The Bumper protocol defines two main actors, Takers and Makers. In this article, we will explore price protection and answer the question ‘What is a Taker?’
A Taker is someone using Bumper to protect the price of their crypto assets, and we say they are opening a Taker position once they deposit their tokens into the Bumper smart contract.
In the first release of Bumper, Ethereum (ETH) is the only cryptocurrency which can be protected, however the Bumper roadmap involves expanding protection to a number of other coins and tokens, and over time Bumper will become operable across multiple chains.
The major benefit of opening a Taker position is obviously the price protection it affords, giving you peace of mind regardless of which way the market goes. But there is more to it which perhaps you haven’t thought about before..
For example, did you know your Bumpered asset* could be used to collateralise a loan on another DeFi platform, and because it has a set minimum value thanks to its protection, it won’t be at risk of liquidation, unlike those who use unbumpered crypto to put up as collateral.
More importantly, the Bumpered asset you are given will be able to be traded, and given that it has a minimum value, this provides crypto users who take protection with an element of security, as well as providing a flexibility which is rarely seen in the DeFi world.
*NOTE: Fungibility will not be available in release 1 of the Bumper protocol.
Bumper has been designed to provide a superior alternative for crypto traders to both stop losses and Puts purchased via options desks. You can read more about each of these here.
To open a Taker position, all you need is some asset which you wish to protect (obviously) and enough BUMP tokens in your wallet for bonding (more about this below).
It literally takes just a few seconds to open a Taker position using the Bumper protocol dApp, and it’s pretty straightforward.
There are just a few steps:
The protection floor is the level at which you are protecting your crypto. You can choose a level from 70% to 95% of the current price in 5% increments.
EXAMPLE
You wish to protect ETH, which has a current value of $3000.
You select a floor at 90% meaning you are protected if the price drops below $2700.
If your contract expires and the value of your protected asset is below the floor, you will receive stablecoins equal to the protection floor (minus the premium of course).
The term is the amount of the time which a Taker choses to open a position for. Once the term expires, the position is either renewed or closed. The available Taker terms are 30-day increments up to 150 days (5 months).
Note: A Taker may close their position early, but doing so incurs a break fee charged on the amount returned to them, and they also forfeit their bonded BUMP tokens.
Bonding is very simple. In order to use the Bumper protocol, you have to have some BUMP tokens in your wallet, which are locked during the period your position is open. But don’t worry, they come back to you once your position is closed, and none of them are ever spent.
The actual amount of BUMP tokens you require to bond to open a position depends on the amount of crypto you wish to protect.
When you open your Taker position, you are returned a Bumpered Asset (for example bETH) which represents your protected asset, and has the price floor baked into it.
This Bumpered asset is another ERC-20 token, and as such, it can be traded or even used in other DeFi protocols, for example to collateralise a loan. (NB: Fungibility will not be built into Version 1, but in later updates to the Bumper protocol)
Because the Bumpered asset has a guaranteed minimum value due to the protection floor, it means you have an asset which is much less at risk of liquidation should you decide to use it to collateralise a loan on another DeFi protocol (such as Maker for example). The combination of fungibility of your Bumpered Asset, and the built-in price protection makes protecting your assets with Bumper even more attractive.
Takers pay a small operational fee which is calculated when they open their position, plus they also pay a dynamic fee, which is calculated throughout their term, and applied when the position is closed.
Whilst it may seem unusual that the fee is calculated at the end (and is not known at the time the position is opened) this is one of the novel aspects of the Bumper protocol, which ensures that premiums are based on actual price movements, rather than relying on attempting to guess or calculate implied volatility.
This ensures that Takers pay appropriate premiums based on the actual market conditions. If the price of your crypto is pretty steady, sitting in a tight range, you'll pay significantly less than if it gets really volatile in the market.
When a Taker position expires, and is not set to renew, then the user is required to return their Bumpered asset, and they then receive the larger (in terms of USD value) of either:
Slippage is effectively the cost of making trades, and is defined as the difference between bid (buy) and ask (sell) spreads from the time of initiation to finalisation of the trade.
Because crypto is volatile and moves very fast, slippage means that the execution price may be different from that intended, and sometimes slippage can be pretty high, particularly on exchanges where liquidity is low.
Instead of matching Takers (people wanting protection) with Makers (liquidity providers), all positions in Bumper are taken against pools. There are pools for each asset which is being protected, and pools of stablecoins.
As Bumper uses this multi-pools model there is little or no slippage when it comes to settling positions. Effectively, Bumper removes one of the parasitic costs of crypto trading, especially compared to using stop losses.
The crypto market is notoriously volatile, and big price movements can (and do) happen frequently. On the traditional markets, a double digit drop in price is a rare occurrence, and when it does happen, it’s big news. But in the crypto sphere, this kind of price action is pretty common.
Bumper exists for Takers to protect their crypto from falling prices. Protection is our reason for being, and this is why we call it “God-Mode for Crypto”, because it’s like giving yourself invincibility from extreme volatility.
To keep updated on the latest news in the Bumper ecosystem, make sure to follow us on social media, and do join our community of Sentinels on Discord.
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.
