Foreword

The benchmark to measure capital efficiency is to have less TVL and higher trading volume, which can provide lower slippage and better market depth in the trading experience. However, the core market-making algorithm determines the capital efficiency of DEX and its trading experience. As we all know, the liquidity of the constant product market-making curve is evenly distributed on the curve, which determines the low level of the capital efficiency of AMM. Before Uniswap v3 was launched, all liquidity miners’ AMMs are passive, under which they needed to deposit two tokens of equal value into the liquidity pool, aiming to offset impermanent losses by obtaining fee income. Currently, there is no need to manage the liquidity users provide.

Uniswap v3 modifies the AMM mode by introducing the concept of active market making, allowing LPs to pool assets based on a custom price range to increase customizable liquidity positions. Only when the price of the trading pair falls within the range that LP chooses to provide liquidity, can LP earn fee income. Once the price goes beyond the selected range, LP cannot get income. Moreover, the narrower the set price range, the higher the handling fees that users can obtain by concentrating liquidity, and, at the same time, the higher the risk of impermanent losses.

Currently, concentrated liquidity also dominates the trend of efficient market-making used by LPs. Apart from having set up its underlying spot trading market, Maverick Protocol is designed to provide efficient market-making strategies for LPs, which is, essential for the improvement based on Uniswap v3. This article will review the operating logic of the product’s core directional liquidity pooling, and analyze its token model and current development.

About the Maverick Protocol

The perpetual contract trading market is the original testnet launched by Maverick Protocol. The feature lies in the fact that it introduces the innovative AMM algorithm. It emerged as what it is now as a spot trading market with a peer-to-pool model after three updates. The product was officially launched on the Ethereum mainnet on March 23, and on ZkSync Era in April. On February 22, the agreement completed a strategic financing of $8 million led by Pantera Capital. The team is currently planning to launch the Ve token economics.

The protocol is revolutionary because it introduces a directional liquidity pooling, allowing LPs to change their liquidity when asset prices fluctuate based on the expected selection of asset prices to improve capital utilization while repooling liquidity to the active price range to earn fee income, thus compensating for impermanent losses.

How the Maverick Protocol Works

The whole protocol works so that LP sets the price range, provides liquidity to the directional liquidity pool, and chooses the direction in which the liquidity moves with the price. Then, the Maverick AMM smart contract transfers liquidity in this way for each transaction, thereby improving the capital efficiency and allowing LPs to obtain corresponding fee income.

Each pool has two types of assets. When LP provides liquidity to the fund pool, the liquidity will be unevenly distributed across different price ranges (the smallest unit is called a bin). The width of the price range is set by the LP who initially deployed the fund pool. It is suggested by the official document that the bin width of trading pairs with high volatility be set at 2%, and the bin width of stable trading pairs be set between 0.02% and 0.05%. Initial LPs have to set a fee rate when they start the pool. This fee-setting work is highly professional. If the fee is set too low, it would be impossible for the fee income to make up for the impermanent loss of LP; if the fee is set too high, it will decrease the trading flow of the fund pool. Therefore, the protocol offers several rate options for the initial LP.

At any time, only one price range of the fund pool is active, which indicates that the liquidity in this range can be used for trading, and LP can only collect fees within the currently active range. As the price ratio of the two assets in the pool varies, the price will move to a new range, forming a new active position. As shown in the figure below, the price line shows that the current range around the center is active, which is, currently, the only range in which LP can charge liquidity fees.

source: https://app.mav.xyz/pool

Directional Liquidity Pooling

The directional liquidity pool is the core feature of the product design added by Maverick AMM based on Uniswap v3. When LP adds liquidity, it needs to select the corresponding liquidity movement direction, which is the market-making method by analogy with the market makers in the traditional Orderbook mode. The platform offers four liquidity modes for LPs to select, including Mode Right, Mode Left, Mode Both, and Mode Static. They apply to specific asset price changes respectively.

