Bumper aims to take away the problems of volatility in the crypto market — we take a dive to see how this could really work.
To some, the volatility of cryptocurrencies is considered an incredible opportunity. To others, it’s simply unwanted — doubly so when it doesn’t work in their favor.
But if Bumper, an innovative new price protection protocol gets its way, cryptocurrency holders will soon be able to almost completely eliminate downside volatility risks without missing out on any potential growth.
What Is Bumper (BUMP)?
Billed as “God mode” for crypto, Bumper uses a combination of user-backed liquidity pools and several redundancy mechanisms to allow users to lock in the minimum value of their assets (known as the price floor) in exchange for paying a nominal premium. If the market value of their assets falls below this price floor, protection will kick in and they’ll be completely protected against any further losses.
The size of the premium paid for this service is closely related to the level of coverage taken, with a higher price floor (greater coverage) costing more than a lower price floor (less coverage). On the other side of the Bumper protocol are the liquidity providers, who contribute the stablecoin used to cover bumpered users in return for a proportional share of the premiums.
Other team members include Bumper CTO Samuel Brooks, an expert in distributed ledger technologies and a thought-leader in the blockchain space. Samuel previously worked as Blockchain Lead at Havven (independently pivoted into Synthetix) — one of the first Block8 developments.
How Does Bumper Work?
As we touched on earlier, the cost of the premium varies depending on a number of factors related to the amount of risk in the system. But in general, users can expect the premium to decrease as their protected asset increases in value, whereas the premium will increase as the asset moves closer to their selected price floor. The majority of this premium is distributed among those that provide liquidity to the protocol, while 0.5% is kept back as a platform fee.
Under the hood, Bumper uses a “near-zero slippage engine” to ensure protected users can always retrieve their assets either in their stablecoin equivalent value (if it falls below its price floor) or in their original form if protection isn’t needed.
The Bumper protocol always seeks to maintain a suitable reserve-to-assets ratio (RAR) to ensure that all liabilities are covered by the reserve and includes first and second-order risk-dampening capabilities — ensuring the reserve can be rebalanced through arbitrage bots and other means should the RAR ever fall too low.
What Is the Liquidity Provision Program?
Between July 14 and Oct. 14, 2021, Bumper will be hosting an event known as the “Liquidity Provision Program (LPP).” The event is designed to bootstrap liquidity for the protocol while giving participants the opportunity to earn as much as 300%+ APR on their USDC deposits.
The platform uses a risk segmentation approach to stratify risk into different categories allowing liquidity providers (also known as makers) to take on as much or as little risk as they are comfortable with. This means makers can opt to take on more risk for a greater yield or remain in a lower risk tranche to earn a lower yield.
What Makes Bumper Unique?
Bumper isn’t the first platform to offer a means to protect against cryptocurrency volatility, but it does address some of the challenges that previous solutions faced — such as the complexity of cryptocurrency options or the finality of a stop-loss.
Instead, Bumper introduces a novel solution to the problem of cryptocurrency volatility and provides an ecosystem where users can protect the value of their portfolio, earn a yield for contributing liquidity and come together to shape the protocol through community governance.
To help accomplish this goal and stand the best chance of achieving substantial adoption, Bumper incorporates a number of distinguishing features, including:
Multiple Yield Sources
Anybody staking BUMP on the platform will earn more BUMP tokens as a yield and add to the protocol’s robustness and efficiency.
Policy takers are subject to a floating premium fee which changes based on the amount of risk they want to mitigate. Users can set their price floor low to keep fees down to a bare minimum, or crank it right up to maximize protection. This premium fee can either be paid separately in BUMP tokens upon policy redemption or directly deducted from the returned amount.
When a user interacts with Bumper by depositing their assets to the protocol, they will receive an equivalent number of bASSETs (bumpered assets) in return. Policy takers will receive fee-bearing bASSETs that represent their original stake (minus any fees) while liquidity providers will receive interest-bearing bASSETs that represent their claim on the stablecoin reserve (and any accumulated interest).
Being fully fungible, these tokens can be traded and used throughout the broader DeFi landscape.
Support for Multiple Tokens