There are two major actors in the Bumper crypto price protection protocol, which we refer to as Takers and Makers.
In this article, we will look in detail at Makers.
Makers are liquidity providers who deposit stablecoins into Bumper, in return for the opportunity to earn a yield.
Makers essentially assume some of the Taker’s price risk, but in return harvest the rewards of DeFi’s most advanced price protection ecosystem.
Makers are given the opportunity to select a term (in 30 day increments up to 150 days), and they also choose a risk tier (1- lowest to 5- highest), which determines their exposure to risk relative to all other Makers who already have open positions.
For example, If the average risk in the protocol is currently 3.2, then a user who opens a Maker position with risk tier 5 is increasing both their risk exposure, and their yield generating potential compared to the majority of other Makers.
Bumper has two methods of generating yield:
1. Yield from Taker Premiums
Firstly, and most importantly, Makers earn the premiums which are paid by Takers.
It works like this: Makers deposit their stablecoins into a Capital Pool for a length of time (a term).
Taker premiums accrue into the Maker pool, increasing the amount available for an individual Maker to take with them when they close their position(s) and withdraw.
Of course, this Capital pool is sometimes claimed against by Takers who finish under the floor, which obviously reduces the amount of the pot available to the Makers.
But when Takers claim from the stablecoin filled Capital Pool, they of course leave their original asset (for example ETH) in the protocol, which rebalances occasionally, converting the leftover crypto into stablecoins and depositing them back into the Capital Pool.
And of course, not all Takers will claim stablecoins. In fact, most will likely claim their original assets back, so there is no negative impact on the Makers’ Capital Pool.
2. Automated Farming Secondly, there is always an amount which is known to be required in the Capital Pool at any time, in order to pay out both Taker claims, and the likelihood of Maker withdrawals too.
But, for the most part, a chunk of this pool is not required to be immediately readily available. The Bumper system automatically uses some of this surplus in the Capital Pool to engage in automated yield farming on other third party DeFi protocols (such as Yearn), and earn addition yield, which is again returned to the pool.
Therefore, during regular market conditions, Makers benefit from the potential to generate increased profits than if they were to engage in yield farming directly, and further, the entire process is managed by the system, making Bumper doubly useful for DeFi enthusiasts who wish to maximise ROI without the need to manually engage in yield farming.
Makers can always see their current yield, although because yield varies over time, an individual Maker’s share of the Capital Pool (and thus their earned yield) is only finalised when they close their position and exit the protocol.
In order to understand how yields are calculated, it is recommended to read this article on Premiums and Fees as the methodology is both novel and quite different from any other risk market.
Like Takers, Makers must also bond an amount of BUMP to the protocol in order to open a position, and similarly, this bond is returned at the end of the term when it is closed.
See the article on Takers for a more in depth description of bonding.
Bumper can best be described as a novel risk market which provides price protection from volatility on the Taker side, and which on the other generates yields for Makers from both premiums and automated DeFi yield farming.
