrade (topic on the Zcash community forum) <a href="https://forum.zcashcommunity.com/t/proposal-for-the-zcash-2020-network-upgrade/34503">Zcash Forum Blocktown Proposal</a></p>
<p>[6] Blocktown Proposal for Zcash 2020 Network Upgrade <a href="https://medium.com/blocktown/blocktown-proposal-for-zcash-2020-network-upgrade-fdec1e9d507c">Blocktown Proposal for NU4</a></p>
<p>[7] Proposal for the Zcash 2020 Network Upgrade <a href="https://medium.com/blocktown/proposal-for-the-zcash-2020-network-upgrade-fcd320a5d6f5">Initial Blocktown Proposal</a></p>
<p>[8] Executive Summary: Blocktown Proposal for Zcash 2020 Network Upgrade <a href="https://medium.com/blocktown/executive-summary-blocktown-proposal-for-zcash-2020-network-upgrade-84ff20997502">Blocktown Proposal Executive Summary</a></p>
<p>[9] Dev Fund Proposal: 20% to a 2-of-3 multisig with community-involved governance <a href="https://forum.zcashcommunity.com/t/dev-fund-proposal-20-to-a-2-of-3-multisig-with-community-involved-governance/34646">Placeholder ZIP Draft</a></p>
</section>