BUMPER FINANCE INVESTMENT THESIS
The Bewildering World of Bumper Finance
By ICONPLUS CAPITAL, August 23, 2021
BUMPER is a DeFi protocol designed to offer asset price protection while also offering a near-zero slippage. The protocol creates a method of price risk adjustments through a variety of methods, primarily through redundancy modules.
The Bumper Finance Team
Focusing primarily on the Ethereum blockchain network, Bumper Finance, also more officially known as BUMPER or Bumper Fi, is led by CEO Jonathan DeCarteret, COO Gareth Ward, and CTO Samuel Brooks. Jonathan has operated and started many companies, most notably Switch, UK company and one of fastest growing companies prior to 2017. He has been in the crypto space for about four years now. Jonathan and his team hosted an AMA not long ago which you can read on their Medium blog, along with all finding them on all their socials. Additionally, a team of engineers for BUMPER is also the team behind Block 8, one of the top leading blockchain development studios in Australia.
BUMPER has not only found a robust set of investors but have also succeeded in their first private sale of their BUMP token, which will be discussed a bit later. Top investors include IconPlus Capital, Alphabit, Autonomy, Beachhead, and Chainlayer.
The Bumper Playfield
BUMPER operates on Ethereum and is a protocol inside the decentralized finance ecosystem, designed to monitor the risk price of assets and create a safeguard for these assets to prevent loss of value or liquidation. Takers - one that wants to either buy or sell from a market - can have price protection by offering their assets to the BUMPER protocol. When users do this, BUMPER makes an equivalent taker position for the users while their assets are made safe by the protocol. In addition to takers, BUMPER also allows for makers - ones that provide liquidity to the pool - the ability to protect their assets as well.
Both makers and takers are manually able to set the price of the assets they wish to protect. In other words, a user can set the maximum amount of loss they wish to incur before their assets are taken fully off risk. Makers have the special ability to provide liquidity, opening positions for them in a stablecoin reserve system by BUMPER, generating a yield through ERC-777 tokens. The amount received on this depends on the yield curve at the time a position is created.
Under the Hood of BUMPER
The BUMPER protocol uses a manifold application of contracts to stabilize the risk price of the Ethereum assets. Makers can add liquidity while giving them the ability to take advantage of that liquidity for the benefit of everyone. Sometimes this can cause an imbalance like on crypto exchanges or DEX applications like Uniswap, but BUMPER has this solved this by created a rebalancing system, creating a stabilization and re-adjustment of the network in order to keep risk price slippage at a minimum.
Users of BUMPER can take advantage of their asset risk protection via a Web App, which helps them adjust the amount of assets they wish to protect, that Asset Floor which is the full protected amount they wish to have in USD value, and the Cover Length, which is the maximum duration of the contract that wish to create for this protection.
Within the BUMPER ecosystem, there are a few highlights on how the protocol operates:
Anti-Slippage Engine: the interchange of risk between makers and takes is conducted via a pool that takes advantage of deferred transactions. The engine will take these deferred transactions and aggregate all of these in a way that prioritizes a reduction of slippage. Each asset for this engine will have a separate pool from one another, aiding in the organization of the assets for the priority to take effect. BUMPER in turn creates a credit system so these assets can be placed on-chain.
Reserve Balancing: BUMPER will act dynamically to the reserve pool that the makers and takers participate in, which means that the pool can be rebalanced in order to maintain the slippage to a minimum. The maker risk is also separated into a trenched hierarchy which will allow makers to participate in multiple pools at one time.
Modulation Redundancy: secondary modulations are implemented in order to compensate for certain variables like premium yields, token distributions, and rebalancing. All of these variables can be changed through governance options via the BUMP token.
Risk Segmentation: the premium and yields from using BUMPER will differ depending on the different measuring tools used on the platform. Users have four different variables that help create their premium or risk: Asset to Liability Ratio (ALR), Reserve to Liability Ratio (RLR), Reserve to Deficit Ratio (RDR), and Reserve to Asset Ratio (RAR)
Target Market Analysis
So who is BUMPER good for? The target audience for BUMPER is ideally one that wishes to have exposure in cryptocurrency but doesn't want to deal with the huge drawdowns and volatility of the market. Although crypto is one of the most bullish asset types in the past decade, it can often be a market where daily value can drop as much as 50% in one day. BUMPER makes it a great option for newer and more timid investors to participate in the market while also providing other users the safe keeping of their portfolio.
What kind of value does BUMPER provide? The value of BUMPER will largely depend on the individual user. For some, this will provide nothing of value if they are already at risk protecting the value of their assets, but for most, this can provide a great way to safeguard their value. Statistics have shown that most people cannot out play the market versus a custodian managing your assets for you. The same could potentially be true for managing your risk value of your crypto. Not everyone has the ability nor the time to buy and sell based on how much they want to keep in their portfolio. A semi-automated contract system can help manage this for people that are unable to do so.
BUMPER is quite the interesting niche. They do not have the main components of a crypto exchange or DEX but mimic some of the behaviors that make exchanges valuable - asset floor values which are essentially stop losses, along with yield benefits that a DEX would often provide. Additionally, BUMPER behaves much like a crypto insurance program where you can guarantee a certain value of your assets to be maintained. This hybrid of values is what makes BUMPER special in crypto and in DeFi.
For more information, you can check out Bumper Finance in addition to some supplemental reading:
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