The issue with volatility in crypto is that it damages trust in the space. Investors whose portfolios are entirely in crypto sometimes feel they are only one announcement away from total disaster, where even the tiniest tidbit of news can precipitate a lemming-like plunge into the abyss of a chart, and massacre expertly husbanded gains in the blink of an eye. This volatility actually impedes consistent multi-year growth and project development, and hoary investors who’ve gone through a few winters already chime in with portentous warnings, their take-profit orders laddering the ascent to the moon (and hurting the propulsion on the way up).
The Problem With Volatility
Of course, this volatility is what makes crypto appealing to so many. With a bit of vision and a lot of luck, even amateur traders can make extravagant gains without even touching the Futures or the Options buttons. Yet as crypto goes mainstream, and more institutional investors get on board, the appetite for risk becomes diminished and, if it remains too great, traditional investment institutions will shy away entirely.
Classically, the way to protect yourself against market shocks has been the stop-loss method, or by taking out futures contracts that protect against your main position. The first is easy, the second is complicated, but both suffer the pain of liquidations from rapidly shifting market conditions. An investor can go to bed with a position, wake up to find it liquidated, but the asset they were in hasn’t moved in price. This is due to sudden, sharp market drops that can occur but be quickly rectified. Somes this is a flash crash or liquidity seizure, but often such quick movements are just part of the general volatility inherent in the crypto space.
The Need For Yield
More pertinently, since the early days of crypto, the Ethereum ecosystem, alongside other blockchains, has become significantly more mature. Through the advent of DeFi, complex financial instruments now exist on-chain. To participate in protocols such as Maker or Balancer for example, and to gain yields, assets need to be staked in protocols, often on long lock-up periods, so that these protocols can offer their stablecoin and liquidity pool services – to name just two. Investors in crypto now have even less reason to forgo their assets and trade them into a stable value token, as assets like ETH can be put to work to generate yield all across the DeFi landscape. This makes it tough for traders who want to insure themselves against losses but don’t want to miss out on the yields that can be gained by putting them to use.
How DeFi Can Protect Your Assets
Smart contracts offer an opportunity for users to be protected against asset-value swings while also having the opportunity to utilize their assets within a blockchain ecosystem. This on-chain protection is still in its infancy, but one of the protocols that are making the greatest strides in this area is Bumper Finance. A DeFi price-protection protocol, Bumper allows users to pay premiums for a policy lock in a set value for it, which can be redeemed if the asset falls below that value. Premiums are paid in USDC or from a portion of the token being protected, and users must stake $BUMP, the utility token, to access the system. By placing ETH in the protocol to be protected though, users then receive a representative token, bETH, which can be utilized in yield farms, be lent out, or used to take part in any of the other DeFi opportunities available.
Protecting your asset this way means that should say, a flash crash occur while you’re sleeping that temporarily nixes the price before a quick recovery, then as the policy you take with Bumper is redeemable (and you haven’t redeemed it), you still hold the asset just like you did when you went to bed. Moreover, if after protecting an asset, it starts on a rampant moon mission, then a user can still enjoy all of those gains just like they would if they were holding the asset normally. The asset is still protected at the original price though, just the premiums paid become significantly less.
Protection for the assets is provided by Makers, who earn a yield in USDC and a chance to mine $BUMP for provisioning the protocol. Makers get a cut of the premiums, a slice of $BUMP which is used for governance in the protocol (and must be staked if Makers wish to take their own protection). It creates a DeFi protocol that provides a core service but also allows its Makers and Takers to earn classic DeFi yields on their assets while shoring up trust in the DeFi community as a whole with a decentralized approach to protecting users assets.
Bump Up Your Trust With the Upcoming Pre-Sale
It’s a novel approach and one that more and more sophisticated users of DeFi will be keen to use once the protocol launches. The protocol has established significant liquidity through its Liquidity Provision Program, with over $25M deposited.
Registration for the Pre-Sale is open now, with the sale scheduled to begin on the 14th of October at 12pm UTC. Given the low public sale price, a chance to make quick gains for those who get into the Pre-Sale is possible, but due to the opportunity Bumper Finance has to become a leading price-protection protocol, it’s possible the benefit could amount to so much more.
The opportunity to firm up overall trust in the crypto market is one of the next great steps to widespread adoption, especially from a retail investor standpoint. Bumper Finance is a novel starting gun on the potential for price protection. It markets itself as God-Mode for crypto, and if it is successful at neutering the volatility of this hyper-active market, it may just be the miracle crypto holders worldwide needed.
Image Sourced from Monccur PR