Bumper Protocol Rebalancing: Ensuring stability and efficiency

Published in
3 min readMay 1, 2024

Last week, we rolled out an update to Bumper protocol’s rebalancing mechanism, and we thought it was worth giving you the lowdown on maintaining protocol balance.

In a nutshell, rebalancing is a crucial mechanism that keeps Bumper stable and efficient by adjusting liquidity between our Taker and Maker pools, effectively dynamically hedging in response to market conditions. Tuning rebalancing is key to striking the right balance between minimising premium costs and maximising yields.

So let’s take a quick look under the hood. Bumper’s rebalancing mechanism is pretty sophisticated, using a bunch of different components to keep things running smoothly.

Triggering a Rebalance

Rebalancing is triggered whenever there is a material price movement, or when there’s a material change in the pools (i.e. when a Taker or Maker joins or leaves).

Rebalancing is essentially a dynamic hedging engine. When triggered, the algorithm looks at the current liabilities within the market (particularly the big three)…

  • The Book, (B): the total ETH that is potentially payable at any point in time due to Taker Closes
  • The Liability, (L): the total USDC that is potentially payable at any point in time due to Taker Claims
  • The Debt, (D): the total of Maker USDC deposits.

…and then compares these with the current value in the market:

  • Total Assets = Asset Pool + Asset Reserve
  • Total Capital = Capital Pool + Capital Reserve

So, the difference between Total Assets and the Book, and the difference between Total Capital and the Liability plus the Debt gives the algorithm the information it needs to minimise these differences and make sure we spread the liquidity between the liabilities.

Rebalancing is a process… and what better way to illustrate that than with a technical drawing. Here it is (sans virtual rebalancing)

It starts off with “cross-side” rebalancing, which involves calculating the total amounts of Asset and Capital to swap.

Then it performs the swap on a DEX.

Before finally it redistributes the assets between pool and reserve in the “same-side” rebalancing step.

Okay got all that… now… please don’t even ask about how the protocol does Virtual Rebalancing as well (yes, that’s a thing)… and don’t even THINK about mentioning to Sam the diffs and deltas…

Supercharging rebalancing with Artificial Intelligence

Throughout the development of Bumper the propeller heads in the back have used a number of Artificial Intelligence techniques, and by further leveraging AI, we can optimise our rebalancing process even further making it smarter and more responsive to market changes. This means better liquidity management, reduced price volatility, and ultimately, a more profitable experience for all our users.

In a nutshell, our rebalancing update is all about keeping the protocol running like a well-oiled machine. And with AI in our corner, we’re taking things to the next level, ensuring that the Bumper protocol remains at the cutting edge of DeFi innovation. So buckle up, folks, because the future of (decentralised) finance is looking brighter than ever!

Originally published at https://www.bumper.fi.



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Bumper protects the value of your crypto using a radically innovative DeFi protocol.