Design Background

At its core, Bumper develops a two-sided marketplace between actors wishing to buy protection against downward price movement for an on-chain asset, and those willing to back that asset price risk. The network effect of the Bumper’s markets is supported by a utility token, BUMP, which can be held by participants on both sides of a market to access the value of the market’s network effect. In this way, the token and its market value sustain the network effect of Bumper beyond its brand, as well as acting as a proxy for the value of the utility of the protocol. The BUMP token has been designed using the following fundamental concepts:

  1. Distributed software enables digital peer-to-peer markets.

No intermediating party is required to provide custody and be entrusted with ensuring the correctness of shared digital records for market transactions.

  1. Market network effects can be tokenised.

All markets have optimal price discovery when network effects are maximised. An individual transaction bears some utility, but the ease and cost with which that transaction is made results from market network effects. Tokenising network effects allows the separation of the value of the network effect from the utility of an individual transaction.

  1. Market network effects can be sustained using incentive mechanisms.

Despite the market logic being open source, and the market’s users and transaction information being public, the tokenised value of network effects can themselves be used to incentivise and coordinate actors to sustain the network effect.

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