Bug Bounty Cuts Are Setting Crypto Up For Billion-Dollar Hacks

Opinion by: Mitchell Amador, founder and CEO of Immunefi

Crypto’s best defense against catastrophic hacks isn’t code — it’s incentives. Bug bounties have prevented billions in losses, and it’s important to emphasize that these billions could have been exploits, not responsible disclosures, if the right incentives hadn’t been set up. This protection only works when the incentives for white hat behavior clearly outweigh those for exploitation, and current market trends are now tilting that balance in dangerous ways.

The scaling bug bounty standard means the reward size should grow with the amount of capital at risk. If a vulnerability could drain $10 million, the bounty should offer up to $1 million. These are life-changing incentives for security researchers to disclose rather than exploit, and they’re cost-effective for protocols compared to the devastating alternative of getting hacked. This scaling approach protects entire protocols from destruction and ensures the continual growth of onchain finance.

The problem is that market competition is warping these incentives. Some platforms are now tying their lowest-cost service plans to capped bounty rewards, sometimes no higher than $50,000. This pricing structure pressures protocols to minimize rewards and reduce costs, creating conditions for the next catastrophic hack. 

Bug bounties as defense mechanisms

Cork Protocol’s recent $12-million hack offers a telling example. The protocol had set its critical bug bounty at just $100,000, a fraction of the funds at risk. This misalignment creates a simple economic calculation: Why spend hundreds of hours finding a vulnerability if the capped payout is 120 times lower than the exploit value? Such math doesn’t discourage exploitation; it encourages it.

Bug bounties are critical defense mechanisms that only work when they align with risk. When protocols with tens of millions in total value locked offer bounties in the low five figures, they’re effectively betting that hackers will choose ethics over economics. That’s not a strategy — that’s hope.

The million-dollar standard exists for a reason

Crypto’s security standards were forged through million-dollar moments. MakerDAO set a $10-million bounty that signaled what protection was worth. Wormhole’s $10-million payout after a critical exploit cemented the precedent that meaningful security requires meaningful incentives. Security researchers need life-changing reasons to choose disclosure over destruction in an industry where exploits can drain treasuries in minutes.

This scaling approach has demonstrably worked. When critical vulnerabilities can affect millions in user funds, bounties should offer proportional rewards, typically around 10% of the capital at risk. These economics help ensure the best researchers stay in the ecosystem and remain motivated to report vulnerabilities.

Market forces are creating dangerous precedents

The race to capture market share has led some platforms to compete on price rather than security outcomes. By linking platform fees to capped bounty rewards, they create a perverse incentive structure; protocols choose lower rewards to minimize costs, not because risk justifies it, but because pricing encourages it. This is a fundamental misunderstanding of what bug bounties are. They aren’t just expenses; they’re insurance policies whose value must scale with what they protect.

Related: SuperRare $730,000 exploit was easily preventable — Experts weigh in

Worse, some security platforms now require exclusivity contracts that restrict where researchers can work. Others allow post-disclosure repricing that undermines researcher trust. These practices chip away at the social contract that makes bug bounties effective in the first place. If skilled researchers lose confidence in the system’s fairness, they have three options: stop hunting, shift to private audits or go dark.

The result is a chilling effect: Protocols cap rewards to cut costs. Researchers opt out because the upside isn’t worth the effort. Critical vulnerabilities go undetected. Exploits happen. Protocols cut security budgets further. It’s a death spiral that benefits no one except malicious actors.

A warning from Web2

The parallels to Web2’s bug bounty failures are troubling. There, chronic underpayment and poor treatment of researchers led many skilled white hats to abandon public programs entirely. Crypto can’t afford to make the same mistake, not when trillions in value are preparing to move onchain and institutions are watching closely.

Some argue that early-stage teams can’t afford large bounties. The truth is, however, that the cost of a successful hack will always exceed that of a well-aligned bug bounty. Losing funds is expensive. Losing trust is fatal.

The path forward requires industry coordination

Protecting crypto’s security infrastructure requires recognizing that bug bounties operate on trust and incentives. Every underpriced program weakens the social contract that keeps skilled researchers on the right side of the law.

The solution isn’t radical. Maintain bounty rewards that reflect actual risk. Ensure transparent, fair treatment of researchers. Resist the temptation to treat security as a cost center rather than a value driver. 

Critically, platforms must stop incentivizing protocols to shortchange their own defense.

The decentralized economy only works when trust scales with it. If we want crypto to continue growing, with confidence from users, regulators and institutions alike, we need bounty systems that make sense, not just on paper, but in practice. Crypto thrives only to the extent that its defenders are empowered to act.

Opinion by: Mitchell Amador, founder and CEO of Immunefi.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.