The primary value proposition of Bumper is providing crypto holders with protection from downside volatility, for which they pay a premium.
In order to maintain the ability to pay out claims for positions which close under the floor, there needs to be liquidity, which is provided by other users who deposit stablecoins and assume some of the risk from protection positions.
In return, these liquidity providers earn the premiums paid by protection takers. It's a dynamic and fair way to engage with the crypto market.
Depositors looking to earn yield in the Bumper protocol can be compared to the sellers of a put option on an options desk. Unlike on an options desk, however, Bumper users do not need to wait to sell a contract to begin collecting yields, as the peer-to-pool system means all users with earning positions are sharing in the returns simultaneously.
This mean that, rather than taking combative positions against other users, earning with Bumper means stablecoin depositors are cushioned from the individual losses that a typical options seller is exposed to, with all risk and reward spread throughout the whole pool.
Yields are derived from the premiums paid by protection takers. These premiums are calculated dynamically based on the health of the protocol, the volatility in the price action as it happens, and the proximity of the current price from the floor prices chosen by protection takers.
This methodology, combined with Bumper’s peer-to-pool architecture, guarantees that premiums levied on protection takers are fair, and typically are more cost-effective than buying comparable put options.
Similarly, earners make a fair reward for assuming some risk. Unlike on options platforms, users taking contrary positions are not involved in a direct combative zero-sum game against another individual, as all risk is spread throughout all the actors in the protocol, with settlement enforced by the protocol’s open-source smart contracts.
Should a situation arise where the community believes that there is value in increasing yields by increasing premiums, this can easily be handled by Bumper’s DAO, which gives token holders the right to participate in governance decisions, including those related to premiums and yield levels.
Yields typically range from 3-18% annually, determined by market volatility and the state of the protocol, and are ‘real yields’, separate to additional BUMP incentives which users can earn.
Extensive modelling of the Bumper protocol, using historical price data over multiple timeframes, indicates expected average yields of between 3 to 18% per annum, with the most attractive returns being realised by earners taking out longer term positions. Bumper’s yields are ‘real yields’, separate to additional BUMP incentives which users can earn.
This suggests that, on average, Bumper users earn higher yields compared to sellers of put options with similar strike and expiries on cryptocurrency options platforms.
Bumper also offers BUMP incentives, adding an extra layer of attractiveness to the protocol. These incentives are designed to encourage participation and maintain the health and balance of the ecosystem.
The first protocol users will benefit from super-enhanced incentives sharing in up to $250,000 in BUMP tokens for early protocol users.
Users opening a position deposit their stablecoins into one of Bumper’s quadrature of pools, known as the Capital pool. The total value locked into this pool fluctuates as claims are made by protection takers on the other side of the market, but the flipside is that the pool also accumulates the premiums that they pay.
The magic of Bumper is in how the protocol always fairly rebalances risk, effectively ensuring that all liabilities can be met at all times.
If the protocol state becomes imbalanced beyond certain target thresholds, for example in a situation where there are more protection seekers than earners, the protocol compensates by trading out collected premiums, as well as dynamically updating the cost of premiums and thus, yields. This has the effect of attracting more liquidity providing stablecoin depositors, bringing the protocol back to balance.
Earners select a risk tier ranging from 1 to 5, where 1 is the lowest risk. These tiers are proportional to other actors in the protocol, allowing for higher proportional returns with higher risk.
For example, if the protocol average risk is currently 4 and the user chooses risk tier 1, they are at a lower risk of losing money but conversely will earn less yield than another user who chose a higher risk tier. This flexibility allows users to select a risk tolerance that fits their strategy.
It’s incredibly easy. Visit the Bumper dApp and start by opening an earning position. There are only a small number of variables to decide on: the amount of stablecoins to deposit, the term (from 30-150 days), and finally the risk tier.
Additionally, users need to hold BUMP tokens, which are bonded into the protocol for the duration of their position. Bonding tokens prevents them from being traded, effectively removing them from the circulating supply for the term, but they are returned unspent to the user when they close their position.
Bumper’s user-friendly dApp makes it accessible to all levels of crypto enthusiasts, from beginners to DeFi experts.
Users can always see their current positions, and once the position ends, they have the option to close their position, taking their yield and returning their bonded BUMP tokens to their wallet, or renew their earning position.
While attractive, depositing stablecoins to earn a yield carries risks, similar to impermanent loss (IL). Market conditions might lead to losses, but Bumper allows users to renew their positions, which could potentially result in yields turning positive again. Thus, the acceptance of permanent loss is at the discretion of the individual user and not enforced inherently, as one would find on an options desk.
Once an Earn position has closed, a default rate is applied after the term expires and continues to accrue until the position is closed, thus incentivising the user to exit or renew as soon as possible. Bumper makes this easy to manage by including an alert system which adds a reminder to your calendar.
Bumper presents a unique and innovative way to earn yield on stablecoins. With flexible risk tiers, dynamic yields, and BUMP incentives, it stands as a promising option for those looking to earn yields. The protocol's self-balancing mechanism and transparent risk management make it an attractive choice for users who favour simplicity and sustainable returns.
Visit Bumper’s website to learn more, and get involved in the next evolution of risk management in the crypto world by joining the community.
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.
