Bumper Finance is a new DeFi protocol that promises to provide users with price protection so they can put their productive assets to work in the ecosystem.
Is it possible to create a DeFi system that mitigates crypto’s intrinsic volatility while yet allowing holders to reap the benefits of their investments? Bumper Finance is a DeFi price-protection mechanism that seeks to achieve exactly that.
It provides peace of mind for individuals who are no longer sure in the market’s direction of travel by allowing them to win either way the numbers go through mutually advantageous liquidity pools that insulate Takers and reward Makers of their unique protection.
The Impact of Volatility on Emerging Asset Classes
Volatility is a detriment to market maturity. Assets that would ordinarily ride the market and offer liquidity can be stymied by exchange-grounded stop loss orders, stored in secret wallets for a distant day, or eventually sold or liquidated for more stable capital like stablecoins or fiat for fear of market retaliation for recent profits.
The greatest location for assets, particularly digital assets, to be for overall market health is actively giving money to a market and generating a dividend on it. This enhances liquidity and creates consistent profits for those who do it.
Volatility, on the other hand, increases risk exposure and, if a market fails or a Black Swan event occurs, can cause liquidity to fall.
DeFi’s Contribution to the Usefulness of Cryptocurrency
DeFi’s meteoric rise from 2020 to today has rendered crypto useful. DeFi has made it possible for crypto currencies to be useful in ways other than simply increasing in value.
It began to actualize a more complex financial system by leveraging the mathematical magnificence and rigor of the blockchain, and it was a critical step in the development of this new global asset.
Along with increased institutional interest in Bitcoin, DeFi’s ascent to prominence and ability to provide both seasoned and less experienced traders the opportunity to earn income contributed to the ongoing 2021 crypto bull run.
The bull run, though, could come to an end. Despite the strong dividends on productive crypto assets that many are enjoying, the persistent exposure to the phantom of the bear can be too much.
Bumper Finance aims to employ DeFi to insulate crypto assets from the spectre of illiquidity, allowing more people to put their crypto to productive, yield-generating use, and thereby buoying the whole DeFi economy.
Price Protection as a Result of Bumper Finance
Bumper has designed a series of tranches with varying yields for protection makers. In various DeFi protocols, these tranches correspond to the low, medium, and high yield pools. In the case of Bumper, this liquidity is used to provide price protection to Takers who purchase one of Bumper Finance’s protection policies.
Takers can lock in a price floor for that asset by paying a premium in USDC and staking the protocol’s governance and utility token BUMP, which they can redeem at any time after two weeks.
Takers can redeem their policy at a profit if the asset protected has lost value. If the asset’s value has increased, they can take out and protect at a lower premium on their previously established floor or take out and protect at a higher premium on a new floor.
The protocol recently completed a successful liquidity mining program. To secure all assets, it employs cascading redundancy modules. It also rebalances its yield offering across the various tranches to ensure that each Taker is adequately protected.
Of course, Makers on high yield pools can suffer when the market turns against them, but this is true for all DeFi protocols. Under protracted systemic shock, the pools can also be opened up to arbitrage bots to help rebalance them and ensure capitalization.
Finally, the protocol includes prudential reserves to ensure that all users’ policies are honored if Bitcoin and the rest of the crypto markets sink to zero.
Bumper as a DeFi Market Foundation
Bumper Finance hopes to provide a foundation for the DeFi market as it sets out to reshape the financial world, backed by $10 million in 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.
Having rock-solid, accessible, yield-generating protection available to traders of all shapes and sizes is a sign of the blockchain economy’s further development.
Bumper Finance bills itself as “God Mode for crypto,” and for successful traders with large sums of wealth, protection from bitcoin volatility seems like a small slice of heaven.
Source: Crypto Briefing
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