Days of Bumper — Putting Options Out of the Race
Recently we took a couple of different “Options” for a spin around the volatility circuit in our new Agent-Based Simulation. Specifically, the European Put Option, and, Bumper. 1 v 1.
Give you one guess what we found.
Before we get to that, let’s set the stage. The table below shows a direct comparison with what many would consider the next-best alternative to Bumper — the good old European “Put” Option. For those among us who don’t work in a hedge fund, a European Option is a type of financial instrument that allows the buyer to sell (or buy, called a “Call” option) an amount of an asset to someone else for a predefined price at a specific time in the future. It’s also pretty similar to buying insurance for something. In this case, we’re insuring the value of our cryptocurrency in case the price of it drops below a certain threshold. It’s different from insurance, though, because it will only pay out at the end of the Option’s timespan (which we call the “Term”).
Here’s Gordon Gekko to break it down:
And this is what European Options look like in real life:
… you get the idea.
Now, there are a couple more things to cover to help explain the results.
Bumper’s pricing mechanism works a little differently to pricing an Option. In the table, we present a couple of different scenarios for how Bumper would price its premium versus the Option price. The price for buying an Option is agreed and paid up-front, but with Bumper, we need to look at some possible future volatility scenarios because the Bumper premium is paid at the end.
A MAJOR, RECENT ONE-DAY PRICE DROP: 3rd to 4th December, 2021 (5am to 5am)
ETH: $4,476 USD to $3,905 USD (-13% in 24 hours)
A hefty 1-day drop in the middle of significant market sell-off that occurred last weekend. Professional trading positions were liquidated and the crypto market crashed 20%
A SEVERE ONE-WEEK PRICE CRASH: 12th to 19th of May, 2021
ETH: $3,785 USD to $2,460 USD (-35% in 1 week)
The biggest one-week price drop in the last 12 months, right after all-time highs. Ouch! The full price drop was more than this, and lasted more than a week, but Bumper works by accounting for both the amount that the ETH price dropped, and, how long it took to drop (which makes sense, because a very gradual decline over a year is not quite the same as a sharp decline over a week).
Finally, keep in mind that this is just a very early taste of Bumper’s results. This is Bumper completely unoptimised, and we’ve got a lot more tuning and optimisation ahead of us to get Bumper’s premium calculation working as cheaply as possible. As we get close, we’ll release a more in-depth competitive analysis.
Bumper: The Options Thumper
Current ETH Price: $4,300
Floor Price: $4,000 (93% of current value)
Current ETH Price: $4,300
Floor Price: $3,000 (70% of current value)
Not bad, huh.
In our model, the Maker side of Bumper has been calibrated to have a long-run profit of 10%. So as you can see, there’s plenty of room to improve the outcome for the stablecoin depositors too to make sure we keep things nice and balanced.
And remember those screenshots above of what Options look like in real life? This is what the current Bumper app looks like in comparison:
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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