Setting Up a Bug Bounty Program for Your Prediction Market

Prediction markets, which handle user funds, sensitive data, and complex smart contract logic for resolving real-world events, present a significant attack surface. A bug bounty program formalizes the process of receiving and rewarding vulnerability reports. This proactive approach is more cost-effective than post-exploit recovery and builds community trust by demonstrating a commitment to security. Platforms like PolyMarket and Polymarket (on Polygon) operate in this high-stakes environment where contract flaws can lead to direct financial loss.

The first step is defining the program's scope and rules. Clearly specify which components are in scope: your core prediction market contracts, oracle integration layers, and any associated front-end or API services. Use a standardized template like the Disclosure Policy from Immunefi or HackerOne. Key elements include: - In-Scope Targets: List contract addresses and repositories. - Out-of-Scope Issues: Specify low-severity or known issues. - Reward Tiers: Define bounty amounts based on severity (Critical, High, Medium). - Safe Harbor: Guarantee legal protection for researchers acting in good faith.

Technical setup is crucial for secure submission handling. Do not use a public email address. Instead, set up a dedicated, encrypted channel. For on-chain components, consider using a bug bounty vault—a smart contract that holds bounty funds and can automate payouts upon triage committee approval. Implement a require statement to restrict testnet faucet access to registered researcher addresses, preventing drain attacks during testing. Your documentation should include a testnet deployment with faucet details for easy validation.

Determining reward sizes requires benchmarking against the value at risk. For a prediction market, Critical bugs (e.g., draining the market treasury or manipulating resolution) should command rewards of 10% of the funds at risk, up to a significant cap (e.g., $100,000+). High severity issues (e.g., stealing user funds from individual wallets) might offer 5% of the at-risk value. Use platforms like Immunefi to compare with similar DeFi projects. The reward must be substantial enough to attract top talent away from exploiting the bug maliciously.

Finally, establish a clear triage and response workflow. Designate internal security engineers to validate reports. The process should be: 1. Acknowledge receipt within 24-48 hours. 2. Triage and validate the bug's severity and impact. 3. Develop and deploy a fix. 4. Pay the bounty after confirmation. Transparency post-resolution is key; publish a sanitized report detailing the vulnerability and the fix without exposing exploit code. This closes the loop with the security community and enhances your protocol's credibility.

A successful bug bounty program starts with a secure codebase. Before inviting external scrutiny, conduct a thorough internal audit and fix all known critical and high-severity vulnerabilities. Use static analysis tools like Slither or Mythril and ensure your contracts pass security standards from ConsenSys Diligence or OpenZeppelin. Deploy your contracts to a testnet like Sepolia or Holesky in their final, production-ready state. This ensures whitehats are testing the exact code that will go live, preventing wasted effort on issues you've already resolved internally.

Define a clear and public scope for researchers. This includes specifying which smart contracts are in-scope by providing their verified addresses on Etherscan or Blockscout. List all supported networks (e.g., Ethereum Mainnet, Arbitrum, Optimism). Crucially, you must outline what is out-of-scope: this typically includes already-known issues, problems on front-end interfaces not directly related to contract logic, and low-impact findings like gas optimizations. A well-defined scope, published on platforms like Immunefi or HackerOne, sets clear expectations and focuses researcher efforts on the most critical attack surfaces.

Establish your vulnerability disclosure and triage process. Designate a dedicated security contact or team, often a security@yourproject.com email, to receive reports. Create a SecureDrop page or use your bug bounty platform's private reporting system. Develop a Severity Classification Framework based on the OWASP Risk Rating Methodology or Immunefi's Vulnerability Severity Classification System. This framework should objectively define what constitutes a Critical, High, Medium, or Low severity bug, often tied to potential financial loss. Prepare a contingency plan for handling a critical bug report, including steps for pausing the market and executing an upgrade.

Set your bounty reward budget. Rewards must be substantial enough to incentivize top-tier researchers. For a prediction market holding significant value, Critical bug bounties often range from $50,000 to $250,000+, with High severity bugs ranging from $10,000 to $50,000. Allocate this budget in stablecoins or your project's native token. Clearly publish these reward ranges in your program policy. Transparency about payouts builds trust with the security community. Remember, the cost of a bounty is minimal compared to the potential loss from an undiscovered exploit.

Finally, prepare your legal and operational framework. Create a Vulnerability Disclosure Policy (VDP) that includes safe harbor provisions, protecting researchers from legal action when they follow the rules. Specify the allowed testing methods—typically, testing on your public testnet is permitted, while any testing on mainnet must use your own funds. Decide on your response timeline (e.g., acknowledge reports within 24 hours, triage within 72 hours). Having these policies documented and reviewed by legal counsel before launch ensures a smooth, professional process when the first report arrives.

A well-defined scope explicitly lists which parts of your system are in-bounds for testing. For a prediction market like Polymarket or Augur, this typically includes the core smart contracts for markets, liquidity pools, oracle resolution, and governance. It must also specify which assets, networks (e.g., Polygon, Arbitrum), and front-end applications are covered. Crucially, you must define what is out-of-scope, such as third-party dependencies, social engineering attacks, or issues already known to the team. A vague scope leads to wasted effort and disputes over report validity.

