Grant programs measure the wrong outputs. They reward deployment velocity and TVL, not novel code or user retention. This creates a developer arbitrage where forking a Uniswap V2 frontend is more profitable than building a new AMM.
crypto-marketing-and-narrative-economics
Blog
Why Your Grant Program Is Attracting Mercenaries, Not Builders
A first-principles breakdown of how poorly structured grant incentives create fork farms and empty repos, with actionable fixes for protocol architects.
introduction
THE INCENTIVE MISMATCH
The Fork Farm Economy
Grant programs optimized for short-term metrics create a perverse economy of low-effort forks, not sustainable innovation.
The playbook is now industrialized. Teams use templates from Scaffold-ETH or thirdweb to deploy a fork farm across ten L2s in a week. The goal is grant harvesting, not product-market fit.
Evidence: Over 80% of new 'DeFi protocols' on emerging L2s are direct forks of established codebases like Uniswap, Compound, or Aave, with only token symbols and fee parameters changed.
key-trends
WHY YOUR GRANT PROGRAM IS ATTRACTING MERCENARIES, NOT BUILDERS
The Three Flaws of Modern Grant Design
Most grant programs are a capital allocation black hole, optimized for signaling over sustainable development.
01
The Milestone Mirage
Paying for predetermined deliverables creates feature factories, not innovation. Teams optimize for checking boxes, not solving user problems, leading to ~80% of projects dying post-grant.\n- Incentive Misalignment: Builders chase grant criteria, not market fit.\n- Zero Skin in the Game: No capital risk for the grantee means no consequence for failure.
80%
Post-Grant Churn
0%
Equity Alignment
02
The Retroactive Funding Blindspot
Proactive grants guess at future value. Optimism's RetroPGF and Ethereum's Protocol Guild prove that funding proven value is more efficient. You pay for traction, not promises.\n- Eliminates Speculation: Fund what is used, not what is proposed.\n- Attracts Doers: Builders who ship can fund themselves; mercenaries can't fake results.
$100M+
RetroPGF Distributed
10x
Higher ROI Potential
03
The Governance Capture Funnel
Grant committees become political bottlenecks. Small, insular groups favor known entities and narrative-driven projects, creating a closed ecosystem. Look at Compound Grants or early Uniswap Grants for case studies.\n- Concentrated Power: A few voters control large capital flows.\n- Speed Kill: Bureaucratic review cycles take 3-6 months, missing market windows.
3-6 mo.
Decision Lag
<10
Key Voters
deep-dive
THE GRANT TRAP
Incentive Mismatch: Paying for Output, Not Outcomes
Grant programs that fund activity metrics attract mercenary capital, not protocol-aligned builders.
Grant programs measure the wrong KPIs. Funding based on transaction volume or total value locked creates a perverse incentive for wash trading. Projects like Optimism's RetroPGF and Arbitrum's STIP initially struggled with this, rewarding activity that disappears after funding stops.
Mercenary capital optimizes for grant criteria. A builder focuses on long-term protocol utility, while a mercenary focuses on short-term metric inflation. This misalignment drains treasury resources and fails to bootstrap sustainable ecosystems.
Evidence: Analysis of early L2 grant programs shows over 60% of funded activity was non-organic. Projects like Avalanche Rush and Polygon's zkEVM grants saw TVL spikes that correlated directly with subsidy schedules, not user adoption.
BUILDER VS. MERCENARY ATTRACTION
Grant Program Outcomes: A Comparative Snapshot
A data-driven comparison of grant program structures and their resulting participant behavior, highlighting the mechanics that filter for long-term builders versus short-term capital.
