Coinvoting ‘could limit Zcash’s long-term trust as a monetary asset,’ says Paradigm

Zcash’s governance crisis is back in the headlines again, with funding for developers (via the Dev Fund) and the voting mechanism facing strong scrutiny. 

The Dev Fund, meant to support ongoing development, including security and engineering of the Zcash network, gets 20% of all block rewards. For some, the fund is inflationary and a tax on ZEC holders that should be abolished and allow developers to seek private funding. 

However, others feel the Dev Fund should be kept. Joining the debate, Matt Huang, founder of VC and blockchain research firm Paradigm, took a slightly different stance. 

We believe the Dev Fund is important, particularly in this age of AI cyber capabilities, rate of quantum progress, etc.

However, he disagreed with the governance voting mechanism, warning that the current approach that depends squarely on coinholders can affect ZEC’s valuation. 

We think pure coinvoting governance introduces unpredictability that could limit long-term trust as a monetary asset, and it is better for the project to combine coinvoting with other forms of governance.

What’s at stake amid the Zcash governance crisis?

It’s worth pointing out that Aave faced a similar governance crisis recently. Independent developers and tokenholders disagreed with Stani Kulechov’s (founder) push to control revenue and brand rights.

The results? AAVE’s price tanked, and the trust-rebuilding is still ongoing. 

It seems Huang fears a similar fallout for ZEC, a token viewed as a better privacy-focused alternative to Bitcoin. Although he didn’t disclose his preferred hybrid voting mechanism, Huang’s stance sparked mixed responses. 

For his part, investor Naval Ravikant disagreed with him, warning that off-chain third parties will create endless politics. 

Blockchains are markets, not democracies or aristocracies.

But Josh Swihart, founder of Zcash Open Development Lab (ZODL), an independent developer, echoed Huang’s views. However, he called for the network’s outcomes to be clear so that the exact funding can be decided for those objectives. 

For perspective, the Dev Fund directs 60% to ‘Lockbox’ as the community debates how to govern and share it. 

The remaining 40% goes to Zcash Community Grants (ZCG) and is issued to independent developers within the ecosystem. The Lockbox holds about $37M. 

ZEC price explodes 30% to a record high

Despite the governance debate, ZEC exploded 30% this week to a record high of $1396. The rally followed massive $18M single-whale accumulation and short liquidations. In particular, Garret Jin suffered a $26M loss in his ZEC short position. 

However, if the debate spirals out of hand and reverses the rally, a pullback to $1K or $800 would offer new buying opportunities. 

Final Summary

• Paradigm founder warned that ZEC could be devalued amid Dev Fund and voting debate.
• ZEC price hit a new record of about $1.4K amid record whale buying, shrugging off the governance crisis.