In July 2021, Bumper launched the Liquidity Provision Program (LPP), a rewards program designed to help bootstrap liquidity to the Bumper protocol and reward participants in BUMP tokens.
Understandably, due to the number of mechanics at play when it comes to how the LPP operates, we have had a variety of questions from the community asking for clarification on a number of points.
Here we round up the most common questions along with their answers to provide you with the insights you need to better understand the LPP, its design, and its purpose for the Bumper protocol and its supporters.
Looking to participate in the LPP? Click here.
We’ve had a lot of comments about the APR calculation, including both how it’s calculated and its relevance.
Here’s how it’s calculated: The APR displayed in the dApp is based on an assumed token price increase over the three month period for the LPP. This token price increase is an estimate based on achieving an anticipated TVL of $150m and the corresponding public sale token price of $2.40. This APR is for supporters who both farm BUMP and buy the full 20% allocation. If you only farm, then your return will be lower.
The APR is calculated by taking into account the current token price, the token price at IDO, and the length of time remaining in the LPP. This return is then annualized to calculate the APR. So if you farm and buy tokens at $0.65 then your APR will be calculated based on the increase to $2.40 which is the expected price you’ll first be able to trade the token at.
There’s a little game theory buried within the structure of the LPP. The TL;DR is that the winning strategy is to deposit as early as possible (technically, early with respect to other depositors). With a sufficient TVL inflow, the APR decreases, providing a further incentive to deposit before future depositors.
On the other hand, if there are insufficient inflows, there is an incentive to wait until later to deposit. However, with such a scenario, the APR increases as we approach the end of the program; this game mechanic provides an increasing incentive for participation as time goes on, ultimately serving to trigger a rush of deposits at any time as users rush to capitalize on the increased APR. The reality for this user who deposits later is they will still end up with BUMP tokens at a more expensive rate than someone who deposits earlier.
When you deposit you’re given the opportunity to swap up to 20% of your deposit for BUMP tokens. You’ll be able to buy these at a price that is determined when your transaction is written to the chain.
This price is correlated to the TVL. As the TVL increases, the BUMP price increases. The price you pay will be confirmed when your deposit is written to the blockchain. It started on July 14th at $0.60 and increases with each dollar deposited into the protocol.
This serves as an additional incentive to deposit early. You can see the current price in the dApp in the first step of the Deposit process.
This may come as a bit of a surprise, but, there isn’t any significant impact. What this will mean is that, at launch, the protocol starts with a smaller kitty in the reserve, which (may) manifest in a slightly higher premium for late-coming protection buyers, known as (“takers”) — that is, if demand approaches the protection capacity as the protocol’s usage grows.
In this scenario, we will have a surplus of tokens that can be used to either increase participation incentives (i.e. offsetting any amplification of the premium under high demand) or be sold off (at a higher price than what’s available during the LPP). These funds could then be used to boost the reserves and increase the rate of market growth.
All paths are ultimately equivalent and lead to the same point.
The LPP was purely designed to create awareness and distribute BUMP tokens to some of our earliest supporters. The price is a function of the TVL which is used as a proxy for the value of the network. In other words, the valuation of the protocol (and the token price) is implicitly linked to a measure of protocol value. We looked to other protocols for comparison by examining measures like (TVL)/(circulating market cap). Our research and external advice helped us set the parameters for the LPP.
Early on, we needed to come up with several key constraints for the program, including the time-frame, a healthy APR, and a number of tokens to distribute from the total supply. We figured out pretty soon though that one figure we didn’t need to decide on was the TVL, because this was derived from the other constraints; the LPP has been designed so that the token price (and token emission) only increases with TVL, meaning that any tokens that are not taken up by the community go back to the protocol and the final TVL by the end of the program determines the final token price.
If the TVL goes up to (approximately) $150m, then all of the tokens that have been allocated have been sold or farmed and are in the hands of the community. If the TVL reaches some number below this, then there are tokens left over for future use. In all cases, the program discovers a market price (assuming that sufficient potential participants are aware of Bumper and have had an opportunity to participate). The $150m figure is also consistent with the guidance from conversations with Bumper’s earlier backers whose estimates ranged between $50m and $250m. At the end of the day, the target ROI, timeframe, starting price, token emission cap, and TVL-to-MarketCap comparison with other projects all resulted in a TVL-to-Price curve which ran out of tokens at (just over) $150m USDC.
There is actually no need at all for Bumper to reach $150m in liquidity (or indeed any minimum) to be successful, or viable. Bumper will work just fine with just $1m in the Reserve at launch.