Why Incentive Misalignment Dooms Most Working Groups

Treasuries pay working groups in their own governance token, creating a perverse incentive to inflate scope and duration. Contributors are forced to sell into the market, creating sell pressure that devalues the very token funding them.

• Misalignment: Contributors optimize for longer timelines, not efficient outcomes.
• Correction: Pay in stablecoins or a diversified basket. Tie bonuses to KPIs and treasury value growth.

Delegating emergency powers to a small, unelected group (e.g., early L2 models) centralizes risk. Their incentive is to avoid blame, not optimize for network security, leading to slow, conservative decisions that stifle innovation.

• Misalignment: Council's goal is risk minimization, not protocol maximization.
• Correction: Implement bonded, slashed roles (like EigenLayer operators) or time-locked, multi-sig executions with broad oversight.

Committee members awarding grants from a shared treasury have no skin in the game. They favor familiar teams and low-risk, incremental projects, starving disruptive innovation. This creates a grant-farming ecosystem.

• Misalignment: Committee's reputation is tied to avoiding failures, not funding moonshots.
• Correction: Shift to retroactive public goods funding (like Optimism's RPGF) or results-based milestone payouts. Make the crowd the judge.

In PoS systems, validators are incentivized by maximizing their own rewards, not network health. This leads to centralized staking pools, MEV extraction that steals user value, and censorship. The protocol's security is compromised.

• Misalignment: Validator profit ≠ User/Protocol success.
• Correction: Enforce proposer-builder separation (PBS), implement MEV smoothing/burning (like Ethereum post-EIP-1559), and promote solo staking with distributed incentives.

Linear vesting schedules for working group members decouple compensation from long-term protocol health. Contributors are incentivized to maximize short-term metrics before their cliff ends, not sustainable value.

• Key Benefit 1: Shift to milestone-based or performance-linked vesting cliffs.
• Key Benefit 2: Align member exit timelines with the product's actual development cycle (~18-24 months).

Open bounties attract mercenaries, not missionaries. This leads to low-quality, fragmented contributions and zero accountability for system-wide integration or maintenance.

• Key Benefit 1: Fund small, dedicated pods with clear ownership of a vertical (e.g., MEV, governance).
• Key Benefit 2: Tie a portion of pod compensation to the key performance indicator of their module (e.g., latency, TVL, fee revenue).

When working groups report to tokenholder votes for all funding, progress stalls in political theater and marketing. This is the DAO governance failure mode seen in early Yearn and Maker.

• Key Benefit 1: Implement a technical multisig or council with domain expertise for operational budgets.
• Key Benefit 2: Reserve broad token votes only for major strategic pivots or core parameter changes.

Measuring 'lines of code' or 'forum posts' is useless. Effective groups are judged by protocol-native metrics that directly impact users and the treasury.

• Key Benefit 1: Security Group KPI: Time-to-finality reduction or slashing event prevention.
• Key Benefit 2: Growth Group KPI: Protocol revenue per integrated chain or developer retention rate.