Blockchain

Bumper Aims To Solve Crypto Portfolio Volatility

Serial entrepreneur Jonathan DeCarteret began his first venture at age 13 with a passion for working at the edge of regulation and tech. His endeavors translated into a potpourri of businesses such as:

  • Switch: An advertising aggregator, which became the U.K.’s 60th fastest growing company
  • Launchpad: One of the first property crowdfunding platforms.
  • Smile Train: Launched a U.S. charity into the U.K. that became a top 20 charity.

The backstory

DeCarteret found his way into crypto and began to address one of the main issues of this space — volatility. According to DeCarteret, in particular, DeFi attracted him and his business partner, Gareth Ward, to the space.

“The beauty of programmable, frictionless, automated money is irresistible. We began to imagine all kinds of new financial instruments and wondered if this new bright ecosystem could solve some of the biggest problems in the financial world,” says DeCarteret.

Previously, DeCarteret worked on a crypto project called INDX. He says that while the project was innovative, it was too far ahead of the curve and rifled with regulatory uncertainty.

“But we were struck with the volatility. There are solutions out there, but they are clunky. People use things like stop-loss, but that boots you out of the market if a candle wicks down. Traditional markets use an options desk — first introduced in 1973, and it’s an ancient, inefficient system.”

The project hits a brick wall 

Bumper was born to solve crypto portfolio volatility. But theory and practice do not always see eye to eye. 

DeCarteret sheds light on this, “Okay, you hold one bitcoin, and you saw it race up to an all-time high of $60,000. What if you could use something like Bumper to protect that price, and if it fell below it, Bumper would swap you into a stablecoin? So you can cash out. Then if the price went up again and past your floor, Bumper swapped you back into bitcoin again. Presto.”

Only it wasn’t. There was a fundamental flaw in this premise. As the team built models to examine this theory, they realized that Bumper swapped the user in and out of stablecoins — resulting in transaction costs, gas fees, and slippage.

“You don’t get the price you want — this is all happening too fast and too often, so you are losing money in this dance, especially if your asset is oscillating along its floor.”

Modifying Bumper’s original model

Sam Brooks was the critical economic architect for the Havven protocol. In 2018, the protocol was independently pivoted into Synthetix and is now one of the most prominent DeFi protocols in the world.

Synthetix supports derivative tokens via Synths and provides exposure to a range of assets. Synths trade with infinite liquidity and zero slippage by leveraging the Synthetix protocol’s unique pooled collateral.

Brooks examined Bumper’s original model and found that Bumper was solving the right problem (volatility) but in the wrong way. Brooks realized that Bumper needed to solve for “slippage.”

Brooks then set about designing a near-zero slippage engine, which solved the volatility issue, and it is that IP which now sits at the heart of Bumper.

How does the new zero slippage engine work?

Bumper aggregates a group of people into a pool that contains many different price floors. It could be hundreds, thousands, or hundreds of thousands of people all protecting their crypto simultaneously. There is also a large pool of stablecoins. 

The Bumper protocol looks at both pools through the lens of six specific ratios Brooks designed. If the price of crypto, say Ether (ETH), begins to drop, the protocol can rebalance that by attracting more stablecoin deposits or trading ETH for more stablecoins.

The protectors pay a small daily fee forecast at around 3% per annum for this protection, and the makers (people providing stablecoins) gain rewards from this pot.

The actors on the Bumper protocol, the people who want to protect their crypto, are called protection “takers.” Then on the other side are people, protection “makers,” who deposit USDC and earn significant interest, typically between 7.5% to 12.5%

Users can also earn the native bump token — an incentive for both takers and makers that distributes daily. DeCarteret says that Sam battle-tested this concept with university professors and used a process called “agent-based modeling” to audit it.

How does Bumper work?

A user logs into Bumper and connects their wallet. It can see the wallet assets, select which ones they want to protect, and set the price floor. That brings up a daily premium fee, and the user presses the confirm button.

Bumper and fungible wrappers

While tokens are balanced, Bumper issues bETH — a fungible and tradable called Bumpered Ethereum. It ensures that the pricing value of ETH will never drop below the protected floor.

When you send back your bETH and redeem your ETH, and if it is below the floor, users receive USDC to bring them back to their price-protected floor.

Apart from a two-week initial contract, there are no penalties for withdrawal, and the protection becomes a rolling contract if users wish to keep using it. 

Bumper, DeFi, and cross-chain interoperability

Bumper allows other DeFi products to “plugin,” and this is where DeCarteret sees scope for exponential growth.

“Lending sites can come in and offer up collateralized debt positions that can’t liquidate because of predetermined price protection floors. We offer plug-and-play for other protocols with easy movements in and out. There’s a huge number of utility cases for this.”

Over $25 million staked into their LP Program, and $3.75 million raised in the token presale

In March of this year, the team wanted to raise half a million dollars to build out the MVP and were oversubscribed, raising $11.3 million from investors. 

The team used the initial funding to build the Maker half, where people could deposit USDC, and deployed this on July 14th. According to DeCarteret, “The uptake we saw was phenomenal, and two months later when the LP Program closed, there was more than $25 million staked in our liquidity pool.” 

“We have an underground following and real support from our community. The people who staked their USDC are now receiving their daily bump tokens. They were also able to convert 20% of their stake into BUMP, which most of them did.”

Since its inception, demand for the BUMP token has been substantial; the most recent demonstration was the presale that concluded on October 21st. Bumper raised $3.75 million from early supporters and adopters of the project. The next opportunity to buy BUMP will be during its private sale later in the year.

Luke Fitzpatrick

Luke Fitzpatrick has been published in Forbes, The Next Web, and Influencive. He is a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program. Connect with him on LinkedIn.

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Luke Fitzpatrick

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