Bumper's Gareth Ward on price protection that lets you stay long, unlike a stop-loss

Ashton Addison: What is Bumper, and what problem does it solve?▶ 00:23

Gareth Ward: Bumper is a decentralized, non-custodial, permissionless platform that provides price protection for an unstable asset. It's not insurance against smart contract hacks. It protects the value of an asset like ETH or Bitcoin. By taking out a policy, you protect a level, so if the price drops below it and you exit the policy, you come out with the amount you protected. Say you bought ETH, it went up to $4,000, and you wanted to protect 90% of that value. If the price falls below $3,600, the protocol makes sure you still have $3,600 of value. Even if it drops to $3,200 and you exit, you walk away with $3,600. Essentially, we create a marketplace of sellers and buyers of risk. The sellers are the people taking out policies, whom we call takers. The buyers of risk are the makers, the liquidity providers. They supply a stablecoin on the other side of the protocol to protect the takers' value. That side is incentivized, with safety nets built in.

Ashton: Ethereum came close to $5,000 and then dropped about 50%. Who would use Bumper in that situation?▶ 03:04

Gareth: People feel that pain now. If you hold an asset and you're going long on it, but you don't have the time to trade in and out, or the knowledge to do it well, you can pay a fee to have the underlying value protected. It can also be very good for professionally traded funds, which want to show protected value on their books for their investors. What they often do on the side is buy options to offset the risk on their other assets. That can be complicated and cumbersome. It's old technology and it needs an overhaul, and Bumper is here to do that.

Ashton: How is Bumper different from a stop-loss?▶ 04:55

Gareth: A stop-loss is a reactionary tool. It does exactly what it says on the tin: if the price drops below your level, it sells automatically, so you've protected the lowest position you're prepared to accept. What it doesn't let you do is stay in the asset. The most frustrating thing is the stop-loss chase. Someone knows where the stops are, they dump the price, everyone sells out, and they pick everything up cheaply. Then it pumps back up. In crypto this is made worse because liquidity is low compared with traditional markets, so it's easier to move and far more volatile. You end up out of the asset and you don't get the pump. Bumper lets you stay long, so you're not worried about it and don't even have to think about it. If or when it does pump, you're in that asset and you're capturing all the upside. A stop-loss doesn't have an upside. Otherwise you have to be very active, and even people who have the time often aren't good at it. It takes years to become a very good trader.

Ashton: How does staking work in Bumper?▶ 08:00

Gareth: It's been quite popular. We brought the staking module forward after the community kept asking whether there would be a staking program once they got their tokens. So we did a bit of a dev pivot to give it priority. At the moment it's simply a way to earn more BUMP tokens, but later it plays an important role as a safety module for the protocol. You can choose a flexible term, which you can leave any time, subject to a cooldown period. Or you can pick a 30, 60 or 90 day term. Each term gives you a multiplier, a kind of staking power. A thousand BUMP on the flexible plan gives you the power of a thousand BUMP. On a 30-day term the multiplier is 1.5, so that thousand becomes 1,500 and you can capture a bigger pro rata share of the daily distribution. On a 90-day term it's six times.

Ashton: A lot of people are locking in for longer terms. Is there a best choice?▶ 10:42

Gareth: There's a bit of game theory in it. Whether 90 days, 30 days or flexible is better depends on how many people stake. If a lot of people come in and your pro rata share is small, you might be better off in flexible and keep the freedom to trade the tokens. But if there aren't many stakers and you've gone in at a six-times multiplier, you can really clean up. It's quite an interesting game. People will get used to it and see how it plays out.

Ashton: Where are you on the full mainnet protocol, and what's happening in the first half of 2022?▶ 12:03

Gareth: We're definitely over halfway through, and it's moving at quite a pace. The architecture of the protocol is pretty much done. We're working on a few tricky things, like fungibility, that need a bit more time. We've had some really good initial results from the agent-based modeling, which showed that against a European options desk we would be cheaper. That was unoptimized right out of the gate. We're now rebuilding the Python code for the simulations, which is probably less than a week from being finalized. Then we'll start optimizing it, and that will help drive some of the early settings we need to make once the build is complete. We're also constantly working on UX and UI. We're considering a design change that would look a lot more like a 1980s, 16-bit game. It's one of those things where you have to decide whether to fully commit.

Ashton: Where do you see Bumper in three to five years?▶ 15:47

Gareth: Last year was our entry year into the market, and the market welcomed us. We've built a good-sized community and brand, and now we have to build a business to scale. I'd like to think we'll be an absolute leader in the derivative space, with the market captured on multiple chains. This is where DeFi needs real work in general. At the moment DeFi is still for the nerds and the pseudo nerds: you're connecting a wallet and holding private keys. We'd like to integrate with more retail-friendly applications. Imagine you're on an app like crypto.com, eToro or Revolut, and you simply press a Bumper button in the corner and it bumpers your asset. There's no connecting a wallet and no paying gas fees. That could mean some centralization on one end. But if DeFi can solve for that, with a decentralized back end and that ease on the front, that's the holy grail. I'm not the genius who will design that, but I think someone out there will.