Delphi Digital: Maverick AMM Design, Market Performance and Competitive Advantage

Original Author: Jordan Yaekley, Delphi Digital

Original compilation: Peng SUN, Foresight News

Introduction

Since launching on Ethereum and zkSync, Maverick has quietly climbed into the top 5 DEXs by Ethereum transaction volume.

Maverick offers directional liquidity provision, high capital efficiency, near-zero slippage, and some QOL improvements for LPs. Next, this article will explore why Maverick is not just another DEX; it may pose a serious challenge to Uniswap v3's dominance.

Maverick AMM Design

Maverick uses liquidity bins unlike most AMMs. Liquidity bins are discrete price ranges, similar to ticks in Uniswap v3.

Price discovery within a bin uses a constant sum formula, allowing zero-slippage trading. Slippage only occurs when all the liquidity in a bin is consumed, causing the Active bin to move up or down. Although Uniswap's capital efficiency is very high, the existence of the constant product formula determines that there will still be a small amount of slippage within the tick.

One feature of the standardized nature of bins compared to ticks is that they can substitute for LP positions, allowing Maverick to support a liquidity mining mechanism where projects can unconditionally incentivize liquidity through "boosted pools".

Maverick's liquidity bin structure is similar to Trader Joe's. If you want to learn more about the differences between the two, you can read "Trader Joe's New Insights into Concentrated Liquidity".

The main features of Maverick are its incentive pool, custom liquidity shaping, custom fee tiers and targeted liquidity supply. Directed liquidity supply is achieved through Maverick's Automated Liquidity Placement (ALP) mechanism.

The directional liquidity supply driven by ALP enables LPs to accept the positive-delta nature of liquidity supply. Because LP had to bear the market risk of the two assets before, and lacked a corresponding level of room for growth. The Maverick model allows LPs to be bullish or bearish and make more money if the forecast is correct. At the same time, this mode can also minimize the loss of impermanence. In addition, transaction fees are automatically credited to LP positions, further increasing returns. Maverick provides users with four ways to provide liquidity: Mode Right, Mode Left, Mode Both and Mode Static.

Mode Static

Mode Static is Maverick's "normal" mode and works similarly to existing AMMs. Mode Static does not use an automatic liquidity transfer mechanism, but gives users a lot of freedom in how to deploy liquidity through three default options:

• Exponential: Liquidity is highly concentrated around the current fund pool price. The remaining liquidity is distributed over the surrounding bins in an exponentially decreasing manner.
• Flat: Evenly distribute liquidity on a series of bins centered on the current fund pool price. Similar to Uniswap v2.
• Single Bin: Only deploy liquidity in the Active bin. Similar to Uniswap v3.

Of course, users can also not choose these three liquidity distributions, but create any form of custom liquidity model by using a single bin.

Mode Right

Mode Right is similar to a dynamic range order, which will follow the price in the pool when the price rises.

Mode Right is suitable for LPs that are bullish on the market outlook. When moving right in the pool, Mode Right keeps the bin of the quoted asset directly to the left of the price range, ready to capture gains should the price fall into the range.

When depositing funds into the USDC-ETH fund pool in Mode Right, it is recommended that users deposit to the left side of the current Active bin to reduce impermanent losses. When the price falls, the user's LP position will be converted into ETH.

Mode Left

Mode Left is similar to Mode Right, but the exact opposite. When you are bearish, Maverick will continually shift liquidity to the right of the current Active bin. If the forecast is correct, they can make a lot of money and lose very little impermanence.

Mode Left LPs can reserve a bin of their underlying asset directly to the right of the price range as they move left in the pool, ready to match orders once the price rebounds.

Mode Both

Mode Both allows LPs to add liquidity to the current Active bin or to adjacent bins. When the price moves in either direction, Mode Both refocuses liquidity into the previous Active bin and follows the price up and down.

For example, we assume that a user deposits unilateral USDC liquidity on the left side of the current Active bin of the USDC-ETH pool. If the price of ETH rises, the position is equivalent to Mode Right, which transfers the liquidity to the left side of the current Active bin, but the position is still completely USDC. If the price of ETH falls back to this range, LP will refocus to the right side of the Active bin, similar to Mode Left, and the position will be entirely ETH.

Mode Both is essentially a very narrow Uniswap v3 range that is constantly rebalancing around the current price. Therefore, the risk of Mode Both impermanence loss is much higher. Additionally, LPs may suffer permanent losses due to rebalancing in a continuously volatile price environment. In this case, LPs will buy high and sell low, resulting in an immediate loss. In this case, you can use a wider range of bins.

ALP modes (Right, Left, Both) use internal TWAP prices and a configurable lookback period to move bins. By default, the lookback window is set to 3 hours to keep liquidity responsive to prices while avoiding possible attack vectors.

Bin size and lookback period are key variables that affect LP returns based on price action. A longer lookback period will result in fewer responses. Liquidity is less likely to move from short-term volatility, but more likely to lag strong moves.

Comparing Liquidity Distributions

In a nutshell, bins are an alternative, standardized implementation of ticks that can build liquidity vertically. Tick builds fluidity horizontally, with higher precision, but at the expense of flexibility. Uniswap v3 is very capital efficient for in-scope LPs, but is notorious for some sub-optimal liquidity distribution.

Maverick's ALP allows liquidity to be passively concentrated around current prices, and its liquidity distribution appears to be much more efficient than Uniswap's, a change that will be more pronounced on non-major pools.

