Bumper is a completely new DeFi protocol which offers a clear service offering - price protection for crypto. It’s worth reading some more about Bumper to fully appreciate how powerful it is, but the basics premise is that Bumper is a unique risk market - on one side are those who wish to protect the value of their crypto in the event of a market downturn (protection ‘Takers’) and on the other, liquidity providers (‘Makers’) who earn yield on premiums collected in return for assuming some risk.Essentially, Bumper shifts risk from Takers to Makers, and the former pays a fee (a premium) for passing the risk over to the Makers.
Bumper is incredibly simple to use in order to earn a yield. All you need is some stablecoins to deposit, and some BUMP tokens to use as a bond.
Once you have connected your wallet to the easy to navigate Bumper dApp, you simply click Earn, select how much you want to deposit, and for how long, and choose a risk tier. Then it’s just a case of clicking confirm a couple of times.
In fact, it normally takes about 6 clicks to begin to earn a yield on your stablecoins with Bumper.
Bumper is perfect for users who want to earn a yield but don’t want to spent time finding alternative yield generating services or continually writing new options contracts. Users can open a position with terms ranging from 30 to 150 days in length, with the ability to automatically renew at expiry if you so wish.
This combination of simplicity and flexibility makes Bumper suitable for everyone, from crypto noobs right up to the most experienced DeFi degens.
Bumper is ultimately transparent about how yield is generated and managed by the protocols smart contracts.
Yields are derived based on a number of factors, chiefly the volatility in the market. But this is not about historic volatility (in other words how choppy the market was in the run up to the present) but the actual measured volatility during the time positions are open - the more volatile it is, the more the premium increases, because the risk Takers will claim against the Makers pool increases.
However, if the price range of their protected asset is pretty flat for a time, then the risk of a claim against the Maker pool is greatly reduced, and thus, whilst Takers still pay a premium to the Makers, it is a lower premium.
This ‘fairness’ means that it is a more attractive form of risk management compared with Options desks and stop losses, and this means more Takers being attracted to use Bumper, which ultimately results in a steady stream of yield-generation opportunities for Makers.
In Bumper, all participants deposit into separate pools - Yield seeking Makers deposit into a stablecoin ‘Capital’ pool, and protection Takers into a crypto ‘Asset’ pool.
This means that individual Makers are not engaged in a combative ‘winner takes all’ game against an individual Taker.
Takers either withdraw their originally deposited asset if the price is above their chosen floor at the time of expiry, but against the Makers stablecoin pool if it closes below (leaving their deposited asset in the Bumper protocol).
Either way, the Taker pays a premium, which is collected and distributed to the Maker pool, meaning whilst premiums are spread across all the Makers, so too is the risk. Crypto which is deducted from Takers to pay their premium can be later sold at optimal times to rebalance the pools.
Bumper minimises risk collectively, rather than maximise profit individually, making it the perfect tool for crypto enthusiasts who prefer steady and secure ways of growing their holdings rather than engaging in combative zero-sum games where one side always wins an amount and the other loses the same amount.
When you open a position, you need to have BUMP tokens to use as a bond, which are returned when your position expires. And in some cases, you can accrue additional BUMP tokens simply for participating in the protocol, thanks to Bumper’s different ‘boosts’.
Incentives are automatically deposited to your wallet, with no need for you to do anything. Imagine that, getting incentivised for earning on your stablecoins!
The likelihood of claims being made against the Makers’ capital pool is continually assessed by Bumper, and generally this results in there being an amount of ‘idle’ stablecoin deposits which are not immediately required to be available for settling those Taker claims which are soon likely to close under the floor.
But these deposits don’t remain idle for long, as Bumper automatically uses some of these funds to generate additional profits through automated external yield farming, with the proceeds both increasing yields and reducing fees.
Makers decide on their individual level of risk tolerance by selecting a ‘risk tier’ when depositing stablecoins and opening a position. The higher the tier, the higher the risk exposure (and, naturally, the higher the return potential).
Not only that, but you can see the average level of risk which all the liquidity providers have chosen across the board, and make your choice of risk tier accordingly.
For example, if the average risk tier across the protocol is currently 2.5 out of 5, then a more risk-averse depositor may select a similar or lower risk tier (for example a 1 or 2), whereas a more bullish Maker might choose a much higher tier (perhaps 4 or 5) and potentially earn a higher yield in return for assuming a greater level of risk.
Decentralised Finance (DeFi) became popular because it allowed new financial services to be developed outside of the sphere of influence of TradFi institutions.
Although still allowing ‘big money’ to participate, DeFi has levelled the playing field for individual crypto-enthusiasts, rather than catering purely for the established hedge funds and banks.
Using decentralised technologies to create novel, never-before-seen financial services opens the market up to new participants and drives innovation, and the Bumper protocol provides a great example of novelty in action.
Bumper’s architecture is very different from every other risk market out there. It’s not an options desk, nor a stop loss, not is it a traditional insurance policy, but something altogther unique.
Bumper is available to everyone. There is no need to go through long-winded and intrusive Know Your Customer (KYC) identity verification or credit checks. If you hold stablecoins, all you need is some BUMP tokens, and you can open a Maker position and begin earning a yield on your deposits immediately.
Bumper’s unique ‘quadrature pool’ architecture is designed not only to maximise efficiency and security, but also acts to reduce parasitic slippage costs, which are inherent in many DeFi services and other risk markets (particularly stop losses).
Like many DeFi protocols, Bumper is designed to be governed by its community, with BUMP token holders being able to raise, discuss and vote on Improvement Proposals.
However, one criticism of certain protocols governance structures is that a rich user could accumulate a large amount of the native token simply to push through a proposals which may not be popular.
Bumper introduces a method of nullifying this situation, giving additional vote weighting to those who have held the token the longest. This ensures that early adopters and long term supporters of the protocol, even those without huge token holdings, are fairly represented.
In order to use Bumper, users need to provide some BUMP tokens for bonding. This creates a clear utility for the token, and utility drives demand.
Although the bond is returned to the user once they close their position, a frequent user has the option to leave their bond in the protocol for the next time they wish to open a position, thus restricting the circulating supply of the token.
Combined with a fixed maximum supply, the strength and attractiveness of the BUMP token is likely to grow over time, which is good for everyone holding the token.
Unless you’ve been hiding in a cave for some time, you may have noticed that inflation is currently running at a 40 year high. Thanks to unrelenting money printing by central banks over the last few years (especially during the Covid lockdown period), the purchasing power of your dollars (or euro’s or pounds or pretty much any national currency) is reducing day by day.
Depositing your tokens to earn a yield provides a steady and safe way for stablecoin holders to beat inflation. Bumper to the rescue…
There are many good reasons to choose Bumper to earn a yield on your stablecoins, and individual users may be motivated to do so for different reasons. Whatever attracts you to Bumper, we highly recommend finding out more about earning by depositing stablecoins in this article, or get a fully in depth overview of the Bumper protocol from our Litepaper.
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