Proposal Overview

Zcash co-founder and protocol developer Sean Bowe published a draft ZIP on October 26, 2026, that would redirect the remaining 8% of newly issued Zcash from the Zcash Community Grants stream to the Network Sustainability Mechanism. The changes would take effect under the planned NU8 network upgrade, which developers have targeted for November 5, 2026, alongside the introduction of the NSM.

The draft, titled “Ending the $ZCG Funding Stream in Favor of the NSM,” states that the existing treasury of Zcash Community Grants and its governing rules would remain unchanged. It would also preserve the separate 12% coinholder-controlled allocation and the miner subsidy formula. The Zcash supply cap and historical transaction formats stay intact, with no proposed alterations to privacy features.

The redirected 8% share would be withheld from immediate issuance and credited directly to the NSM. At a 1.5625 ZEC block subsidy and 75-second block times, the stream equals approximately 52,560 ZEC per year, or about $68.3 million at an assumed price of $1,300 per ZEC. Funds would remain in the reserve until February 2031, when the NSM is expected to begin releasing them through future mining rewards, following a coinholder vote that supported this timeline with 96.6% approval.

Rationale for Ending the Grant Stream

Bowe argues that the current governance structure of Zcash Community Grants does not fully reflect the preferences of Zcash holders. The program is overseen by the Zcash Community Advisory Panel, whose roughly 200 members include 72 who have previously received grants, accounting for approximately 75% of distributed funds. He cited examples of disagreements, such as a February 2026 coinholder vote showing 98.6% opposition to funding for Zcash Shielded Assets, while ZCAP approved $455,000 for the project in June. Another $750,000 grant for a U.S. cryptocurrency policy group was also approved.

The proposal suggests that development funding can instead come from the separate 12% coinholder-controlled stream, private investment, donations, and crowdfunding. It highlights projects like Tachyon, Valar, and ZODL that have received financing without relying on Zcash Community Grants. For smaller initiatives, developers could seek initial support from individuals or companies before applying for retroactive coinholder grants.

Impact on Existing Commitments and Network Sustainability

Previously approved grants would continue to receive payments until their milestones are completed. Any remaining treasury balance after those obligations would then transfer to the NSM. The Network Sustainability Mechanism collects 60% of transaction fees in the reserve, with the other 40% going directly to miners. Accumulated funds would eventually support future block rewards, helping maintain mining incentives as the network matures.

The author disclosed that he holds shares in Cypherpunk, Zcash’s largest miner following a $33 million deal, and noted that his involvement in the proposal was independent. He had previously applied for a Zcash Community Grants project in 2026 but canceled it before any payments to avoid potential conflicts while the program was under review.

Community and Next Steps

The proposal remains open for discussion on the Zcash Community Forum, with Bowe inviting feedback before advancing toward implementation. A separate deployment ZIP would later set the activation heights. The changes would not affect the NU7 upgrade or the existing miner subsidy share of block rewards. Bowe emphasized that development funding could still be pursued through multiple channels beyond automatic subsidy allocations.