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motivation and guidance for alternative 1
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skyl authored Jul 5, 2024
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``FS_DEFERRED`` 50 100 2726400 u32::MAX
================= =========== ============= ============== ============</pre>
<section id="motivations-for-alternative-1"><h4><span class="section-heading">Motivations for Alternative 1</span><span class="section-anchor"> <a rel="bookmark" href="#motivations-for-alternative-1"><img width="24" height="24" class="section-anchor" src="assets/images/section-anchor.png" alt=""></a></span></h4>
<p>This alternative proposes a substantially larger slice of the block subsidy than is currently allocated for development funding, in order to provide a long-term source of funding for protocol improvements. It is intended that a future mechanism put in place for the disbursement of these funds to only release funds from the pool in relatively small increments and with a bounded upper value, to ensure that funding remains available for years to come.</p>
<p>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.</p>
<p>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:</p>
<!-- Note: some of these are similar to the general motivations. -->
<ol type="1">
<li><strong>Regulatory Compliance</strong>:
<ul>
<li><strong>Reduction of Regulatory Risks</strong>: 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.</li>
<li><strong>Potential Minimization of KYC Requirements</strong>: 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.</li>
</ul>
</li>
<li><strong>Ensuring Sustainable Development Funding</strong>:
<ul>
<li><strong>Need for Continuous Funding</strong>: 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.</li>
<li><strong>Balanced Incentives for Network and Protocol Security</strong>: 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.</li>
</ul>
</li>
<li><strong>Efficiency, Accountability, and Decentralization</strong>:
<ul>
<li><strong>Reduction of Inefficiencies</strong>: 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.</li>
<li><strong>Increased Accountability</strong>: 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.</li>
<li><strong>Promotion of Decentralization</strong>: 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.</li>
</ul>
</li>
<li><strong>Incentives for Development and Collaboration</strong>:
<ul>
<li><strong>Creating a Strong Incentive to Implement the Disbursement Mechanism</strong>: 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.</li>
<li><strong>Incentivizing Continuous Improvements</strong>: 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.</li>
<li><strong>Aligning Long-Term Interests</strong>: 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.</li>
</ul>
</li>
</ol>
</section>
<section id="guidance-on-future-requirements-for-alternative-1"><h4><span class="section-heading">Guidance on Future Requirements for Alternative 1</span><span class="section-anchor"> <a rel="bookmark" href="#guidance-on-future-requirements-for-alternative-1"><img width="24" height="24" class="section-anchor" src="assets/images/section-anchor.png" alt=""></a></span></h4>
<p>To support the motivations outlined, the following guidance is proposed for Alternative 1. 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:</p>
<ol type="1">
<li><strong>Cap on Grants</strong>: 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.</li>
<li><strong>Decentralized Disbursement Mechanism</strong>: 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.</li>
<li><strong>Governance and Accountability</strong>: 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.</li>
<li><strong>Periodic Review and Adjustment</strong>: 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.</li>
</ol>
<p>By addressing these motivations and providing this guidance, Alternative 1 aims to provide a robust, sustainable, and decentralized funding model that aligns with the principles and long-term goals of the Zcash community.</p>
</section>
</section>
<section id="alternative-2-hybrid-deferred-dev-fund-transitioning-to-a-non-direct-funding-model"><h3><span class="section-heading">Alternative 2: Hybrid Deferred Dev Fund: Transitioning to a Non-Direct Funding Model</span><span class="section-anchor"> <a rel="bookmark" href="#alternative-2-hybrid-deferred-dev-fund-transitioning-to-a-non-direct-funding-model"><img width="24" height="24" class="section-anchor" src="assets/images/section-anchor.png" alt=""></a></span></h3>
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<li>ZCG Committee members SHALL have a one-year term and MAY sit for reelection. The ZCG Committee is subject to the same conflict of interest policy that governs the FPF Board of Directors (i.e. they MUST recuse themselves when voting on proposals where they have a financial interest). At most one person with association with the BP/ECC, at most one person with association with the ZF, and at most one person with association with FPF are allowed to sit on the ZCG Committee. “Association” here means: having a financial interest, full-time employment, being an officer, being a director, or having an immediate family relationship with any of the above. The ZF SHALL continue to operate the Community Advisory Panel and SHOULD work toward making it more representative and independent (more on that below). Similarly, FPF should also endeavor to establish its own means of collecting community sentiment for the purpose of administering ZCG elections.</li>
<li>A portion of the ZCG Slice shall be allocated to a Discretionary Budget, which may be disbursed for expenses reasonably related to the administration of the ZCG program. The amount of funds allocated to the Discretionary Budget SHALL be decided by the ZF’s Community Advisory Panel or successor process. Any disbursement of funds from the Discretionary Budget MUST be approved by the ZCG Committee. Expenses related to the administration of the ZCG program include, without limitation the following:
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<section id="transparency-and-accountability"><h3><span class="section-heading">Transparency and Accountability</span><span class="section-anchor"> <a rel="bookmark" href="#transparency-and-accountability"><img width="24" height="24" class="section-anchor" src="assets/images/section-anchor.png" alt=""></a></span></h3>
<p>FPF MUST accept the following obligations in this section on behalf of ZCG: * Publication of the ZCG Dashboard, providing a snapshot of ZCG’s current</p>
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<p>financials and any disbursements made to grantees.</p>
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