Source: https://medium.com/maverick-protocol/maverick-amm-the-revolutionary-amm-that-enables-directional-lping-unlocking-greater-capital-34427f5ac22f

Mode Right suits users with bullish sentiment on the underlying assets. The range of liquidity added by LP will continue to move to the right as asset prices keep rising, and it will not move when asset prices go down. Since it offers arbitrage opportunities, traders will sell funds to the fund pool as long as the on-market price of the asset is inconsistent with the off-market price, and the price will move to the left range again, allowing LP to collect fees. At this time, the new funds in the range can be resold to new traders, creating more handling fee income for LP. However, suppose the price of the underlying asset moves to the left instead. In that case, the active price range of Maverick AMM will stay in place, potentially leading to the case that the underperforming asset on the right completely replaces LP’s position.

On the contrary, Mode Left suits users with bullish sentiment on the underlying assets. The range of liquidity added by LP will continue to move to the left as asset prices keep falling, and will not move when asset prices rise. The problem is that Mode Left also works when the price changes in one direction. If the price of the underlying asset starts to rise and moves to the right, LP may be completely converted into assets with poor performance on the left.

Mode Right and Mode Left are both designed to empower LPs to keep collecting handling fees even without suffering bidirectional impermanence losses. Due to market fluctuations and arbitrage opportunities, the price can still experience a decline even if the price of the trading pair is fine-tuned while moving in a clear direction. It will allow LPs to gain handling fees in the process of its moving left and right, thereby offsetting the impermanent losses. Whereas these two liquidity movement models cannot offer a guaranteed income to LPs and remove impermanent losses, they only provide LPs with active liquidity strategy tools.

Mode Both is a bidirectional movement mode under the LP’s liquidity range that will follow the changes in the asset price in the pool regardless of whether the price of the underlying asset is rising and moving to the right or falling and moving to the left. Mode Both allows LPs to add liquidity to the current active price range and the range to the left or right of the range. LP will repool liquidity to the other side if trading activities cause the price to move in one direction from the active range to a new active range. This mechanism is designed to make the liquidity of LP as close as possible to the current trading price, allowing LP to obtain as many fees as possible. However, compared to the unidirectional model, LPs under the bidirectional liquidity movement mode will bear the risk of two-way impermanence loss caused by price changes.

Mode Static is a static mode, which is the range market making of Uniswap v3.

The concentrated liquidity market-making method of Maverick AMM can improve capital efficiency, but at the same time, it brings three issues worth considering. First, the width of the active range will affect the frequency of LP’s repooled liquidity, leading to whether liquidity can be reallocated in time according to price changes. Secondly, when the liquidity moves back to the active range and offers fee income, the overall fee income will increase. Still, the fee income allocated to a single LP is relatively limited since most liquidity is repooled into the active zone. Finally, when the liquidity is reallocated, it costs LPs the corresponding Gas fee.

Token Model

MAV token is native to Maverick protocol, with a total supply of 2 billion pieces. It mainly serves as mortgage, voting, and promotion.

On June 13, Binance launched Maverick Protocol (MAV) - the 34th Launchpool project, allowing users to put BNB and TUSD into the MAV mining pool on the Launchpad website to get MAV rewards. The amount of IEO mining in this round totals 30 million MAVs, accounting for 1.5% of the general supply(data collected as of July 9). The initial circulation of MAV is 250 million pieces, accounting for 12.5% ​​of the total. The current IEO information is listed below:

Source: https://coinmarketcap.com/currencies/maverick-protocol/

The project also announced on June 13 that the vetoken economic model will come to use soon. At that time, users can obtain veMAV by staking MAV. It hasn’t revealed more detailed information on the token economy yet.

Warrior incentives

In March 2023, the project team launched the first phase of the Maverick Warrior Program, Genesis Season, a community incentive program. Each phase lasts for 30 days, and the reward for the 1st phase is 5,000 USDC.

In essence, the Warrior Incentive Program assigns work to qualified users, and users who completed tasks can get the corresponding rewards, aiming to motivate new and regular community members to test the DAO structure and run tests in the early community.

