Stakeholders debate Zcash Dev Fund as Bitcoin comparison grows

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Some of the most active investors and cryptographers have entered the public debate about how Zcash funds its own development, arguing on both sides of a 20% tax on block rewards and a growing push for ZEC to behave more like a typical store of value. 

The Zcash Dev Fund is a mechanism that routes 20% of every block reward that the network earns into a pool that funds grants to teams working on ecosystem development. 

The Zcash debate lands as developers set a November date for the protocol’s next major upgrade. ZEC, meanwhile, remains in the middle of an epic run that has pushed price close to $1,500 after a 20% uptick on Thursday.

Why is the Zcash Dev Fund being debated? 

Developer Maxime Desalle shared a September 9 essay titled “Contra the Zcash Dev Fund,” arguing that every ZEC token used to fund grants is money that never reaches the miners responsible for network security.

In the same essay, Desalle called out the dependency, bureaucracy and political selection tendencies that a miniature welfare state like the Dev Fund can breed. 

If Zcash is already paying for its own development, there’s no urgency for anyone to explore alternative funding channels. Also, teams looking for funding will just learn to sell better to grant reviewers rather than actually build user-facing products. 

Desalle said that he even canceled a ZCG grant he raised about six months earlier, arguing that holding the money just “seemed wrong.”

Desalle pointed to marquee ecosystem projects like Tachyon, Shielded Labs, and ZODL as evidence that private capital shows up without a protocol subsidy.

How marquee Zcash ecosystem projects are funded. Source: Maxime Desalle

Matt Huang, co-founder of Paradigm (an investor in both ZEC and ZODL), disagreed with Desalle. Huang argued that developer backing funded by inflation is “an elegant mechanism” for the long-term funding of public goods. 

Economist Alex Tabarrok straddled the fence on the “perennial debate,” conceding that Desalle’s point about weak governance made sense even though the public goods issue complicates the picture.

Who should control the Zcash Dev Fund? 

While the question of whether of a developer fund should be maintained is being debated, Haseeb Qureshi is already talking about how the fund should be controlled, arguing that allocation should not run on pure token voting. 

Rather, Qureshi is proposing a system “akin to representative democracy,” with tokenholders electing delegates or council members on a regular schedule. He added that delegates should stay accountable to holders and warned that “lifetime appointments are usually not conducive to good governance.”

On that concern, Qureshi and Desalle see eye-to-eye. Under coinholder grants, recipients are paid in the same ZEC that decides the next funding round. Hence, an influential grantee’s voting power compounds with every win. 

ZIP 1016 places no restriction on anyone voting their coins.

The ‘encrypted Bitcoin’ turn

The funding fight is inseparable from a shift in what Zcash holders say they want the coin to be. Qureshi argued the community has settled on an identity as “encrypted Bitcoin,” rejecting extra protocol features and accepting that a dependable store of value must eventually ossify. 

Starknet co-founder Eli Ben-Sasson, writing on September 17, tied ZEC’s rally partly to the opposite fear about its larger rival, saying part of the move reflects worry “that Bitcoin has become too ossified,” even as he professed to love Bitcoin.

While the funding argument plays out, Zcash developers are targeting November 5 for activation of the NU7 upgrade after teams reached “unanimous agreement” on its contents, with a testnet activation set for October 6 and a final mainnet decision due October 20. 

NU7 would cut target block spacing from 75 seconds to 25 seconds and fold in the Network Sustainability Mechanism while preserving the halving schedule.

Holders have already weighed in on the direction. In a vote reported on Wednesday, 98.9% supported keeping the halving schedule and 99.9% of the ZEC-weighted vote backed the faster blocks, developer Sean Bowe said. 

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