The Rules of Engagement (RoE) document the legal and procedural framework. This includes the safe harbor clause, which guarantees legal protection for researchers acting in good faith and following the rules. It should detail the submission process (e.g., via Immunefi or HackerOne), required proof-of-concept details, and a communication policy prohibiting public disclosure before a fix is deployed. For prediction markets, special rules often apply to oracle manipulation or front-running attacks during market resolution phases.

Set clear severity classifications and corresponding bounty rewards. Use the CVSS (Common Vulnerability Scoring System) framework adapted for Web3. A critical bug enabling theft of all pool funds would warrant the maximum bounty (e.g., up to $100,000+), while a medium-severity UI bug might earn a smaller reward. Publish these tiers publicly to set expectations. Platforms like Immunefi provide standardized templates that can be customized for your prediction market's unique architecture.

Finally, define your response and disclosure timeline. Commit to a first response time (e.g., 24-48 hours for high-severity reports) and a clear process for triage, validation, and fix deployment. Specify when and how you will disclose resolved vulnerabilities. A transparent process builds trust with the security community, encouraging top researchers to scrutinize your code, which is essential for decentralized systems handling significant value.

Your bug bounty platform is the public interface and backend engine for your program. It manages vulnerability submissions, facilitates communication with researchers, and often automates reward payments. For a prediction market, you must select a platform that supports your specific tech stack—typically EVM-compatible smart contracts on chains like Ethereum, Arbitrum, or Polygon. Key platform features to evaluate include: a secure submission portal, triage assistance, support for on-chain bounty payments in tokens or stablecoins, and a clear public policy page that defines your scope and rules.

Major platforms like Immunefi, HackerOne, and Code4rena each have distinct strengths. Immunefi is the dominant platform for Web3, offering specialized templates for DeFi protocols and handling payments in crypto. HackerOne provides extensive triage services and a larger pool of generalist security researchers. Code4rena focuses on time-boxed audit competitions rather than ongoing programs. For most prediction markets, a platform with deep Web3 integration, like Immunefi, is the pragmatic choice to ensure researchers understand the unique risks of oracle manipulation, liquidity pool logic, and settlement mechanisms.

Configuration begins by defining your scope with precision. This is not just a list of contract addresses. You must specify which contracts are in-scope (e.g., core market factory, oracle adapter, treasury) and which are out-of-scope (e.g., third-party price feeds, the front-end UI). Clearly state the severity classification and corresponding bounty rewards, often using the Immunefi Vulnerability Severity Classification System as a benchmark. For example, a critical bug allowing theft of all pool funds might warrant a reward of up to $100,000, while a medium-severity logic error could be $5,000.

You must also configure the submission and payout workflow. Decide if you want the platform to handle initial triage or if your internal team will review all reports. Set up the payment method: will rewards be sent automatically via the platform's escrow system, or will you manually approve and execute each transaction? For on-chain payments, ensure your treasury wallet holds sufficient funds (or has an allowance) for potential payouts. Document all these details in your public policy, which serves as the legal and operational framework for the program.

Finally, launch requires more than flipping a switch. Start with a private, invite-only phase to a small group of trusted researchers. This allows you to test the submission process, refine your response times, and potentially find critical issues before a public announcement. After a successful private phase, transition to a public program. Promote it on your website, social channels, and developer documentation to attract a wide range of security talent. A well-configured and promoted program signals a serious commitment to security, enhancing your protocol's reputation.

A well-structured legal framework is essential for a functional bug bounty program. The core document is the Terms and Conditions (T&C), which establishes the rules of engagement. This legally binding agreement should clearly define the scope of the program, specifying which smart contracts, front-end applications, and APIs are in-scope for testing. It must explicitly list out-of-scope activities, such as testing on third-party infrastructure, social engineering attacks, or denial-of-service testing. The T&C also sets eligibility criteria, often requiring researchers to comply with KYC/AML checks for larger bounties and prohibiting participants from jurisdictions under international sanctions.

The Vulnerability Disclosure Policy (VDP) is the procedural guide for how security issues should be reported and handled. It provides researchers with a secure, private channel for submissions, typically an encrypted email or a dedicated platform like Immunefi or HackerOne. The policy should outline the expected information in a report: a clear description, proof-of-concept, attack scenario, and potential impact. Crucially, it defines your project's response timeline, such as acknowledging receipt within 24-48 hours and providing status updates. This document manages researcher expectations and ensures your team has a consistent process for triaging and validating submissions.

You must explicitly address liability and safe harbor provisions. A strong safe harbor clause protects researchers from legal action, such as claims under the Computer Fraud and Abuse Act (CFAA) or similar laws, provided they act in good faith and within the program's rules. This clause is critical for encouraging participation. Conversely, the documentation must include clear disclaimers that the bounty program does not create an obligation to pay for every submission and that rewards are at the project's sole discretion based on severity and quality. You should also clarify that interacting with live, in-scope contracts on a testnet is encouraged, but any testing on the mainnet must not violate the platform's terms of service or harm other users.

