General Information About Maverick
Basic information of the project
Maverick is an AMM DEX project that operates on many different ecosystems. As of writing, the project has appeared on three major ecosystems: Ethereum, ZkSync, and BNB Chain.
This is also the third project to be included in the Binance Launchpool list by Binance in 2023. In addition, through its implementation on ZkSync, Maverick has attracted the attention of the community.
Maverick uses a centralized liquidity model that benefits both liquidity providers (LPs) and traders. This model allows liquidity providers to operate their funds more efficiently while making transactions less volatile.
For details, please see: What is Centralized Liquidity (CLMM)? Potential new generation AMM model.
Additionally, Maverick allows liquidity providers to customize their liquidity positions in the most flexible way.
The project also helps liquidity providers solve the problem of non-permanent loss risk in centralized forms of liquidity (the risk of non-permanent loss on AMMs is generally higher than traditional AMMs).
Therefore, Maverick provides liquidity providers with various liquidity strategies designed to bring the liquidity providerâs price range closer to the actual token price. This enables more efficient use of liquidity, helping liquidity providers optimize costs and minimize risks.
Maverick Protocol is a project that has received investment from several large investment funds, including Binance Labs.
On June 21, 2023, the project announced that it had successfully raised US$9 million from the above-mentioned investment fund.
Currently, Maverick (MAV) has been officially listed on the Binance exchange.
Overview of Maverick Protocol's operating model
AMM
AMM is the foundation of all the features designed by Maverick Protocol. The liquidity in the Maverick Protocol pool is divided into liquidity buckets (similar to Trader Joe's liquidity ledger).
However, unlike TraderJoe, Maverick Protocol uses the same price formula as Uniswap v3 in each liquidity zone.
Maverick AMM helps traders reduce slippage when trading tokens. In addition, liquidity providers (LPs) will achieve higher capital efficiency (earning more transaction fees by providing low liquidity), which is different from the traditional AMM model (x*y=k).
However, when providing liquidity, LPs also have to bear greater impermanent losses (IL) than traditional AMMs (i.e., the point at which AMMs in the form of concentrated liquidity have to make a trade-off).
This project addresses this problem by providing different strategies.
The main purpose of these strategies is to help liquidity move in sync with token prices, thereby helping LPs minimize the impact of impermanent losses. In addition, since LP liquidity is continuously used, higher capital efficiency will also be achieved.
This is also what makes Headhunter different from similar products in the DeFi market.
Strategies for Providing Liquidity
Currently, Maverick provides users with 4 different liquidity strategy options, including:
Mode: Right
When the token price rises, the current LP's holding range will move up accordingly, and will not move down when the price falls. For example, LP provides liquidity for the ETH-USDC trading pair with a price range of (1,800 - 1,900). When the ETH price rises to $2,000, the price range will increase to (1,950 - 2,050). If the ETH price falls to $1,700, the LP's liquidity will remain at (1,950 - 2,050).
Mode: Left
In contrast to the rightward mode, when the token price falls, the LP's liquidity position will automatically move in the direction of the price, and will not move upward when the price rises again.
Mode: Bidirectional
When the price changes, both up and down, liquidity will move accordingly. This is a combination of the leftward and rightward patterns.
Static Mode
Similar to the experience of providing liquidity on Uniswap v3, liquidity zones do not change as asset prices change.
Therefore, the right side of the pattern will suit investors who feel bullish on the asset, while the left side of the pattern feels the opposite. Meanwhile, both sides of the pattern will suit investors who are unsure about the volatility trend.
For static mode, liquidity providers can choose one of three ways to provide liquidity, including: index type, flat type and single range type. Different options will have different liquidity distributions within the same price range.
However, these strategies also have certain risks, which will be analyzed in detail in the later part of this article.
Sub-Pool
Maverick allows limited partners to customize parameters such as liquidity strategy, transaction fees, liquidity interval width, liquidity distribution, etc.
In the same trading pair, each fee tier and interval width setting will form a separate liquidity pool, called a sub-pool.
For example:
User A provides liquidity for the ETH-USDC trading pair with a fee of 0.1% and a price range of 1%.
User B provides liquidity for the ETH-USDC trading pair with a fee of 0.2% and a price range of 1%.
These two operations will create two different sub-pools in the same ETH-USDC trading pair in Maverick.
In addition, it is important to remember that the alternative liquidity strategy options do not create additional sub-pools. In the above example, assuming user A chooses to provide liquidity in Mode Right and user C chooses to provide liquidity in Mode Both (with a 0.1% fee tier and a 1% interval width), then A and C will provide liquidity to the same sub-pool.
For traders, they do not need to pay too much attention to how many sub-pools there are, nor do they need to choose which sub-pool to trade on when they need to make an exchange. Because Maverick will make full use of the liquidity of all sub-pools in the trading pair to bring the best slippage to traders.
However, liquidity providers need to be mindful of the subpools they provide liquidity to, as this is a determining factor in their fee income.
According to Maverickâs working mechanism, when traders execute swap orders, the automated market maker will give priority to sub-pools with lower slippage or that bring the greatest benefits to them.
This means that for two sub-pools with the same total locked value (TVL) and providing the same deep liquidity in the same price range, Maverick will prefer to use the sub-pool with lower transaction fees.
If the liquidity of a subpool with lower transaction fees (more optimized for traders) is exhausted, the liquidity of the next subpool will be used.
Therefore, subpools with higher transaction fees will see less demand from traders. This may result in lower transaction fee revenue.
