Under the bonnet of Bumper’s radically innovative protocols
Bumper has a unique team of technical innovators on board, led by a team that began yield farming back when less than 30 cryptocurrencies supported masternode infrastructure. A partnership with Block 8, the blockchain product development studio and the creators of Havven, led to the creation of Bumpers protocols.
Needless to say, Bumper’s ecosystem has been designed in a way to effectively protect against market volatility. Aside from providing a product that protects against volatility, the design of Bumper’s ecosystem and the technology behind Bumper’s risk interchange system is what makes the platform so unique. Bumper’s ecosystem is made up of various components that serve to provide users with a safeguard against volatility in the cryptocurrency market, providing asset price protection while also enabling users to earn yield. However, the protocol itself is made of several unique components that require a deeper dive.
The protocol is made up of two diametric asset pools which provide protection against asset risk through a near-zero slippage engine and a number of rebalancing mechanisms. ‘Takers’ of protection (policyholders) operate diametrically to ‘Makers’ of liquidity (Liquidity providers). On the one side is an asset pool consisting of ETH, and on the other side is a reserve pool made up of USDC stablecoin. The diametric asset pools represent either the Taker or the Maker respectively, and when a takers cryptocurrency falls below a certain floor, Bumper’s protocol makes a swap (on redemption), and in this way reduces transaction fees and minimises slippage.
Diametric Asset Pools — How balance is maintained between them
As mentioned previously, Takers’ of protection operate diametrically to ‘Makers’ of liquidity, and functions via a system of risk transfer to ensure crypto asset price protection. As a way to incentivise stablecoin depositors, the premium that Bumper policyholders pay out will go towards stablecoin depositors as a reward for contributing to the risk-free liquidity reserve.
Liquidity pooling acts as a balancing tool within the protocol, with the tranche structure of the reserve pool and its risk segmentation enabling Bumper to create hierarchical sets of price risk markets.
The Reserve pool is made up of 3 tranches; Stablecoin Reserve, T1 Reserve and T2 Reserve, which attract varying yields depending on risk appetite and how extreme the market volatility is.
In order to protect the Stablecoin Reserve, Bumper has a number of rebalancing mechanisms and incentives in place. The Stablecoin Reserve is made up of higher tranched yield pools with incentivised $BUMP token distribution. First and second order mechanisms are utilized to modulate the variable components of premiums, yields and token distributions, and the protocol calibrates the value of premiums, yields or $BUMP tokens in order to incentivise and return to the target ratio.
First and second order redundancy measures
Bumper’s cascading redundancy modules serve to protect both policy holders and LP’s. One of the first order balancing tools is a dynamic adjustment in the fees paid by policyholders, which encourages redemption, and incentivises liquidity providers to deposit stablecoin. If first order incentives do not however restore the ratio, Bumper utilizes arbitrage bots that trade with the Asset pool and supplements capital to the Reserve pool. And in a situation where arbitrage is not sufficient, Bumper will carry out community permissioned trades on predetermined DEXs. If at any time, the liability exceeds predetermined safety levels, the protocol rebalances, firstly by utilising first order dynamics, and then by opening up to arbitrage and, as a last measure, DEXs.
It should be noted that the Reserve has a measurable aggregate liability representing all positions. And a separate prudential capital reserve acts to backstop any realized deficit. In this way Bumper is able to transfer on-chain asset price risk from a stablecoin Reserve through to cascading redundancy modules and protect both LP’s and policy holders.
Find out more about the innovation underpinning Bumper here: https://twitter.com/bumperfinance