The reward structure and payment terms must be detailed to avoid disputes. Document the reward tiers (e.g., Critical: up to $100,000, High: up to $25,000) and the specific criteria for each, often based on the CVSS scoring system. Specify the assets used for payment (e.g., USDC, your project's native token) and the process for claiming rewards, which may involve signing a tax form (W-8BEN/W-9) and providing payment details. For on-chain prediction markets, explicitly state that rewards for vulnerabilities in the core oracle mechanism or settlement logic will be prioritized at the highest severity levels.

Finally, integrate this documentation with your project's public presence. The T&C and VDP should be easily accessible from your website's security page and linked from your bug bounty platform listing. Transparency here builds trust with the security community. Before launch, have these documents reviewed by legal counsel familiar with digital assets and cybersecurity law to ensure they are enforceable and compliant with relevant regulations in your operating jurisdictions.

Begin by crafting a clear and detailed announcement. Your primary channels should include the official bug bounty platform where your program is hosted (like Immunefi or HackerOne), your project's official X (Twitter) account, Discord/Telegram announcements channel, and relevant developer forums like the Ethereum Magicians or project-specific governance forums. The announcement should link directly to your program's scope, rules, and submission portal. Clearly state the launch date, the total bounty pool, and highlight any critical or high-severity reward ranges to attract top-tier talent.

To generate initial momentum, consider a time-limited launch bonus. For example, offer a 20% multiplier on all rewards for vulnerabilities submitted within the first 30 days. This creates urgency and ensures a concentrated audit effort immediately after launch. Simultaneously, engage with your community: pin the announcement in Discord, host a Twitter Spaces session to answer questions about the program's scope, and encourage your existing developer community to share the news. Transparency about past audits (e.g., "This follows a completed audit from Spearbit") builds credibility.

Your program's public page is your permanent recruitment tool. It must be meticulously maintained. Beyond the scope, include a detailed technical stack (e.g., Solidity 0.8.20, Arbitrum Nitro, Chainlink Data Feeds), clear testing instructions (forked mainnet RPC URL, deployment addresses), and a comprehensive asset list (contract addresses for all in-scope prediction market contracts, oracles, and treasury modules). Update this page promptly after any protocol upgrades or scope changes. A well-documented program reduces researcher onboarding time and minimizes invalid submissions.

Launch is not a one-time event; it's the start of an ongoing process. Designate a team member to monitor submissions daily and acknowledge receipt within 24-48 hours. Publicly thank researchers (with their permission) for valid submissions on your social channels—this positive reinforcement fosters a strong security community. Use the initial wave of reports to refine your internal triage process and response times. The goal is to establish a reputation as a professional and responsive program, which is key to retaining researchers for the long term.

Finally, integrate the bug bounty into your broader security narrative. In your project's documentation and marketing materials, mention the active bug bounty program as a pillar of your security posture, alongside audits and formal verification. This public commitment not only attracts researchers but also builds user and investor trust in the prediction market's resilience against exploits, directly contributing to the protocol's long-term viability and adoption.

Launching a bug bounty program is not the final step, but the beginning of an ongoing security partnership. Your program's success hinges on continuous engagement with the whitehat community. This means promptly acknowledging valid submissions, maintaining transparent communication, and regularly updating your program scope to cover new contracts and features. Platforms like Immunefi and HackerOne provide the infrastructure, but the responsibility for fostering a respectful and collaborative environment lies with your team. A positive reputation among security researchers will attract higher-quality submissions over time.

To maximize the program's effectiveness, integrate its findings directly into your development lifecycle. All critical and high-severity bugs should trigger a post-mortem analysis and lead to updates in your secure development training, automated testing suites, and internal audit checklists. For example, if a vulnerability is found in your market resolution logic, you should add specific test cases to your Foundry or Hardhat suite to prevent regression. This creates a virtuous cycle where each discovered vulnerability makes your entire codebase more robust.

Your next technical steps should involve expanding coverage. Start with your core prediction market contracts—the MarketFactory, Oracle resolvers, and liquidity pools—then gradually include peripheral systems like your front-end interface, data indexing layers, and any cross-chain bridges you employ. Publicly document the scope in your bug bounty policy, specifying which contracts are in-scope (e.g., PredictionMarketV2.sol on Ethereum mainnet) and which assets are eligible for rewards. Clarity here prevents wasted effort for researchers and ensures focus on your most critical infrastructure.

Finally, view your bug bounty as one layer in a defense-in-depth strategy. It complements but does not replace other essential practices: regular professional audits from firms like Trail of Bits or OpenZeppelin, rigorous unit and integration testing with >95% branch coverage, and the use of static analysis tools like Slither. A comprehensive security approach acknowledges that no single method catches all issues; the synergy between automated tools, expert auditors, and crowd-sourced bug bounties provides the strongest assurance for your users' funds and your protocol's longevity.