Zcash Dev Fund faces division as ZEC price nears $1,500, NU7 upgrade set for November

The debate over Zcash’s approach to funding development has widened, as prominent investors and cryptographers dispute the utility of the project’s 20% dev fund tax and discuss ZEC’s shift towards establishing itself as a store of value coin.

Zcash Dev Fund sparks community debate

Zcash, a privacy-focused cryptocurrency launched in 2016, allocates 20% of its block rewards to the Zcash Dev Fund, which distributes grants to teams working on the project’s ecosystem. This mechanism is designed to ensure sustainable development but has become a focal point of controversy among leading voices in the crypto sector.

Developer Maxime Desalle published an essay on September 9, arguing that diverting block rewards to the development fund effectively reduces the compensation received by miners, potentially undermining the network’s security. Desalle contended that the dev fund creates dependency, bureaucratic hurdles, and encourages political allocation of resources, likening it to a miniature welfare state.

Desalle argued that when development is pre-funded, teams are incentivized to appeal to grant reviewers rather than focus on building impactful, user-facing products, stating he even canceled his own ZCG grant, as holding the unearned funds seemed inappropriate.

Desalle highlighted examples like Tachyon, Shielded Labs, and ZODL to demonstrate that private capital can support major Zcash projects without protocol-level subsidies.

Paradigm co-founder Matt Huang, whose firm invests in both ZEC and ZODL, disagreed with Desalle and described the inflation-funded dev fund as “an elegant mechanism” for financing public goods over the long term. Economist Alex Tabarrok acknowledged concerns about the risk of weak governance but noted that the complexity of funding public goods complicates the debate.

Mini dictionary: Paradigm is a major crypto venture investment firm known for backing early-stage Web3 and crypto projects such as Uniswap and Starkware.

Control and governance under scrutiny

Alongside the debate on whether the dev fund is necessary, discussion has emerged about who should govern it. Dragonfly Capital managing partner Haseeb Qureshi proposed that control should not rely on simple token voting. Instead, he advocated for a representative democracy model, with regular elections of delegates or council members by token holders, emphasizing the need for accountability and warning against lifetime appointments.

Qureshi and Desalle both cautioned that as grantees receive ZEC, their voting power in subsequent rounds increases, creating a concentration of influence within the funding mechanism.

Currently, Zcash Improvement Proposal (ZIP) 1016 places no restrictions on coinholders voting with their tokens, which some participants fear could facilitate self-reinforcing cycles of grant allocation.

Zcash pivots to ‘encrypted Bitcoin’ identity

The funding dispute coincides with a noticeable shift in what many Zcash holders now want from the coin. Qureshi described the new consensus as viewing Zcash as an “encrypted Bitcoin,” favoring simplicity and reliability, and resisting the introduction of additional features. Starknet co-founder Eli Ben-Sasson suggested ZEC’s price rally may partly reflect investor concerns that Bitcoin itself has become too static.

Meanwhile, Zcash developers have announced a target activation date of November 5 for the NU7 upgrade, following unanimous agreement on its content. A testnet activation is planned for October 6, and a final mainnet call is set for October 20. If implemented, NU7 will reduce the target block spacing from 75 seconds to 25 seconds and introduce a Network Sustainability Mechanism, while keeping Zcash’s halving schedule unchanged.

In a recent vote, 98.9% of participants chose to retain the halving schedule, and 99.9% of ZEC-weighted votes favored faster block times, according to Zcash developer Sean Bowe.