Zcash Governance Crisis: The Deep-rooted Dilemma Behind the Token Control Dispute

A Governance Battle Concerning the Future of Privacy Coins

The Zcash community is facing a critical crossroads, where the choice is not about price fluctuations but about governance models. This self-proclaimed “privacy-first” crypto project is now troubled by a fundamental question: should it adopt a token-based governance system or continue with the existing committee-led framework?

This is not merely an internal process adjustment but a strategic decision that touches on the project’s core.

Vitalik Buterin’s Warning: Why Token Governance Is Unsuitable for Privacy Coins

Ethereum co-founder Vitalik Buterin has sharply criticized the proposed token governance model for Zcash. His concerns are not unfounded but stem from a deep observation of the current crypto governance ecosystem.

Inevitability of Power Concentration

Token voting systems inherently carry a fatal flaw: wealth determines influence. Large holders wield absolute voting power, drowning out the voices of small and medium investors. This directly contradicts Zcash’s claim of decentralization. In a key article published in 2021, Vitalik pointed out that such systems often become “clubs for the rich.”

Risks of Tradable Voting Rights

When governance rights can be bought and sold via tokens, the market becomes an auction for power. Major capital can acquire tokens in the short term to gain voting influence, push proposals that benefit their interests, and then cash out—forming a typical “acquire→influence→arbitrage” cycle. Accountability mechanisms are virtually absent.

Privacy Paradox: Governance Backfiring on Core Values

This is perhaps the most ironic point. Zcash exists precisely because of its absolute privacy features. But a token governance system requires transparent voting records and fund flows, which expose users’ investment preferences and financial activities—precisely what Zcash was designed to protect. Changing the governance model could betray its original mission.

Systemic Flaws of Token Governance Models

Not only Vitalik has observed this. Practical experience across the crypto community shows that such governance schemes have structural issues:

Short-term Interests Hijacking Long-term Development

Token holders tend to vote for resolutions that can immediately boost the token price rather than those that require years to realize benefits. This leads to a “hype-driven” decision cycle—release speculative information → price rises → holders profit → actual development is neglected. If Zcash adopts this system, it risks becoming a “price volatility toy” rather than a “privacy infrastructure.”

Disappearance of Small Holders’ Voice

The “democracy” in voting is superficial. In reality, users holding below a certain threshold have negligible influence even if they participate. Their voting power is diluted to insignificance, ultimately evolving into a mild form of “oligarchic rule.”

Irreconcilable Conflict Between Privacy and Transparency

The existence of privacy coins depends on anonymity. But voting systems require verification of each vote’s legitimacy, which involves recording voter identities and weights. There is a fundamental technical conflict between these two.

The Design Logic of Zcash’s Current Governance System

Due to the risks above, Zcash currently employs a committee-based approach:

• Zcash Community Advisory Panel(ZCAP): Elected representatives providing key decision advice
• Zcash Community Fund Committee(ZCG): Managing fund allocation and ecosystem project financing
• Zcash Improvement Proposal Process(ZIP): Systematizing proposal evaluation

This framework’s advantage is that it decouples voting power from token holdings, avoiding absolute control by wealth. However, it also faces questions about democratic legitimacy—ordinary holders sometimes feel excluded from “representation.”

The Core Contradiction Between the Two Models

Advantages of Committee Governance

• Preserves the essence of privacy
• Focuses decision-making on long-term project health rather than short-term hype
• Weakens capital’s unilateral influence on direction

Disadvantages of Committee Governance

• Ordinary holders lack direct participation
• Transparency of committee decisions is limited
• Susceptible to accusations of “behind-the-scenes manipulation”

Advantages of Token Governance

• All holders theoretically have equal participation rights
• Decision processes are highly transparent
• Aligns with the “one token, one vote” democratic ideal

Disadvantages of Token Governance

• Power is highly concentrated among large holders
• Voting can be manipulated by short-term capital
• Direct conflict with privacy mission
• Long-term strategies are easily influenced by market sentiment

Can Market Signals Change the Situation?

The current market performance of ZEC adds a new dimension to this debate. According to the latest data, ZEC is priced at $415.35, down 5.26% in 24 hours, with a circulating market cap of $6.85 billion. Such volatility itself indicates a problem: market uncertainty about Zcash’s governance prospects.

Historically, ZEC once surged over 1000% in three months but then experienced a similar correction. This sharp fluctuation suggests that market confidence in Zcash is not based on the stability of its privacy technology but on short-term hype cycles. If Zcash adopts token governance, such cyclical speculation could intensify.

Potential Impact of Grayscale ETF Application

Grayscale’s application to convert its Zcash trust into an ETF could change the game. Once approved, the influx of institutional investors will reshape Zcash’s ownership structure. But it also raises new governance issues:

Will large institutional holders push for the adoption of token governance to gain greater voting rights? This trend might reinforce the demand for a committee-based system—to prevent institutional capital from monopolizing decision-making.

Regulatory Dilemmas for Privacy Coins

Against the backdrop of global CBDC(CBDC) initiatives and increasing government data regulation, privacy coins like Zcash face unprecedented scrutiny. The choice of governance model not only affects internal governance but also influences how regulators perceive the project.

A committee system is easier to interpret as “someone is responsible,” whereas token governance might be seen as “no one is responsible” anarchy. From a regulatory compromise perspective, the former may be more conducive to Zcash’s survival in the gray area of compliance.

Comparative Perspective with Competitors

Monero adheres strictly to full PoW mining governance, rejecting any form of token voting. Dash, although employing a token holder voting system, has also faced ongoing controversy over “whale manipulation.” To maintain its unique position, Zcash must find a balance that protects privacy while allowing community participation—and that balance might just be within the existing committee framework.

Conclusion: Model Choice Is a Value Choice

The governance debate of Zcash is essentially a clash of values. Token systems do not necessarily lead to better decision-making and may instead serve as tools for big capital to wield power, ultimately betraying the project’s original privacy mission.

As industry thinkers like Vitalik Buterin warn about the pitfalls of token governance, the Zcash community should listen carefully. Sticking to a committee system is not a step backward but an active choice made with full awareness of its risks.

In this choice, Zcash is signaling to the market: our priority is the core values of privacy and decentralization, not blindly following industry trends. Such persistence may be the true source of its competitive strength.