The explosion of the DeFi space has seen a number of institutional investors moving capital into the cryptocurrency market. And while the merging of traditional finance with blockchain technology has seen adoption increase, there are still a number of barriers to the global adoption of decentralized finance. The one barrier that really stands out from the pack is the issue of volatility.
Unlike traditional asset classes and financial instruments, cryptocurrencies are extremely volatile; crashing just as fast as they rise. While a number of investors and traders are able to capitalize on this volatility, it makes successful investment in this market a tricky business, and leads inexperienced investors into making snapshot decisions that can result in poor returns.
Equally, long term holders have to deal with the realities of volatility, and may feel forced into liquidating their position sooner than they would like when the market starts to feel the effects of more inexperienced traders.
As cryptocurrencies have the potential to pump following liquidation, it can be very frustrating for traders who may later realize they pulled the plug too quickly. This is the reality of trading in a space as volatile as the cryptocurrency market, and the need for a solution to market volatility is well overdue.
Price Protection Protocol
The concept of protecting your assets from volatility is one that, until recently, seemed almost too good to be true. However Bumper’s DeFi protocol was created to fill the unmet need in the cryptocurrency industry for asset price protection. Bumper is the first product on the market that guarantees price protection for your crypto assets throughout the ups and downs of the cryptocurrency market. With a unique DeFi protocol that offers users guaranteed protection, Bumper is able to provide complete downside protection, whilst still maintaining upside exposure.
The way that Bumper does this is through the protocol’s price protection offering, which disperses risk across cascading tranches of redundancy measures until it is completely dissipated. Essentially policy-holders set a price floor and the protocol’s near-zero slippage engine ensures they’re able to sell their asset for stablecoin at the price they set.
Users are able to easily switch in and out of protection whenever they want, and there are no expiraries or stop losses, which means that users can select this function for any length of time, and if the market turns, users will be able to switch in and capture the pump.
Bumper’s near-zero slippage engine
Determined to find a solution to the issue of volatility, we envisaged a protocol which, once the price of an asset reaches a predetermined floor, instantly switches a user out of the asset which is crashing and into stablecoin. This concept is simple enough, however complications arise from the pivotal word “instantly”; the problem with this protocol is the discrepancy between the expected price of the switch and the price at which the switch actually occurs. To put it simply, if a market is crashing it can be very difficult, if not impossible, for a trade to get executed at any specific price, as the price will change before the trade gets filled.
This problem is known as slippage, and when devising our price protection protocol we realized that in order to solve the problem of volatility we had to first solve the problem of slippage, and the rest should all fall into place from there.
To solve this problem, we created the worlds’ first “near-zero slippage engine”; this groundbreaking mechanism keeps an internal ledger of all the prices at which takers of protection set their floors, as well as all the positions instigated by makers that supply stablecoin. The engine then pairs them together, and the internal ledger ensures that the price a policyholder sets as their floor is the price they get swapped into stablecoin for – without exception.
Current market options
You would be forgiven for thinking that there are already a number of price protection options on the market, take for example asset-backed stablecoins. Options contracts give traders the right to sell an asset at a predetermined price on a given day, but these are expensive, complicated, and liquidity for them in DeFi is virtually nonexistent.
In a similar way, stop loss orders (orders placed on a trading platform to sell an asset if its value falls below a prede-determined threshold) have a number of drawbacks to their usage, the main limitation being that they close out positions as soon as the price threshold has been reached.
This means that traders are unable to maintain any market exposure and potential upswing benefits. The existing options are limited at best, and while they can prevent losses, the potential for higher returns is entirely removed from the equation.
Bumper has created an inexpensive, ultra efficient, DeFi protocol that not only protects from downside risk, but also provides users with exposure to potential upside. In essence, we have created a ‘win-win’ scenario that protects traders and combats one of the most problematic issues facing the crypto space.
In traditional finance, slippage is an issue that occurs during periods of high volatility, but in crypto this is an ongoing battle that until now, was viewed entirely negatively. Rather than trying to navigate through the murky waters of options trading , or placing stop loss orders, Bumper’s protocol allows traders to take control of their assets in a way that has never been achieved before. The price protection alongside the guaranteed upside exposure means that your assets may even be worth more than when you purchased the initial protection.