Bumper is a novel and innovative DeFi protocol designed to make risk management in crypto markets more efficient and fair. It offers a unique solution to the persistent challenge of downside volatility in the crypto space, providing a simple, fair, price-efficient and sustainable risk market which is autonomous and accessible to everyone.
Traditional methods of managing risk in crypto markets, such as diversification, hedging with financial instruments such as options, stop-loss orders, and holding stablecoins, have their limitations and challenges. Bumper, however, simplifies the process of crypto hedging by offering a two-sided pooled risk market, with protection takers 'bumpering' their crypto on one side and yield-seeking liquidity providers on the other.
Protection takers lock their crypto into Bumper's smart contracts, set a floor price and a term length, and activate their protection. 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 claim the value of the floor in stablecoins. This eliminates the need to understand complex financial instruments and allows users to sleep easily, knowing their investments are protected.
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, liquidity providers have the potential to earn a generous yield collected from premiums paid by protection takers.
Unlike some protocols that offer unsustainable high yields, Bumper derives yields efficiently and fairly, without putting undue stress on either side of the market. Bumper is not a zero-sum game where one user wins and the other loses. Instead, 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's novel architecture ensures the protocol's solvency in all economic conditions, including during unforeseen Black Swan events and market crashes.
By using Bumper, protection takers get the protection they need at a fair price, and liquidity providers earn a return on their investment. Bumper measures and dynamically responds to price changes and demand, sharing liquidity risk among liquidity providers, and the cost of risk among protection buyers. This approach maximises the efficiency of pricing risk and converting it to a stable yield.
Bumper offers a more flexible and price-efficient hedging solution, allowing crypto holders to hedge against downside risk without losing out on upside gains, while simultaneously providing liquidity providers with an attractive yield. Bumper's unique design has the potential to disrupt traditional options desks and pave the way for a more fair and transparent hedging market in the world of crypto.