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How Bumper’s Price Protection Helps DeFi Users Earn Yield on Their Assets

Bumper Finance is an emerging DeFi protocol that aims to offer users price protection so that they can put their productive assets to work in the ecosystem.

How Bumper’s Price Protection Helps DeFi Users Earn Yield on Their Assets
Photo: Bumper Finance

Key Takeaways

  • Bumper Finance aims to help users capture yield by protecting their crypto assets.
  • It protects Takers' assets when they pay a USDC premium to purchase a protection policy.
  • The project recently closed a $10 million funding round.

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Is it possible to build a DeFi protocol that counters crypto’s inherent volatility while also letting holders enjoy the upshot of their assets? Bumper Finance is a DeFi price-protection protocol that aims to do just that. Through its mutually beneficial liquidity pools that insulate Takers and reward Makers of their unique protection, it offers peace of mind for those who are no longer confident in the market’s direction of travel by letting them win whichever way the numbers go.

How Volatility Affects Emerging Asset Classes

Volatility is an enemy of market maturity. Assets that would otherwise ride the market and provide liquidity can get hamstrung by exchange-grounded stop loss orders, kept in private wallets to see a distant day, or ultimately sold or liquidated for more steady capital like stablecoins or fiat for fear of market reprisals against recent gains. For overall market health, the best place for assets to be—particularly digital assets—is actively providing capital to a market and earning a yield for it. This improves liquidity and generates steady gains for those doing it. However, volatility also increases risk exposure and, if a market suffers or a Black Swan event occurs, can cause liquidity to crash. 

How DeFi Made Crypto Useful

DeFi’s extraordinary rise from 2020 through to today has made crypto useful. DeFi has provided a way for crypto tokens to be productive beyond simply rising in value. It began to realize a more sophisticated financial system by harnessing the mathematical splendour and rigour of the blockchain, and it was a fundamental progression in the birth of this new global asset. Alongside the rising institutional interest in Bitcoin, DeFi’s rise to prominence and its ability to offer both seasoned and less experienced traders the chance to earn yield helped kickstart the ongoing 2021 crypto bull run. 

However, the bull run could come to an end. Despite the high yields many are earning on productive crypto assets, the lingering exposure to the spectre of the bear can be too much. Bumper Finance seeks to use DeFi to protect crypto assets from the spectre manifesting, letting more users put their crypto to productive, yield-earning use, and in turn buoy the entire DeFi economy as a whole.

How Bumper Finance Has Created Price Protection

Bumper has created a set of tranches offering different yields for Makers of protection. These tranches correspond to the low, medium, and high yield pools found in other DeFi protocols. In Bumper’s case, this liquidity is used to offer price protection to Takers who take out one of Bumper Finance’s protection policies. By paying a premium in USDC and staking the protocol’s governance and utility token BUMP, Takers can lock in a price floor for that asset which they can redeem anytime after two weeks. If the asset protected has lost value, Takers can redeem their policy at a profit. If the asset has appreciated in value, they enjoy extremely low premiums on their previously arranged floor or take out and protect at a new floor.

The protocol itself recently closed a successful liquidity mining program. It uses cascading redundancy modules to keep all assets protected. It also rebalances its yield offering through the different tranches in order to ensure that every Taker is fully protected. Of course, Makers on high yield pools can suffer when the market goes against them, but that’s the case for every DeFi protocol. The pools can also be opened up to arbitrage bots under sustained systemic shock to help rebalance them and ensure capitalization. Finally, the protocol has prudential reserves to make sure all users’ policies are paid out if Bitcoin and the rest of the crypto markets crash to zero. 

Bumper as a Foundation to the DeFi Market

Backed by $10 million of venture capital funding (with a further $32 million turned down to make more value available to members of its community) from investment firms Beachhead Venture Capital and Alphabit, Bumper Finance wants to provide a foundation to the DeFi market as it sets about remaking the financial world. Having rock-solid, accessible, yield generating protection available to traders of all shapes and sizes is a further maturation of the blockchain economy. Bumper Finance markets itself as “God Mode for crypto” and, for successful traders who are sitting on significant amounts of capital, protection against crypto volatility sounds like a little piece of heaven.

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