Zcash, co-founder with Sean Bowe, wishes to stop the automatic allocation of 8% from newly minted ZEC to blockchain community funding projects. The reason is that the current treasury size has become too large, and it is no longer reasonable to continue to receive funds automatically.
In a draft proposal on October 27th, Bowe suggested that this portion of the allocation be transferred to a network sustainability mechanism ( Network Sustainability Mechanism , NSM ), which would then keep these tokens out of circulation for future allocations.
This proposal has sparked disagreements regarding how Zcash should fund development, especially since the assets controlled by its appropriation projects have been valued at over $125 million according to the standards of Bowe.
Why is the $125 million vault of Zcash under scrutiny?
Zcash Community Grants ( ZCG ) was established in 2020 with the aim of supporting developers and projects that build applications on this privacy-oriented blockchain.
The five-person committee uses the funds raised by newly minting ZEC in a fixed proportion to approve allocations.
According to the data cited in the Bowe proposal, the project holds approximately 91,453 ZEC and assets valued at $8.8 million in US dollars, in addition to an outstanding appropriation commitment of $2.4 million.
Calculated at the indicative price of $1,300 per coin as indicated by ZEC, these positions are worth approximately $125.3 million after deducting liabilities. This valuation will fluctuate with the market price of ZEC and is not held entirely in cash form.
Bowe believes that the current financing mechanism can generate approximately $68 million per year, whereas the Financial Privacy Foundation ( Financial Privacy Foundation ) disclosed expenditures of only $1.53 million in the first quarter.
This debate occurred after Zcash experienced severe fluctuations, and the upward trend in September once again attracted the attention of institutional investors.
How will the 8% block reward proposal function?
Currently, Zcash allocates 80% of the block subsidy to miners, 8% to community grants, and 12% to another fund controlled by coin holders.
Bowe proposes to maintain the miner rewards and the 12% distribution unchanged, while transferring 8% of the allocated funds to NSM.
This will result in approximately 144 ZEC being reallocated each day, which is equivalent to 52,560 ZEC per year.
Unlike regular allocation funds, these tokens will not immediately enter circulation. Instead, this mechanism will retain them for future block rewards, with distribution expected to begin in 2031.
This proposal will not increase the maximum supply of Zcash to 21 million coins, nor will it immediately increase miners' shares.
This distinction is particularly important as institutional mining activities expand. Cypherpunk Technologies recently established a large-scale Zcash mining operation, acquiring infrastructure that represents approximately 18% of the total network computing power at the time of the announcement.
This new funding proposal also differs from the upcoming NU7 upgrade, which will introduce separate changes to block production and network sustainability.
The draft for Bowe has not yet set a date of effectiveness, and it will still require a network upgrade in the future to be implemented.
Zcash Developers have disagreements regarding future funding arrangements
The proposal has drawn criticism from developers, who question whether diverting funds towards future mining rewards is the best use of Zcash development resources.
Developer str4d expresses concerns about the weakening of support for web development, while another proposal goes a step further, suggesting that the existing funds from allocated projects be transferred to a sustainable mechanism.
Zcash Open Development Lab founder Josh Swihart also advocates for a re-examination of the broader development funds, rather than just changing the single allocation.
As the investment products of Grayscale have attracted more institutional attention to the Zcash ecosystem, this controversy continues.
However, stronger investor interest has not eliminated the price fluctuations of ZEC, and the proposed changes to funding cannot guarantee a price increase either.
Zcash The next network upgrade will still be an independent short-term catalyst.
