Author of the opinion: Mitchell Amador, Founder and CEO of Immunefi
The best defense against catastrophic hacking attacks in cryptocurrency is not code—but incentive mechanisms. Bug bounties have prevented billions of dollars in losses, and it is important to emphasize that without the right incentive mechanisms in place, those billions could be exploited vulnerabilities rather than responsible disclosures. This protection is only effective when the incentives for white hat behavior significantly outweigh the incentives to exploit vulnerabilities, and current market trends are dangerously tilting this balance.
Expanding bug bounty standards means that the scale of rewards should grow with the amount of venture capital at stake. If a vulnerability could drain $10 million, the bounty should offer rewards of up to $1 million. For security researchers, these are life-changing incentives that encourage them to disclose rather than exploit vulnerabilities, which is cost-effective for the protocol compared to the devastating consequences of being hacked. This expanded approach protects the entire protocol from destruction and ensures the continued growth of on-chain finance.
The problem is that market competition is distorting these incentive mechanisms. Some platforms are now linking their minimum cost service plans to capped bounty rewards, sometimes not exceeding $50,000. This pricing structure forces protocols to minimize rewards and cut costs, creating conditions for the next catastrophic hacking attack.
The recent $12 million hack of Cork Protocol provides an illustrative example. The protocol set its critical vulnerability bounty at only $100,000, just a small fraction of the risk capital. This misalignment creates a simple economic calculation: if capped payments are 120 times lower than the value of exploitation, why spend hundreds of hours looking for vulnerabilities? Such math does not deter exploitation; it encourages it.
Bug bounties are a key defensive mechanism that only work when aligned with risk. When protocols with tens of millions in total locked value offer low five-figure bounties, they are essentially betting that hackers will choose morality over economic gain. This is not strategy—it's hope.
The security standards of cryptocurrency are forged through million-dollar moments. MakerDAO set a $10 million bounty, indicating the value of protection. Wormhole paid $10 million after a critical vulnerability was exploited, reinforcing the precedent that meaningful security requires meaningful incentives. In an industry where a vulnerability can drain a treasury in minutes, security researchers need life-changing reasons to choose disclosure over destruction.
This expanded approach has proven effective. When critical vulnerabilities could affect millions of users' funds, bounties should offer proportional rewards, typically around 10% of the risk capital. These economics help ensure that the best researchers remain in the ecosystem and maintain the motivation to report vulnerabilities.
The competition for market share has led some platforms to compete on price rather than security outcomes. By linking platform fees to capped bounty rewards, they create an anomalous incentive structure; protocols choose lower rewards to minimize costs, not because the risk proves it, but because pricing encourages it. This is a fundamental misunderstanding of the nature of bug bounties. They are not just expenditures; they are insurance policies whose value must be proportional to what they protect.
Worse still, some security platforms now require exclusive contracts that limit where researchers can work. Other platforms allow repricing after disclosure, undermining researchers' trust. These practices erode the social contract that makes bug bounties effective in the first place. If skilled researchers lose confidence in the fairness of the system, they have three options: stop hunting, turn to private audits, or go underground.
The result is a chilling effect: protocols limit rewards to cut costs. Researchers choose to opt out because the upside is not worth the effort. Critical vulnerabilities go undiscovered. Exploits occur. Protocols further cut security budgets. This is a death spiral that benefits no one except malicious actors.
The similarities to the failures of Web2 bug bounties are concerning. There, long-term low pay and poor treatment of researchers led many skilled white hats to completely abandon public projects. Cryptocurrency cannot afford to make the same mistake, especially as trillions in value are poised to shift on-chain and institutions are watching closely.
Some argue that early teams cannot afford large bounties. However, the reality is that the cost of a successful hack will always exceed the cost of a well-aligned bug bounty. Losing funds is expensive. Losing trust is fatal.
Protecting the security infrastructure of cryptocurrency requires recognizing that bug bounties operate on trust and incentives. Every underpriced project undermines the social contract that keeps skilled researchers on the right side of the law.
The solution is not radical. Maintain bounty rewards that reflect actual risks. Ensure transparency and fair treatment for researchers. Resist the temptation to view security as a cost center rather than a value driver.
Crucially, platforms must stop incentivizing protocols to undermine their own defenses.
A decentralized economy can only operate when trust expands alongside it. If we want cryptocurrency to continue to grow, gaining the confidence of users, regulators, and institutions, we need a meaningful bounty system that is not just on paper but in practice. Cryptocurrency can only thrive to the extent that its defenders are empowered to act.
Author of the opinion: Mitchell Amador, Founder and CEO of Immunefi.
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Original article: Opinion: Bug bounty cuts are setting crypto up for billion-dollar hacks
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