Talk in any circles about crypto, and the issue of loss or volatility will come up. Depending on who’s doing the talking this will range from prices crashing to sophisticated hacks. Loss is currently a consideration for anyone involved in crypto, and will probably continue to be for some time.
But all’s not lost. There are a growing number of solutions with each trying to solve different aspects of the problem, but some more efficiently than others.
Here’s our rundown of the different methods there are to protect your crypto, and why we think Bumper, our DeFi protocol, is unique and brilliant in how it protects you from crypto loss.
1) Stop Losses
Currently, the primary way to profit through cryptocurrency is to trade, and at the same time, trade corresponds to the majority of losses. In layman’s terms, a Stop Loss is a trigger placed in a trading environment to sell the crypto assets when a price is hit, to prevent further losses.
Stop losses are the most commonly used tool to mitigate against losses from a cryptocurrency trade. Though this seems effective in preventing losses, it could be disastrous if you’re looking to profit from upswings. The cryptocurrency market is highly volatile as it is live 24x7, unlike the traditional markets, trading huge volume and market capitalization. It is ubiquitous for the assets’ price to drop by a decent percentage and get back to that price in a few minutes. But, when a stop loss is executed, the assets are sold off, preventing the asset value from going in the right direction when the drop rebounds.
So, although a Stop Loss will help you avoid your asset’s price dumping, it stops you from profiting from an upswing.
2) Crypto Insurance
Insurance is a concept in traditional finance that we all understand. We insure our property against theft, damage, loss and in some cases it’s a legal requirement. Over the past few years we’ve seen traditional insurance providers entering the Crypto market. We’ve also seen some impressive DeFi startups who aim to provide a safety net to protect your Crypto for a fee.
This decentralized insurance generally focuses on code vulnerabilities, hacks, scammers and hardware failure, rather than price or value volatility. But it does provide some peace of mind knowing that you have some cover over your wallet.
Insurance is an important part of the ecosystem and as the crypto market matures hopefully this sort of loss will be less common.
For cryptocurrency firms who are very confident about the security they offer clients’ digital assets, crypto insurance helps them back up this confidence. When a company provides insurance for the crypto holdings, it elicits confidence among the clients, who in turn are more likely to put in more funds.
Like traditional insurance providers, they take into account several factors before insuring the assets. These factors might include the protocols for physical and virtual security being used by the asset holders and the segregation of assets. Also, there are more screenings like KYC and AML. In most cases, the policy wordings are misunderstood by the customers, and they end up claiming for the unclaimable losses.
You can also take out your own insurance through one of these providers such as Nexus,
3) Cold storage
In recent times, hunting of assets by breaching the centralized cryptocurrency exchanges and reserves has become more common. When a crypto holder uses hot wallets, there is a high probability of network-based theft as the private keys are stored in internet-connected wallets. In the case of hot wallets, it generates and holds the private keys used to sign the transactions from a single device. When this signed transaction is broadcasted, the private keys can be crawled by the hackers, and they can quickly get hold of the assets.
Cold storage, on the other hand, uses offline wallets to store digital assets, protecting them from the reach of malicious hackers, i.e., the private keys are stored in an offline environment. When the transaction is initialized, it will be temporarily transferred to hardware storage elements like CD or a hard disk. During the transaction, the private keys are no way connected to the server, and the hackers have no room for accessing the keys. But this method of shifting the highly confidential information to offline storage is a burdensome one compared to the hot wallets.
The biggest downside with using cold storage is that although it will reduce the likelihood of being hacked, you get no protection from what the market is doing. It’s sort of like storing your cash under your mattress.
4) Pegging to real-world assets
Another common way adopted by the cryptocurrency space to manage volatility is the concept of stable coins. The cryptocurrency coins are pegged to real-world assets like real estate or precious metals like gold and silver, and fiat currencies like USD. The value of coins will not experience the fluctuations of their non-pegged crypto friends and mostly follow the tangible world assets they are pegged to. Though pegging increases the liquidity (ease of selling/buying), value growth is minimal, unlike the traditional cryptocurrencies.
5) Cryptocurrency offer desks
The leading cryptocurrency exchanges offer Over The Counter (OTC) desks to help traders maximize profit by giving the right trading signals at the right time. But this is too complex for the beginners to track and follow the calls. It also escalates the cost associated with the process, as there is a lot of analysis and research work behind the screen. An individual or a home trader cannot afford this.
6) Crypto Price Protection with Bumper
With blockchain changing the world, DeFi protocols have become the modern solution for traditional financial problems. All the methods mentioned above help in some way to manage loss or volatility of crypto assets. But they mostly spill over from TradFi approaches or are too complex for everyday crypto investors.
This new financial environment needs innovative solutions to solve the problems in a more native way.
Bumper does this by allowing you to set the threshold price of the asset you want to protect, and even if the market crashes, your asset will never fall below that price. What makes it even more glorious is that if the price goes back up you don’t miss out on the rise.
Bumper users can enjoy complete control over the assets and can jump in and out of protection. Users pay a premium of just 3% p.a to protect their assets, but as the assets rise from the fixed price, the premium drops to a negligible level. You protect yourself with Bumper by paying the premium and leaving a deposit of the native BUMP token. Token holders even earn bonuses from the token, which in some situations may even cover your premium.
How does Bumper work?
On linking your wallet to the Bumper DApp, you choose the amount and price of ETH to be protected. That particular amount of ETH will be locked, and the Bumper protocol credits a corresponding amount of Bumpered ETH (bETH). bETH is a fungible token whose price will not fall below the protected price. Fungibility is nothing but the ability of the tokens to interchange. When the user wishes to end protection, the bETH can be redeemed to receive the current value of ETH. While returning the protected amount to your wallet, Bumper takes the premium fee. And that happens in 6 clicks.
You can also earn yields by sending the USDC to the Bumper pool. You will be rewarded with the funds arising from the premiums paid by those taking protection. Bumper’s radically innovative protocol credits bUSDC to your wallet, fungible and pegged to the real USDC. You can trade the bUSDC like any other asset. Also, the stablecoin liquidity pools are highly incentivized; these can be sent to other liquidity pools to earn rewards in addition to the rewards you receive from premium paid.
For a more in depth explanation of how Bumper works check out this article, or jump on to bumper.fi and sign up to download the Flash Paper.
Closing Thoughts
With the use of bespoke technologies and efficient DeFi protocols, Bumper results in a platform that effectively reduces the volatility and losses associated with crypto assets, helping the crypto players gain the most out of their crypto journeys.
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About Bumper
Bumper protects the value of your crypto using a radically innovative DeFi protocol. Set the price you want to protect and if the market crashes, your asset will never fall below that price. Importantly, if the market pumps, your asset rises too.
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