The Maverick Warrior Program is a point system based on the contribution value of the DAO proposal for community autonomy, allowing members to participate in implementing the proposal. There are five roles in the whole system:

1. All members who joined the Maverick Discord community: Anyone on Discord can review, discuss, and comment on proposals, and can apply to participate in the implementation of proposals as well.
2. Voters: Only community members holding Mava NFT or users verified as Maverick OG on Discord are eligible to be voters. Firstly, they can vote on Maverick’s proposal with a 3 to 5-day voting period; secondly, they can unlock the Maverick OG role on Discord to participate in the community discussion; finally, they can get one or more Maverick Warrior points to become a contributor on condition that Voters participate in implementing the proposal, and their work is verified as qualified and can be delivered. Voters cannot submit proposals.
3. Contributors: Contributors can submit proposals to the committee and participate in the proposal implementation process as executors.
4. Key contributors: They can submit proposals directly to the community without committee approval, and can also participate in the proposal implementation process as executors. There were no key contributors in the first phase.
5. Committee: At present, the committee is composed of only three Maverick team members, including Ada Wu, Matthew Taylor, and Freddy Lachance. These members can directly initiate proposals, review proposals submitted by contributors and key contributors, and veto any proposal or executor. They are also responsible for recording the credits of each community member and verifying the roles of contributors and key contributors in Discord.

These five roles discuss, plan, vote and execute community proposals, and can obtain the corresponding rewards.

Source：https://medium.com/maverick-protocol/announcing-maverick-warrior-program-genesis-season-f206ad17ab29

Liquidity Incentive Program

On May 2, the project team launched a liquidity incentive program, allowing token issuers to set a specific price range. In this range, issuers can provide more marketable liquidity incentives, keeping the prices of stablecoins and ETH liquid staking derivatives stable.

The incentive system allows the token issuer to set up a “boost position.” This means they can add additional rewards to the fund pool and give tokens as rewards to LPs. When creating the position, it is necessary to set the amount of distributed rewards and the distribution time. Therefore, LP can obtain both handling fee income and additional token rewards. LP can receive them at any time.

Source: https://app.mav.xyz/boosted-positions?chain=1

Recent Development

Having been deployed on Ethereum and ZkSync Era, Maverick has promoted multiple incentives one after another, which has attracted a lot of funds and users in the four months since its launch. The total TVL of the fund pool has continued to rise, with about $24 million. The total trading volume has exceeded $2 billion, and the total number of users has surpassed 28,000.

Source: https://dune.com/mati/maverick-protocol

Compared to protocols that directly build on well-known DEXs and focus on liquidity management, it is more difficult for Maverick Protocol to develop its own underlying trading market, because it lacks traffic portals and it is hard to build a brand. However, the project team has attracted some LPs via incentives. Meanwhile, early participants hold high sentiments for its airdrops. Coupled with support for Binance, a well-known institution, it is growing well. Whereas, the locked-up amount of the fund pool may experience a decline if it lacks incentives.

Source: https://dune.com/murathan/maverick

Conclusion

To some extent, Maverick AMM is a novel project. It introduces a directional liquidity pool and adds the feature that allows LPs to select the corresponding liquidity movement in the range of Uniswap v3 based on the expectation. Moreover, the smart contract will make the liquidity move in every transaction to pool the liquidity of LP to the active price range, allowing users to collect handling fee income. This method can improve capital efficiency and compensate for impermanent losses as much as possible. However, Maverick products have highly professional requirements for the initial LP which needs the width of the liquidity range, affecting the frequency of repooled liquidity. Besides, it would also cost LPs Gas fees during the process of liquidity movement.

All in all, deployed on Ethereum and ZkSync, Maverick Protocol has attracted a lot of funds and users through multiple incentive plans and the team’s MAC airdrops within four months of its launch. Coupled with the support of Binance, a well-known institution, the project’s locket-up amount in the fund pool and its trading volume are mushrooming, showing a sound development momentum.