Bumper, a kind of insurance policy against cryptocurrency’s roller-coaster volatility borrowing techniques used in decentralized finance (DeFi), has raised $10 million from Alphabit, Autonomy, Beachhead, ChainLayer and others in a private token sale.
The wild frontiers of the cryptocurrency space, such as DeFi, are where all sorts of innovations spring up. For example, stablecoins, now a cornerstone of crypto, originally catered to firms beset by a lack of banking services. More recently, the DeFi realm has given birth to decentralized alternatives to traditional insurance.
Following this trend, Bumper allows users to protect the value of a crypto asset (starting with Ethereum’s native token, ETH) by setting a price floor for that asset with a guarantee it can be redeemed at that price.
For example, $100 worth of ETH with 90% of its value guaranteed would mean a $90 price floor protection. So if the price of ETH drops and those assets reach $80, say, the user can still withdraw $90 in the form of USDC stablecoin, explained Gareth Ward, chief operating officer of INDX Capital, the firm behind the Bumper protocol.
For this protection the user would pay a nominal premium, as low as 3% per annum, according to Ward.
“Firstly, we tried to target pinch points in the DeFi sector and what we saw as quite large over-collateralization that’s required in a lot of lending and borrowing,” Ward said in an interview. “What came out of this was the more fundamental issue of price volatility. Using aspects of DeFi, we’ve solved for this in a unique and decentralized way.”
Under the hood, Bumper operates an asset pool where liquidity providers (“makers”) earn a yield for adding USDC stablecoins. Bumper’s pool of USDC is used to swap in and out of the policyholders’ ETH, preventing the latter from falling below an unacceptable level. As well as the automated balancing act performed by the protocol, a separate risk pool covers any realized losses.
From June 8, liquidity providers will be able to deposit USDC and earn a yield along with a daily distribution of BUMP tokens, said Ward. The protocol will go fully live in August with a public token sale.
“You can’t get away from risk in any marketplace, especially not crypto,” said Ward. “But what we do is take that risk, hit it with a sledgehammer and break it into a million pieces. It’s then distributed through this clever DeFi mechanism and plugged up with a massive backstop. It’s only after all that when someone would take a haircut.”