Author: Jordan Yaekley, Delphi Digital
Translation: Peng SUN, Foresight News
Since its launch on Ethereum and zkSync, Maverick has quietly become one of the top 5 DEXes by trading volume on Ethereum.
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Maverick offers directed liquidity provision, high capital efficiency, near-zero slippage, and some QOL improvements for LPs. In this article, we will explore why Maverick is not just another DEX; it could pose a significant challenge to Uniswap v3’s dominance.
Maverick AMM Design
Maverick differs from most AMMs in that it uses liquidity bins. Liquidity bins are discrete price ranges, similar to Uniswap v3’s ticks.
Price discovery within a bin uses a constant sum formula, allowing for zero-slippage trades. Slippage only occurs when all the liquidity within a bin is consumed, causing the Active bin to move up or down. Despite Uniswap’s high capital efficiency, the existence of the constant product formula means that there is still a small amount of slippage within a tick.
One characteristic of bins compared to ticks is their standardized nature, which allows for interchangeable LP positions, enabling Maverick to support liquidity mining mechanisms, where projects can unconditionally incentivize liquidity through “boosted pools.”
Maverick’s liquidity bin architecture is similar to Trader Joe’s, and for a deeper understanding of the differences between the two, readers can refer to “Trader Joe’s New Insights into Concentrated Liquidity.”
Maverick’s main features are its incentive pools, custom liquidity shaping, custom fee tiers, and directed liquidity provision. Directed liquidity provision is achieved through Maverick’s Automated Liquidity Placement (ALP) mechanism.
ALP-powered directed liquidity provision allows LPs to accept positive-delta liquidity supply. LPs used to bear market risk of two assets and lacked corresponding degrees of upside. The Maverick model allows LPs to be bullish or bearish, earn more money if predictions are correct, and minimize impermanent loss. Additionally, trading fees are automatically accrued to LP positions, further enhancing returns. Maverick offers users four ways to provide liquidity: Mode Right, Mode Left, Mode Both, and Mode Static.
Mode Static is Maverick’s “normal” mode, and its operation is similar to existing AMMs. Mode Static does not use an automatic liquidity transfer mechanism, but gives users a lot of freedom in how liquidity is deployed through three default options:
- Exponential: liquidity is highly concentrated around the current pool price. The remaining liquidity is distributed around the surrounding bins in an exponentially decreasing manner.
- Flat: liquidity is evenly distributed across a series of bins centered around the current pool price. Similar to Uniswap v2.
- Single Bin: liquidity is only deployed in the active bin. Similar to Uniswap v3.
Of course, users can also choose not to select these three liquidity distributions and instead create any form of custom liquidity model by using a single bin.
Mode Right is similar to a dynamic range order and moves with the price in the pool.
Mode Right is suitable for LPs who are continuously bullish on the future. As the pool moves to the right, Mode Right will keep the quoted asset bin directly to the left of the price range and be ready to earn profits when the price falls into the range.
When depositing funds into the USDC-ETH pool in Mode Right, it is recommended that the user deposit to the left of the current active bin to reduce impermanent loss. When the price falls, the user’s LP position will be converted to ETH.
Mode Left is similar to Mode Right, but completely opposite. When you are bearish, Maverick will continue to move liquidity to the right of the current active bin. If the prediction is correct, they can make a lot of money and there is little impermanent loss.
LPs in Mode Left can reserve one bin of the base asset to the right of the price range when the pool moves to the left, and be ready to match orders when the price rebounds.
Mode Both allows LP to add liquidity to the current Active bin or adjacent bins. When the price moves in either direction, Mode Both re-concentrates liquidity to the previous Active bin and follows the price up and down.
For example, let’s assume a user deposits single-sided USDC liquidity to the left of the current Active bin in the USDC-ETH pool. If the ETH price goes up, the position is equivalent to Mode Right, moving liquidity to the left of the current Active bin, but the position is still entirely in USDC. If the ETH price falls back into this range, LP re-concentrates to the right of the Active bin, similar to Mode Left, and the position is entirely in ETH.
Mode Both is essentially a very narrow Uniswap v3 range that constantly rebalances around the current price. Therefore, Mode Both has much higher risk of impermanent loss. Additionally, due to rebalancing in a continuously fluctuating price environment, LP may suffer permanent loss. In this case, using wider range bins can help.
ALP mode (Right, Left, Both) uses an internal TWAP price and a configurable lookback period to move bins. By default, the lookback period is set to 3 hours to maintain liquidity responsiveness to price while avoiding potential attack vectors.
Bin size and lookback period are key variables that affect LP returns based on price trends. Longer lookback periods will only get fewer reactions. Liquidity is less likely to move from short-term fluctuations, but more likely to lag behind strong trends.
Comparing Liquidity Distribution
In short, a bin is a tick’s substitutable, standardized implementation that enables liquidity to be vertically built. A tick builds liquidity horizontally, with higher precision but at the cost of flexibility. Uniswap v3 is highly capital efficient for LPs within the range, but is known for some suboptimal liquidity distributions.
Maverick’s ALP allows liquidity to be passively concentrated around the current price and its liquidity distribution seems much more efficient than Uniswap’s, a change that is more pronounced on non-primary pools.
It should be noted that the chart only compares liquidity distribution, not TVL within each tick/bin. Uniswap has much more liquidity than Maverick. For example, at the time of writing this article, there are only 206 USDC and 12.06 ETH in Maverick’s current Active bin (meaning ETH is about to fall into a lower bin).
Maverick Market Performance
Maverick’s market strategy is quite unique. After launching on Ethereum, it didn’t launch on Arbitrum and Optimism, but first launched on zkSync Era. zkSync Era was launched in March and the ecosystem is still immature, but trading volume is steadily increasing.
Maverick’s fee growth has even exceeded its trading volume, especially on zkSync. This may be due to higher trading volumes on risk asset pools.
Currently, most people are still only using a few pools on Maverick, including stablecoins and wrapped assets. The vast majority of trading volume on risk asset pools comes from the USDC-ETH 4bp pool, which has taken some share from Uniswap’s 5bp pool.
Currently, data on LP performance is limited, but early indications suggest that keeping LP positions in a narrower range with ALP can bring high profits to risk pools. It is clear that there is room for growth in risk assets on Maverick, and product-market fit should be achievable. Users may need time to learn how to fully utilize ALP, but Maverick definitely has the potential to expand beyond its current niche through grassroots expansion.
Many new DEXs initially struggle to attract new users. Liquidity mining programs are often used to generate trading volume and liquidity. Maverick’s low slippage trading is able to attract new users because it is popular in aggregators. Ideally, Maverick will gradually start to bring in more direct traffic. Nonetheless, its popularity in the aggregator has set a good baseline for its growth and proved the reliability of its design.
In addition to the aggregator, Maverick is also popular with whales. On the Ethereum mainnet, over 75% of Maverick’s trading volume comes from trades over $100,000, with almost no trades below $100. This is due in part to gas costs, but the constant product formula around the current price is favorable for large trades.
Liquidity Staking Tokens (LST): Maverick’s Competitive Advantage Advantage
LSTs will be an important narrative to watch next year. They could become the primary trading pairs on AMMs and the primary collateral types for options and CDPs. It remains to be seen to what extent LSTs can replace native ETH as DeFi’s SoV, but the battle for the LST market has already begun.
Due to the predictability of the LST-ETH price trend, Mode Both is the ideal choice for LPs. Even for large orders, traders can enjoy low slippage trading. In less than four months, Maverick has already become one of the leading LST trading volumes and is currently vying for the top spot.
Although liquidity is one order of magnitude lower, Maverick’s ability to challenge the leading position in LST trading volume is impressive. Incentivizing liquidity for specific strategies will make Maverick LST even stronger. In the foreseeable future, Maverick has the potential to stand out in this field.
Trader Joe was the first DEX to implement the liquidity bin and has several innovative features of its own. Comparisons with Maverick are inevitable, as they are the two most similar DEXes in design.
The main differences between Trader Joe and Maverick lie in the fee structure and method for automatic liquidity provision. Trader Joe has dynamic fees, which helps protect LPs from the impact of impermanent loss. Maverick’s fee structure is more akin to Uniswap’s, forgoing any possible surge fees that might deter traders. Instead, Maverick allows users to create pools with various fee tiers.
Trader Joe has its own mechanism for automatic liquidity provision, called “Auto Pools.” Auto Pools appear to be different from Maverick’s. Maverick’s ALP mechanism is passive and hardcoded into the smart contract. Trader Joe’s mechanism is more active/autonomous and script-based, akin to a vault. “The General” is Trader Joe’s first Auto Pool, following a strategy of maximizing fee capture while maintaining market neutrality.
For most new DEXes, the biggest challenge is to take market share away from Uniswap. Maverick may be better equipped to compete with Uniswap than most DEXes. In the past, the DEXes that successfully beat Uniswap (albeit for a short time) were targeted at market gaps: Curve – stablecoins; SushiSwap – liquidity mining; Bancor – impermanent loss protection for retail investors. Maverick excels in all of these areas and has become a major player in the LST space.
The additional freedom provided by Maverick compared to Uniswap v3 is a significant QOL improvement for LPs. Adding 0.04% or 2% fee tiers through Uniswap governance may feel like an unnecessary bottleneck compared to Maverick. Many Uniswap LPs use third-party apps to manage, deploy, and automatically compound liquidity, but these features are largely native to the Maverick app.
Recently announced Uniswap v4 appears to greatly mitigate Uniswap’s weaknesses. Dynamic fees, more customizable pools via hooks, and the potential for new LP strategies could threaten the value proposition offered by Maverick.
Maverick’s biggest potential advantage is how ALP mode directly embeds LP’s flexibility into the core user experience of the protocol. Maverick combines the simplicity and standardization of Uniswap v2 with the complexity and expressiveness of centralized liquidity. Maverick allows more users to participate in market making.
Liquidity Mining DEX
Leaving aside Uniswap v4, Maverick’s ability to promote efficient, passive, incentivized liquidity makes it an attractive alternative choice for other metric voting token systems and previous generation technologies.
Even without the MAV token as a catalyst for the ecosystem, Maverick’s Boosted Pools have already received widespread attention. Recently, Maverick has announced its governance token MAV, and while the complete token economics have not been released, it will adopt some form of veToken structure.
Maverick has a leading position in AMM design with its automatic/directed liquidity provision, liquidity shaping, and seamless incentives. Maverick has a strong fundamental position in narratives such as LST. Maverick’s early success on the Ethereum mainnet is an important concept proof for this new design. The natural synergy of Maverick with LST-fi and growth on zkSync can unlock its potential for sustained growth and wider adoption.