Downside volatility can really spoil your day if you’re a crypto holder, which is why many users hedge risk by buying options.
However, options desks can be pretty complicated, and generally, the pricing of premiums is pretty opaque so you don’t know whether the cost represents good value. More importantly, buying a put option doesn’t protect the value of your actual tokens.
Options haven’t changed much in 50 years, but the financial world has evolved at a breakneck pace. This is why we’re building Bumper, a novel and innovative DeFi crypto price protection protocol.
Bumper operates as a two-sided pooled risk market, with protection takers on one side and yield-seeking liquidity providers on the other.
Protection takers lock their crypto into Bumper's smart contracts and set a floor price and a term length, and that’s it - protection activated.
If the price of their crypto finishes its term above the floor, they get their original asset back. If it ends up below the floor, they can claim the value of the floor in either stablecoins or a mixture of their original asset and stablecoins.
What this means is no messing about trying to understand the “Greeks”, no having to constantly rejig your positions, and no more sleepless nights worrying about what the market will do next.
Bumper is super simple and provides a ton of advantages over legacy options trading.
Firstly, Bumper protects your actual crypto tokens - unlike a put option, which is simply a bet on price movement and doesn’t even need you to own any tokens.
One major advantage of Bumper over traditional options is that premiums are charged incrementally based on the actual volatility in the market, rather than being applied upfront.
This means that protection takers, rather than paying a fixed premium regardless of market conditions, pay a fair rate, based on the actual volatility in the market.
This is a major advantage over traditional options, where the premium is typically applied upfront, set by the seller and where pricing is both opaque and not representative of actual market conditions whilst the position is active.
Protection takers are returned a "Bumpered Asset" - a synthetic token that represents their protected asset, but which of course has its downside volatility removed, thanks to the floor which was set by the user.
This is a unique feature of Bumper that is not offered by traditional options desks.
On the other side of the market, liquidity providers earn yield from the premiums paid by the protection takers.
They commit their stablecoins to a pool, which is used to provide liquidity for the protection takers who finish below the floor.
In return for assuming some of the risk, those who provide stablecoin liquidity have the potential to earn a generous yield which is collected from premiums paid by protection takers.
Some protocols have offered ridiculously high yields, and if 2022 taught us anything it's that massive yields ultimately turn out to be unsustainable. Bumper, though, derives yields efficiently and fairly, without putting undue stress on either side of the market.
And, unlike an options desk, Bumper is not a combative, zero-sum game where one user wins and the other loses. Rather, by committing to a pool, the risk and rewards are spread across the whole pool, with individual earners able to set their own proportional risk appetite.
Bumper is designed with three core economic directives - to ensure the solvency of the protocol, provide protection from downside volatility, and generate fair yields. Bumper's novel architecture is capable of maintaining solvency in all economic conditions, including during Black Swan events.
Bumper creates a win-win situation, as protection takers get the protection they need at a fair price, and liquidity providers earn a return on their investment. There’s a lot more nuance to Bumper too, and a whole range of strategies which will appeal to different users' needs.
Overall, Bumper is a completely new and revolutionary risk market that combines state-of-the-art technology with philosophical principles making it provably fair, trustless and totally transparent - and of course, Bumper is decentralised and governed by its community, without relying on any third-party actors.
This allows it to offer a more flexible and price-efficient hedging solution, which allows crypto holders to hedge against downside risk without losing out on upside gains and simultaneously providing liquidity providers with an attractive yield.
As a result, Bumper has the potential to disrupt the traditional options desks, and pave the way for a more fair and transparent hedging market in the world of crypto.
Sound interesting? Bumper is launching in 2023, and you too can be part of the next revolution in DeFi. Why not come and take a closer look at what Bumper has to offer, and join our community in Discord and on Twitter.
Disclaimer:
Any information provided on this website/publication is for general information purposes only, and does not constitute investment advice, financial advice, trading advice, recommendations, or any form of solicitation. No reliance can be placed on any information, content, or material stated on this website/publication. Accordingly, you must verify all information independently before utilising the Bumper protocol, and all decisions based on any information are your sole responsibility, and we shall have no liability for such decisions. Conduct your own due diligence and consult your financial advisor before making any investment decisions. Visit our website for full terms and conditions.
In this article, we compare using Bumper with Put Options and examine its advantages for DeFi traders wanting to trade volatility with more flexibility.