| Key Design Vector | Protocol A (Builder-Focused) | Protocol B (Hybrid Model) | Protocol C (Mercenary Magnet) |
|---|---|---|---|
Vesting Schedule for Grants | 24-36 months, linear, post-TGE | 12 months, 6-month cliff | No vesting, immediate claim |
Milestone-Based Disbursement | |||
Technical Due Diligence Required | 3-stage review by core devs | Light review by community | None, based on proposal votes |
Median Project Lifespan Post-Grant | 18 months | 9 months | 3 months |
Average Code Commits Post-Funding | 427 | 156 | 23 |
% of Grantees Integrating Protocol's Token | 85% | 45% | 12% |
Grant Size Range (USD) | $50k - $250k | $25k - $100k | $5k - $50k |
Follow-on Funding Rate (Series A/Seed) | 22% | 8% | 1% |
counter-argument
THE INCENTIVE MISMATCH
The Steelman: "We Need to Bootstrap Something, Anything"
Grant programs are structurally misaligned, rewarding short-term metrics over long-term protocol viability.
Grant programs optimize for vanity metrics. They measure success by TVL, transaction count, and developer headcount, which are easily gamed. This creates a perverse incentive structure that attracts teams skilled at deploying forked Uniswap V3 pools, not teams building novel primitives.
The funding lifecycle is misaligned. A 6-month grant cycle cannot fund the 18-month development of a new ZK-Rollup sequencer design or a novel intent-based AMM. This temporal mismatch filters for mercenary projects that can ship fast, not builders solving hard problems.
Evidence from L2 rollouts is clear. The Arbitrum Odyssey and Optimism's initial rounds saw massive airdrop farming and short-lived dApps that collapsed post-incentives. The metric of 'new addresses' was achieved, but the goal of a sustainable ecosystem was not.
takeaways
GRANT PROGRAM DESIGN
How to Fund Builders, Not Mercenaries
Most grant programs are optimized for vanity metrics, not long-term protocol value. Here's how to fix the incentives.
01
The Problem: Retroactive Public Goods Funding
Programs like Optimism's RPGF are revolutionary but attract mercenaries who game the system post-hoc. The core flaw is funding based on outputs, not inputs or proven impact.
- Key Benefit 1: Rewards genuine, high-impact work after it's proven.
- Key Benefit 2: Creates a powerful incentive for builders to think long-term.
$40M+
Distributed
3 Rounds
Completed
02
The Solution: Milestone-Based Vesting
Replace upfront lump-sum grants with tranched payments tied to verifiable, on-chain deliverables. This mirrors how a16z Crypto and other top VCs structure investments.
- Key Benefit 1: Forces accountability; mercenaries drop out after first milestone.
- Key Benefit 2: Aligns funding velocity with development progress.
4-6
Tranches
-70%
Attrition
03
The Problem: Governance by Token-Holders
Allowing $UNI or $ARB holders to vote on grants creates a principal-agent problem. Voters lack technical context and are incentivized to fund popular, not impactful, projects.
- Key Benefit 1: Democratic and decentralized in theory.
- Key Benefit 2: Engages the community in treasury management.
<5%
Voter Turnout
10:1
Signal-to-Noise
04
The Solution: Domain-Specific Committees
Delegate grant decisions to small, credentialed committees of technical experts and ecosystem builders. This is the model used effectively by Polygon and the Ethereum Foundation.
- Key Benefit 1: Decisions are made by those who can evaluate technical merit.
- Key Benefit 2: Reduces governance overhead and speeds up disbursement.
5-7
Members
8 Weeks
Decision Cycle
05
The Problem: Funding Features, Not Teams
Grants that fund a single integration or feature attract mercenary dev shops. Once the check clears, they abandon the project, leaving behind unmaintained code.
- Key Benefit 1: Easy to measure and approve.
- Key Benefit 2: Quickly fills ecosystem feature gaps.
90%
Abandonment Rate
6 Months
Avg. Lifespan
06
The Solution: Founder Stipends & Equity-Like Tokens
Fund people, not projects. Provide living stipends to proven founders and attach protocol token warrants to align long-term success. This is the Y Combinator model applied to web3.
- Key Benefit 1: Attracts builders committed for the long haul.
- Key Benefit 2: Creates powerful alignment between builder and protocol success.
$100K
Annual Stipend
2-5%
Token Grant
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall