In this article, we will look in detail at Takers.
Takers are individuals who wish to purchase price protection, to secure the price of their cryptocurrency assets, ensuring they do not fall below a certain level (in USD value) terms, in the event of a significant downside price movement.
Equally, they don’t want to miss out if the price of their assets rise.
When we think about price protection, generally most traders think about stop losses, which trigger when the price of an asset falls below certain level, selling the token into the market, and returning stablecoins.
Stop losses work very well, but there are of course a number of issues with stop losses. Firstly, stop losses generally mean having to put your crypto on an exchange, and of course all knowledgable crypto enthusiasts know the mantra: “Not your keys, not your crypto”.
But the main issue with a stop loss happens when the price reverts after your stop loss has been triggered, rebounding back up again. How many times have you used a stop loss, only to watch as green candles start getting printed, and you realise you stopped out at the bottom? Not only did you get charged a fee for triggering the loss, but now if you buy back in, it’s going to cost you more, and you’re going to get hit with yet another trading fee. Double ouch.
Bumper solves the downside volatility problem effectively, and simultaneously reduces the parasitic cost of slippage.
When a crypto holder wishes to deposit their crypto for price protection, they make two decisions: At what price to set their floor (as a percentage lower than the current price) and how long they wish to run their protection term for.
The floor is akin to the trigger point of a stop loss. The protection term is a multiple of 30 days (up to 150 days).
Now, they wait. After the term expires, there are two possible outcomes:
Either the price is equal to or above the chosen floor, or the price is below the floor.
If the price is above the floor, they get their asset back.
If the price is below the floor, they instead return stablecoins to the value of the chosen floor.
Regardless of where it ends up, the user pays a premium for taking protection, which is charged as a small amount of the crypto deposit.
As an example using the chart below, an ETH holder decides that they are happy with the run up in the price over the last few days.
They think it’s possible the market will retrace back down, but they don’t want to miss out on any upside should the price keep on rising.
They decide that they are going to use Bumper to protect 1 ETH as the price hits $2000, and so they open a Taker position and choose a 90% floor (which of course is $1800).
Point A shows the place they open their position… In this case as ETH reaches $2000
Point B (also the dotted line) shows their chosen protection floor. Once the price breaks lower than this line, they are protected from further downside.
Now imagine that their term closed at Point C, after the price had falled below the floor and come back up again. In this case, they would get back their originally deposited ETH (minus the premium charged).
But imagine that their term closed at Point D, They would now get back back $1800 in stablecoins (again, minus the premium), regardless of the current price of ETH.
It doesn’t matter how many times they bounce above or below the floor. All that matters is where the price ends up when the protection term closes.
One of the very cool things about Bumper is that when you open a protection position and become a Taker, you receive a Bumpered asset when you deposit.
For example, if you deposit ETH, you get a Bumpered ETH asset, essentially a form of Synthetic ETH, with the downside volatility (below the floor) removed.
And yes, to answer the obvious question which all you smart people are going to ask, you can trade this token.
It is also our intention, through our many and growing partnerships for this token to be used as collateral on a third party DeFi loans platform, and because it has a guaranteed floor, this diminishes the risk of liquidation in the case of a price crash.
In fact, it is our belief that in the future, many users will deliberately Bumper their assets first before using them to take out loans, simply to ensure they are not at risk of losing their capital if the market tanks.
In order to use the Bumper protocol to protect your crypto, you need to hold and bond the BUMP token, the native ERC-20 token of the Bumper ecosystem.
Bonding means that an amount of BUMP is required to open a position. The bigger the position, the more BUMP you need.
However, once you close your position, 100% of your bond is returned (as long as you don’t close your position early).
In fact, you may even get more BUMP back than you started with, thanks to Bumper’s protocol boost and network incentives.
Bonding provides a clear utility for the token, which also serves as the protocol’s governance token, and drives demand. It has a number of other advantages, not least that having a bond prevents sudden inflows and outflows of capital to and from the protocol.
Bumper can best be described as a novel risk market which provides price protection from volatility, and which has a number of second-order advantages over traditional risk markets (stop losses, Options desks, insurance etc).
Bumper’s mainnet will go live in November 2022.
