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)?
Bumper is a decentralized volatility protection protocol built on the Ethereum blockchain. It's designed to provide an easy-to-access way to minimize downside volatility, while still retaining all the upside potential of cryptocurrencies.
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.
Users will need to hold the platform’s native utility token, known as “BUMP,” in order to take out protection or provide liquidity. The token can also be used for staking, receiving protection premiums and participating in the governance of the Bumper protocol.
The platform is a joint collaboration between the team at Bumper and blockchain development house Block8. The team is formed of experienced developers and early crypto adopters, including CEO Jonathan DeCarteret, an established entrepreneur with fintech experience and a storied history of leading new-age financial platforms.
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?
From a practical perspective, Bumper is a decentralized application (DApp) accessed over the Ethereum blockchain. To take out protection or provide liquidity to the protocol, users need to interact with the DApp using a compatible Web3 wallet (such as MetaMask).
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.
Participants of the LPP will also have the opportunity to convert some of their deposited USDC to BUMP tokens at private sale prices at some point prior to the final IDO in November.
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.
As of July 2021, the liquidity provision side of the Bumper is currently up and running, rocketing into the top 10 biggest DeFi derivatives platforms within hours of launch. The protection function is scheduled to go live in December 2021 — around a month after the Liquidity Provision Program ends and the token generation event occurs.
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.
Want to learn more about DeFi? Check out our full deep dive on the subject.
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
When Bumper fully launches, anybody depositing USDC into the platform will earn USDC yields. Beyond this, the primary source of revenue for liquidity providers is the lion’s share of the premium fees.
Anybody staking BUMP on the platform will earn more BUMP tokens as a yield and add to the protocol’s robustness and efficiency.
Bumper’s composability with the broader DeFi ecosystem also opens the door to other potential revenue streams. Since the asset reserve pool only needs to be sufficient to cover the active aggregate risk of protected users, any remaining assets can be piped to other secure DeFi protocols (as determined by community governance) to help LPs maximize the returns on their deposits.
Floating Premiums
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.
BAssets
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
The Bumper protocol will initially support protection for Ether (ETH) and stablecoin deposits in USD Coin (USDC), but Release 2 will expand the range of supported cryptocurrencies further. Additional assets will be added based on market demand and through community governance.
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