Example disbursements by the trust for a hypothetical 105000-block period

0.625 ZEC * 105000 = 65625 ZEC accrued in the trust every quarter. If both the ECC and Zcash Foundation met the accountability requirements set by the trust, then disbursements would look like this:

• 19687.5 ZEC to the ECC for meeting accountability requirements.
• 19687.5 ZEC to the Zcash Foundation for meeting accountability requirements.
• 26250 ZEC to ZF Grants to be disbursed to external individuals and organizations (via the Zcash Foundation as a restricted donation, but determined by an independent body to both organizations).

This example assumes no change to target block spacing.

The trust's accountability requirements

Here I'm borrowing from the Foundation's guidance 3 but adding some stipulations to cement the Foundation's independence, prevent the Foundation from hoarding its endowment, and handle the ECC as a for-profit. Before disbursing funds each quarter, the trust MUST validate that both the ECC and Zcash Foundation:

• Published quarterly technical roadmap reports and financial reports, detailing spending levels/burn rate and cash/ZEC on hand;
• (if the first disbursement in a calendar year) Published a yearly review of organization performance, along the lines of the Zcash Foundation's "State of the Foundation" report 7.

For the Zcash Foundation, the trust MUST further require:

• No board member may have an interest in the ECC (current board members with an interest would need to divest of their ECC holdings prior to the beginning of this dev fund or leave the board);
• Excluding money restricted for ZF Grants, the Foundation's total assets MUST stay below $100mm (if its assets ever exceeded this amount from a disbursement, the trust could direct the funds toward an additional restricted ZF Grants donation).

Additionally, for the ECC, the trust MUST validate the following before each disbursement:

• (if the first disbursement in a fiscal year) The ECC published yearly audited financial statements at the same level of detail as a public company (to mirror the Foundation's Form 990 requirement as 501(c)(3));
• No outside investment was received while they are obligatory recipients of this dev fund;
• No portion of the dev fund went to dividends, profit-sharing, or share/equity buybacks while they are obligatory recipients of this dev fund;
• No dilution of ECC's equity except in the case of options/RSUs for new/existing employees while they are obligatory recipients of this dev fund;
• There's no change-of-control (majority control changes) at the ECC while they are obligatory recipients of this dev fund;

The ECC MUST share necessary information with the trust to ascertain no violations of the above, but the information itself (i.e. cap table and detailed financials) SHOULD remain private between the ECC and the trustees unless there is a violation that is not cured.

What happens in the case of a violation

The violating party has 30 days to attempt to cure the violation (if it's possible). If they cannot, future funds MUST be redirected to ZF Grants via a restricted donation to the Zcash Foundation. (That is, not usable by either the Zcash Foundation or ECC, more on that below.)

The ZF Grants portion

A portion of the dev fund goes to the Foundation but with the express (and restricted) purpose of being distributed via ZF Grants (a restriction that MUST be legally enforced by the trust). The Foundation would continue to administer ZF Grants and distribute funds, but it SHOULD NOT decide where those funds go and would not allowed to be recipients of these funds; instead, the trust MUST demand that the ZF Grants process include broader input in the manner described below. In the discussions around the various "third party" proposals, some have suggested a 3-of-5 approach where the ECC and Zcash Foundation are in the minority; I think that structure would work well for these funds. It's not the full dev fund so we are limiting the downside risk of selecting the "wrong" third parties, which also means we can give those third parties more voice (by making them outnumber the ECC/Zcash Foundation). The Foundation MAY also chose to fund ZF Grants beyond the restricted donations from the trust, but doing so would be at their discretion.

Thanks to the discussion on Matt Luongo's proposal there's a good blueprint for how this group would work. I'm borrowing some comments I made on Matt's proposal thread 8 and modifying them to apply to a ZF Grants-specific Grant Review Committee, rather than the Foundation's board.

The ZF Grant Review Committee would be compromised of five members, voted on in the following manner:

• 1 seat for the ECC. Though the appointed member may change, they retain power to choose the seat for 4 years.
• 1 seat for the Zcash Foundation. Though the appointed member may change, they retain power to choose the seat for 4 years.
• 2 seats voted on by ZEC holders directly, elected every year. There would be open elections held by the Foundation similar to the 2018 advisory process which resulted in Ian and Amber’s election, except using a ZEC coin-staked vote directly.
• 1 seat held by a technical member, elected every year. This member would be selected by the combined group (2 coin-staked seats + ZF seat + ECC seat) with an express focus on ability to evaluate technical proposals.

The group would meet biweekly to make funding decisions, the results of which will be made public on ZF Grants. Taking a note from Eran Tromer's recent proposal, the group would have a goal of making at least two "Large Grants" every year. A "Large Grant" would have an expected scope of six months and 1/4th to 1/3rd of the total ZF Grants yearly budget, with the goal of getting more dedicated external teams involved.

A word on the enigmatic "third party" floating around

With all due respect to the proposers behind some variant of a "2-of-3 multisig" decision-making process for all disbursement decisions: I think this is a bad idea. To quote a previous forum post of mine:

...2-of-3 multisig [is] better if we find the right third party. That in and of itself requires an additional process/mutual agreement between the three parties (which is much more difficult than a bilateral agreement), and as I’ve mentioned before in presentations in the past, 2-of-2 with known entities dedicated to Zcash is better than jumping straight to 2-of-3 with a third party hastily decided or staying with 1-of-1 entity trademarks and software development processes.

As for why 2-of-2 is still strictly better than 1-of-1: in the case of cryptocurrency governance, I believe that inaction in the case of disagreement is a better outcome than one party unilaterally exercising power.

More to the point, I worry that the "third party" in question is being idolized into some Platonic ideal, and in reality either the ECC or the Zcash Foundation would spend a great deal of their time currying favor in either the process or selection of the party in question in the limited time between now and that party's selection. Given that the Zcash Foundation is charged with representing community interests, I'm not sure why another community-focused representative would really make sense from the ECC's perspective — they'd be constantly outvoted if interests clashed, so from a balance of power perspective I'm not sure why the ECC would find that tenable. And I'm not sure the community would want the "third party" to be another profit-generating enterprise, like a VC or another startup, which would tip power another way.

The crux of this proposal still centers around the idea that the Zcash Foundation and ECC share responsibility for protocol development, which is now bolstered by the 2-of-2 agreement on the trademark. It assumes and expects that both continue developing consensus-compatible node software that interacts with the Zcash network. But it mandates accountability for disbursement of funds to the ECC/Zcash Foundation, and expands outside stakeholder input on funds that wouldn't be earmarked for the ECC/Zcash Foundation (similar to Placeholder's earlier version of their proposal and Matt Luongo's current proposal), while it doesn’t preclude the possibility of migrating to broader "2-of-3" later on future governance decisions.

Why a trust?

The main reason: reducing complexity creep in consensus code. Rather than try to incorporate some complex mechanism for dev fund disbursements on-chain, we can meet the NU4 with the simplest possible code-change and spend more time ironing out the details of the trust "off-chain." Since both the ECC and the Zcash Foundation are based in the US, using a trust with well-specified criteria for disbursements is a reasonable path. This also fits in nicely with lex-node's proposal 9 for legal covenants on funding.