Enhance your position
When participating in liquidity mining on the Maverick Protocol, liquidity providers can participate in enhancing positions to increase profits.
Enhanced positions are specific liquidity pools, defined as sub-pools with specific mining strategies, and rewards provided to the pool by one or more individuals with the goal of increasing liquidity.
In the wallet above, you can see that two promoted positions#17and#18are both in a sub-pool with a fee of 0.03% and a price range of 0.1%. However, these two promoted positions are different in the strategy of providing liquidity, so they are two separate promoted positions.
Profits from promoted positions come from two sources: transaction fees and supply rewards.
Anyone can provide a reward in the form of various tokens for a specific boosted position. The person who "donates" the boosted position can choose the time (up to 30 days) when the reward will be distributed.
If liquidity providers wish to accept this âdonationâ, they will need to provide liquidity for specific promotion positions, which means that liquidity providers will no longer be free to choose liquidity strategies and parameters.
Risks of Liquidity Providing Strategies
As mentioned above, except for the static strategy, the goal of all 3 liquidity strategies is to make the liquidity provider's price range move in the direction of the asset price movement.
In the case of Mode Right, the strategy will achieve the highest profit when the token price rises in the long term. On the contrary, LP will achieve the highest profit when the price trend falls in the long term.
However, Maverick's Mode Left, Right, and Both strategies also carry the risk of permanent loss.
In the case of a temporary loss (temporary loss), when the asset price returns to the value when the LP participated in providing liquidity, the LP's loss will be zero (provided that the LP did not withdraw liquidity).
When the price of an asset fluctuates relative to the time when the LP participated in providing initial liquidity, and the LP decides to withdraw liquidity from the pool, the temporary loss will become a permanent loss. This means that the LP records a loss (realized loss).
Therefore, the occurrence of impermanent loss in Maverick's trading strategy essentially comes from the price range movement event. Because at this point, the temporary loss has been recorded (realized) and the LP's old position has been withdrawn to provide liquidity to the new position.
The risk of permanent loss is exacerbated when:
The strategy algorithm does not follow the token price fluctuations in a timely manner.
Changes occur too frequently.
Therefore, using the Mode Both strategy, although liquidity is utilized more efficiently, it also brings greater risk of impermanent loss to liquidity providers (LPs) (because positions change frequently).
A Twitter account backtested different strategies on Maverick, which readers can refer to here. Below is the backtest result of the WETH-USDC trading pair.
According to the situation, WETH price trend is up during this period, so Mode Left will be the least profitable strategy.
While Mode Both shows price range adjustments based on token price fluctuations, its profitability is worse than Mode Right as transaction fees cannot compensate for impermanent losses.
In addition, LPs do not need to pay gas fees when liquidity positions are transferred. This makes liquidity strategies on Maverick more cost-effective.
In short, when providing liquidity under these strategies, users also need to consider the above risks to optimize profits.
Token Economic Analysis of the Lone Ranger Protocol
MAV is the official token of the Maverick Protocol and has the following features:
Governance: Users can stake MAV tokens into the protocol and receive veMAV tokens in return for administrative rights in the project.
veMAV: veTokenomics inspired by Curve Finance, veM holders can participate in the voting rewards of each different pool on the AMM. From there, you can join the liquidity navigation of various tokens on the Lone Ranger Protocol.
Learn more: What is Curve Wars?
The project plans to deploy veMAV in two phases:
Phase 1: Deploy the veMAV smart contract, allowing users to lock MAV to obtain veMAV.
Phase 2: Implementing the voting function. In this phase, users can participate in voting based on their voting weight (measured by the amount of veMAV) to determine their share of the liquidity pool.
If Maverickâs token deployment strategy is successful, attracting trading demand and providing sufficient liquidity, the token economics will drive demand for veMAV ownership in major DAOs (just as Convex Finance did in the past).
However, currently Maverick does not charge transaction fees. Therefore, liquidity providers will recover all transaction fees on the platform.
Therefore, from a token economics perspective, this is a disadvantage for Maverick as there is no âorganicâ revenue stream for the project and veMAV holders.
Mavericks Protocol Flywheel Review
In terms of AMM, Maverick has designed a decentralized exchange with centralized liquidity features, providing users with the greatest degree of customization options and providing liquidity providers with different liquidity delivery strategies.
From there, the Lone Ranger aims to create the following positive feedback loop:
When the above features work effectively, Limited Partners (LPs) will be more motivated to provide liquidity on Maverick (because liquidity strategies are more profitable and cost-optimized).
Traders will experience less slippage on their trades, which will attract demand for trading. This will lead to increased trading volume on Maverick, more LPs earning fees, and again stimulating demand for liquidity.
When a project has significant trading demand, users, and liquidity, veTokenomics will effectively create demand for that projectâs MAV tokens.
Therefore, when projects list tokens on Maverick, there will be a higher demand for liquidity, thereby accumulating veMAV to gain more voting rights and increase returns for their token pools.
Users who participate in farm mining also have the need to navigate the source of income through the liquidity pools they participate in. Therefore, the demand for owning veMAV will also increase.
However, when the above positive cycle is not sufficient to cause the value of the MAV token to decline, the project will face the risk of a negative feedback loop, where LPs do not have much motivation to provide liquidity.
Overall, while Maverick is inspired by many products in the DeFi market, the project still stands out due to its high degree of customization and effective strategy for LPs.
Furthermore, with the introduction of the MAV token with veTokenomics, the project has the potential to grow several times from its current size if it can effectively leverage its strengths in communications and new ecosystems such as ZkSync.