Risk Rating

Risk Rating

Risk ratings within the Bumper protocol serve as a crucial mechanism for managing the level of liability risk to the Maker pool and, by extension, to the protocol in general. When Takers and Makers create new positions, they are required to nominate a fixed Term and, for Takers, a Floor price, or for Makers, a Risk Tier. These choices map to a set of risk multipliers that reflect the user’s level of liability risk.

For Takers, these multipliers represent the risk they pose to the Maker pool based on the protection they seek for their ETH. For Makers, the risk multipliers allow them to differentiate themselves based on their risk appetite and outlook on the underlying asset's price.

The risk rating is calculated using a formula that takes into account the average floor price weighted by the position size of Takers as a fraction of the current ETH price and the weighted average time to maturity of all Takers' positions. This calculation is significant as it impacts the protocol’s capital liability resulting from Taker Claims.