Although we've discussed Bumper before, this article marks the inaugural instalment in a series following the launch of its first version, Auryn (v1.0), back in September. Rest assured, this won't be the final occasion we delve into Bumper. We firmly believe that Bumper is an exceptionally groundbreaking protocol, and we're enthusiastic about continuing our coverage until we've successfully piqued your interest.
If you are new to the Bumper train, you can catch up via our previous articles. Nonetheless, TL:DR – Bumper is a price protection protocol that shields users from downside volatility, allowing them to deposit their assets, and set a price floor for the deposited asset while paying a premium such that irrespective of price movement, the deposited asset will remain shielded, never going down below the preset floor.
Bumper versus Options
For the seasoned crypto options trader whether retail or institutional, the question that comes to mind when you hear of Bumper is; how is this any better than trading crypto options on the likes of Opyn, Lyra etc? The answer to this is that whether you are buying or selling PUT options, Bumper offers a lot more.
To begin with, Bumper is 10pp cheaper than buying a PUT on a crypto options platform. If this doesn’t convince you, then the ease of hedging using Bumper should. Unlike other hedging alternatives with complex user experience when it comes to protecting your asset, with Bumper, you are a few clicks away from taking a protection position for your asset. We’ve lined out the process in a previous ‘How To Guide’ on Bumper.
In addition to the list of ways Bumper absolutely trumps your favourite crypto options platforms, is the fact that you do not need upfront capital for premiums. For the other options protocols, Premiums are basically the price the buyer of the option pays to the seller for the rights to the contract calculated per contract, and as such, premiums are paid upfront as the underwriting party will need to possess the amount of asset required for the premium.
Bumper works a bit differently from these other guys. On Bumper, earners or liquidity providers provide LP using stables; buying the downside risk of the protection seekers who pay the premium, thereby benefiting from the negative price changes of the supported asset, and earning a share of the fees while at it — zero upfront capital needed.
From the perspective of the seller, in this case, the Liquidity Provider (LP) or earner, there's no need to wait for contracts to execute in order to access one of the most competitive yields in DeFi. Instead, LPs can begin earning right away as soon as they deposit liquidity, thanks to the peer-to-pool system Bumper operates. What this means is that as earners provide liquidity within a pool, they collectively underwrite protection positions, earning a share of the premiums paid by protection seekers in need of the liquidity they provide to protect their assets.
As a result of the above, Bumper’s design is less risky compared to other Put options protocols since losses are distributed across the pool, as opposed to the PvP nature of other crypto options protocols, and in fact, more capital-efficient because positions and terms can be easily renewed with just a few clicks, and doesn’t need users to KYC to get started.
In addition to real yield earned by LPers via premiums paid by protection seekers, Bumper stretches the value it provides via BUMP token incentives as additional yield, applying sustainable token emission mechanisms along the way. Should there ever be a need for an increase in premiums; enter the BumperDAO, where such a proposal will be deliberated on and put to vote. If positive, an increase in premium paid by protection seekers will increase yield performance currently ranging at 3-18% APY.
Save the best for last they say. Well, if you’re a hedge animal and have been using existing protocols (Hegic, Opyn, Premia, Lyra, Ribbon or Deribit) to hedge your assets or underwrite risk 12 months before the 23rd day of August ‘23, you’re in luck! Bumper’s icing on the cake grants you access to a pool of funds amounting to 200,000 BUMP tokens as long as you’re early to interact with the protocol.
Bumper in varying trading scenarios
No matter how many times we’ve explained how Bumper works, it is always worth it to do so all over again. Albeit, this time, we are going to do something a bit different; painting scenarios to fit the multitude of you reading this.
Now, take for example you know little about crypto, so little that people often refer to you as a noob. You also most likely understand only as far as keeping your crypto on an exchange – but you’ve also been told that exchanges are bad for your health due to the risks involved, and an alternative would be keeping your cryptos in your own wallet.
But this is not the only risk, is it? I mean, the value of your crypto could go down because that’s what these assets do –they are in a state of almost consistent volatility. What Bumper offers is a solution to the dilemma of this noobie. How? Using Bumper, you are making two safe bets, not one; but two.
The first is choosing to keep your assets on the non-custodial side of things (your DeFi wallet). The second is hedging your assets against the potential loss of value (downside) when the asset moves in a negative direction due to market conditions, by opening a protection position on Bumper i.e; selecting a protection floor and the term length for which you want to protect that asset, and proceeding to deposit, paying a fairly priced premium along the way. This way, your assets are only exposed to the upside; no harm is done to your crypto.
Want to know how interesting this is? Premiums are so cheap at the moment that in the hypothetical event that you choose to protect up to 10,000 American “Sleepy-Joe-Biden” Dollars, you will end up paying only ~$300 in premium irrespective of the percentage of a negative price swing.
What this means is that if the protected asset makes a -20% downside movement which should ideally chip $2k away from the value of your asset, your asset survives, unscathed by such movement, maintaining its value as at when you made a deposit.
If you think this is cool then wait till you figure out that this is also a possibility in a more advanced trading scenario such as a seasoned crypto trader hedging their profits made from a bull market without having to sell the asset and missing out on further upside. With this, Bumpering becomes a routine; make a profit (hourly, daily, monthly, or at any time), proceed to hedge profits on Bumper and expose assets to further upside only.
In the same way, professional hodlers can heave a sigh of relief, as they’re now less prone to cardiac arrest — being exposed to fundamentals that chip away the value of the asset they’ve chosen to hodl. Instead, for a fairly priced premium, they get to protect such an asset and hit their pillows, rest assured that they’re no longer exposed and the risk of hodling is now the burden of a pool that provides liquidity in exchange for the wee bit of premium they get to pay.
Does Bumper’s unique offering stop here? Of course not! It goes beyond to reel in the average DeFi degen allowing them to use the derivative token from the deposited assets which is – take an easy guess– composable with other DeFi protocols. You can therefore seek more yields by participating in a plethora of DeFi activities using the derivative of your deposited asset.
Bumper is so inviting that it is hard not to see how institutional traders and whales take advantage of the offering. The former can cost-effectively hedge the assets of client funds in their possession, while the latter can as well protect themselves from downside volatility.
Bumper is an obvious winner’s choice for any protection-seeking crypto enthusiast. At the moment, it is almost impossible to find a better alternative that topples the benefits of using Bumper. Not the old rickety stop-loss on exchanges where the user is sent out of the market should the floor price hit thereby losing out on the potential upside should the market rebound, nor the ancient option of crypto put options (pun intended), with an affixed premium price, lacking in flexibility, and in need of upfront capital.
What you should consider doing at this moment is seizing the opportunity presented by Bumper while it's in its early stages. This is the prime time to qualify for enticing rewards, such as initiating a protection position of $10,000 in ETH for either 30 days and becoming eligible for 2,500 BUMP tokens, or for 150 days and receiving a generous reward of 12,500 BUMP tokens. These rewards are exclusively available to early depositors.