It should be noted that the above figure only compares the liquidity distribution, not the 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 that ETH is about to fall to a lower bin).

Maverick Market Performance

Maverick's go-to-market strategy is unique. After launching on Ethereum, instead of launching on Arbitrum and Optimism, it was first launched on zkSync Era. The zkSync Era launched in March and the ecosystem is still immature, but transaction volumes are steadily increasing.

Maverick fee growth even outpaced its transaction volume, especially on zkSync. This may be due to the higher proportion of trading volume on the risk asset pool.

Currently, most people only use a handful of pools on Maverick, including stablecoins and wrapped assets. The trading volume of the vast majority of risk asset pools came from the USDC-ETH 4 bp pool, which took some shares of the Uniswap 5 bp pool.

Currently, data around LP performance is limited, but early indications are that ALPs keeping LP positions within a narrow range can be highly profitable for risk pools. Obviously, risky assets on Maverick have room to rise, and product-market fit should be achievable. It may take time for users to learn how to get the most out of ALP, but Maverick certainly has the ability to expand beyond its current niche with this kind of grassroots expansion.

Many new DEXs initially struggle to attract new users. Liquidity mining schemes are often used to generate trading volume and liquidity. Maverick's low-slippage transactions can attract new users because it is very popular among aggregators. Ideally, Maverick will gradually start bringing in more direct traffic. Still, its popularity among aggregators has set a decent bottom line for its growth and is a testament to the solidity of its design.

In addition to aggregators, Maverick is also favored by giant whales. On the Ethereum mainnet, more than 75% of Maverick's transaction volume comes from transactions above $100,000, with hardly any transactions below $100. This is partly due to gas costs, but liquidity aggregation around the current price and the constant sum formula used by liquidity bins is very beneficial for large transactions.

Liquid Staking Token (LST): Maverick's Competitive Advantage

Advantage

LST will be an important narrative to watch next year. They are likely to become the primary trading pair on AMMs and the primary collateral type for options and CDPs. The extent to which LST can replace native ETH as the SoV of DeFi is unknown, but the battle for the LST market has already sounded the horn.

Due to the predictability of LST-ETH price movements, Mode Both is ideal for LPs. Traders can enjoy low slippage even for large orders. In less than four months, Maverick has become one of the leaders in LST transaction volume and is currently vying for the top spot.

Despite an order of magnitude lower liquidity, Maverick's ability to challenge LST's volume leadership is impressive. Liquidity that incentivizes specific strategies will make Maverick LST even more powerful. Maverick is poised to excel in this space for the foreseeable future.

Competitive Landscape

• Trader Joe

Trader Joe is the first DEX to implement liquidity bins, and it also has several innovations. As the DEX most similar in design to Maverick, this comparison is inevitable.

The main difference between Trader Joe's and Maverick's is the commission and the method of automatic liquidity provisioning. Trader Joe's has dynamic fees that help protect LPs from impermanent losses. Maverick's fee approach is more Uniswap-style, forgoing any surge fees that might deter traders. Instead, Maverick allows users to create pools with various fee tiers.

Trader Joe's has its own automated liquidity placement feature known as "Auto Pools". Automated pools look different from Maverick. Maverick's ALP mechanism is reactive, hardcoded into smart contracts. Trader Joe's mechanics are more proactive/autonomous and script-based, similar to a vault. "The General" is Trader Joe's first automated pool, following a strategy of maximizing fee capture while remaining market neutral.

• Uniswap

For most new DEXs, the biggest pain point is taking market share from Uniswap. Maverick may be better positioned to compete with Uniswap than most DEXs. In the past, the DEXs that successfully beat Uniswap (albeit for a short time) have all targeted market niches: Curve—stable currency; SushiSwap—liquidity mining; Bancor—impermanent loss protection for retail investors. Maverick excels in these areas and has become a major player in the LST space.

The additional degrees of freedom offered by Maverick are a significant QOL improvement for LPs compared to Uniswap v3. Adding a 0.04% or 2% fee tier through Uniswap governance might feel like an unnecessary bottleneck compared to Maverick. Many Uniswap LPs use third-party applications to manage, deploy, and automatically compound liquidity, but these features are mostly provided natively within the Maverick application.

The recently announced Uniswap v4 seems to have greatly eliminated Uniswap's weaknesses. Dynamic fees, more customizable pools via hooks, and the potential for new LP strategies could threaten the value Maverick offers.

The biggest potential advantage of Maverick is how the ALP model embeds the flexibility of LP directly 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 enables more users to participate in market makers.

• Liquidity Mining DEX

Uniswap v4 aside, Maverick's ability to facilitate efficient, passive, incentivized liquidity should at least make it an attractive alternative to other metered voting token systems and previous generation technologies.

Even without the MAV token as a catalyst for the ecosystem, Maverick's Boosted Pools have gained a lot of attention. Recently, Maverick has announced its governance token MAV. The complete token economics has not yet been released, but it will adopt some form of veToken structure.

in conclusion

Maverick leads the way in AMM design with its automated/directed liquidity provisioning, liquidity shaping and seamless incentives. Maverick has strong fundamentals and a solid position in a promising narrative like LST. The early success of Maverick on the Ethereum mainnet is an important proof of concept for this new design. Maverick's natural synergy with LST-fi and increased activity on zkSync can unlock its potential for continued growth and wider adoption.