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Comparison with stop-loss
Stop-loss orders have long been a staple in traditional financial markets, offering traders a safety net against significant losses. However, when applied to the world of cryptocurrencies, this traditional risk management tool reveals several inherent flaws.
The extreme volatility of the cryptocurrency market can trigger stop-loss orders during "flash crashes", selling off assets at low prices only to see them rebound shortly after. This can lead to premature selling, locking in losses instead of protecting gains.
In a fast-moving market, a stop-loss order might not execute at the desired price if there aren't enough buyers. This "slippage" can result in selling at a much lower price than intended, exacerbating losses instead of mitigating them.
Setting the stop-loss level requires making a prediction about the market's future behaviour, which can be influenced by fear of loss or greed for gain. This emotional decision-making can lead to poor risk management decisions.
A significant drawback of using stop-losses for crypto risk management is the necessity of keeping your assets on a centralised exchange. This requirement contradicts one of the fundamental principles of cryptocurrencies: decentralisation. Centralised exchanges come with their own set of risks, including the risk of the exchange freezing their assets due to regulatory pressure or internal issues.
Given these challenges, it's clear that a more robust and reliable risk management solution is long overdue for the crypto market. Bumper, an innovative DeFi protocol, offers a risk market designed specifically for the unique characteristics of cryptocurrencies.
Bumper allows users to protect their tokens from price drops for a set period of time, safe in the knowledge that if the market bombs, the value of their crypto wallet won’t, and moreover, they still get to ride the rips to the moon should the market rebound back up.