The principles and usage tutorial of Maverick on Binance LaunchPool

Author: Crush, Biteye Core Contributor

Recently, Binance has been entangled in various issues, and its dispute with the SEC caused its BNB to plummet to 220. However, the sudden launch of a new mining phase has shifted everyone's attention back to a project called Maverick.

According to Binance's introduction, Maverick is a composable decentralized finance infrastructure that allows builders and liquidity providers to achieve high capital efficiency and execute their desired liquidity provision (LP) strategies.

Just looking at this one-sentence introduction, you might be confused and unsure of what it does. So let's start with Uniswap v2 to understand what problems they solved.

### 1. The Mechanics of Uniswap v2

If a user adds liquidity in Uniswap v2, how does that liquidity flow?

Taking ETH as an example, if you want to add liquidity at ETH 2000U, you prepare 4000U, buying one ETH with 2000U, and adding the remaining 2000U to the pool at a ratio of 1ETH:2000U.

To simplify the model, let's assume that your liquidity is the only liquidity in the pool.

At this point, if someone sells 0.5 ETH, it is equivalent to giving 0.5 ETH to your liquidity. At a price of one ETH valued at 2000U, your liquidity provides 1000U to that person.

After one transaction, the liquidity in the pool becomes 1.5 ETH:1000U.

Due to that person's sale, 1.5 ETH can only be exchanged for 1000U, meaning the price of ETH has been driven down to 1000/1.5≈666.67 U, while the previous price was 2000U.

LP (Liquidity Provider)

Since you added 1 ETH and 2000U to the pool, you are what we commonly refer to as an LP. Without your funds, the user above would not be able to crash the market.

Since you provided the pool for others to crash the market, the corresponding benefit is that you can earn trading fees, typically ranging from 0.05% to 1%.

Impermanent Loss

You initially invested 4000U (1ETH + 2000U), and later the price of ETH was driven down to 666U. Your liquidity became 1.5ETH:1000U, and according to the principle of equal value on both sides, your asset value is now only 2000U, resulting in a loss of 2000 U.

If you did not provide liquidity and just held 1ETH and 2000U, even though ETH dropped to 666U, your assets would still be worth 2666U, with the loss of 666U being the impermanent loss.

Slippage

When you place an order to sell and the liquidity in the pool is insufficient, the price at which you create the order may differ from the final transaction price, meaning the price at which you sell is lower. This is due to the slippage problem caused by insufficient liquidity.

Range

In the Uniswap v2 version, once your liquidity is added, it is spread across the entire price range. If ETH keeps rising, you will have to keep selling ETH; if ETH keeps falling, you will have to keep buying ETH.

This brings about three disadvantages:

1. Low capital utilization efficiency, with most funds being idle

The price of ETH will not skyrocket to infinity in a short time, nor will it plummet to zero; it usually hovers within a range, such as 1800-2200.

By spreading all liquidity across the entire range, while ETH is only traded between 1800-2200, most of the funds on either side become wasted and idle.

2. All price range pools have the same thickness, leading to high slippage in extreme market conditions

As seen in the above image, if the price only hovers between 1800-2200, in the event of an extreme market condition, since all price range pools are equally thick, the price is likely to be driven down significantly, while idle funds stand by and do not play any role.

If idle funds were utilized to form a green triangular area in the image above, concentrating a lot of liquidity in the 1800-2200 price range, then the price of ETH would not fluctuate excessively, and slippage would be minimal, greatly enhancing user experience.

3. Low LP fee income

This point also arises from low capital utilization efficiency. Users deposit liquidity to earn trading fees, but if most of the funds are not utilized, the fees earned by users will certainly be reduced.

### 2. Upgrades in Uniswap v3

After the upgrade to Uniswap v3, it quickly addressed the above issues. v3 introduced concentrated liquidity, allowing users to fix their liquidity within a range of 1800-2200. Once the price exceeds this range, the user's liquidity will no longer work, and the benefits of concentrated liquidity include increased capital utilization and optimized slippage, which you can probably answer by now.

However, another problem arises: if I am a user who specifically mines on Uniswap v3, and I set a range of 1800-2200, where liquidity works normally and helps me earn fees, what happens if the price exceeds this range?

A common operation is to withdraw liquidity first, then set a new range, such as 2200-2600, and finally reintroduce the liquidity into the pool. Only in this way can liquidity continue to earn money for me.

This creates two problems:

1. Constantly moving the price range is very labor-intensive for individuals.

2. The fees incurred from changing ranges accumulate over time, resulting in a significant expense.

### 3. Innovations of Maverick

Finally, we come to Maverick. Yes, they solve the above problem of moving ranges by turning what was originally a manual operation into an automatic one, and this automatic range movement incurs no fees.

You only need to set a price range size, then set a fee, and choose a preferred mode, and your price range will move along with the price.

For example, when the price is initially at 1126, your range is between 1000-1400.

When the price rises to 1866, Maverick will automatically adjust your range to be near the new price line. After successfully entering the new range, your liquidity can still earn fees.

### 4. Practical Operation of Maverick

After a lengthy explanation of what they are doing, the next steps are simple. Open Maverick's official website, connect your wallet, and here we use the ZkSync Era network, partly to have a chance to receive future airdrops from ZkSync, and partly because its fees are lower compared to the mainnet.

In the upper left corner of the official website are "Swap," "Boosted Positions," and "Pools." The first "Swap" is for normal token exchanges, while the latter "Pools" is where you add liquidity.

(1) The Relationship Between Fees and Ranges

You can directly search for keywords to join pools that others have already created, or you can create a new pool in the upper right corner, adding a pair of tokens you want to provide liquidity for, such as pairing a meme coin with ETH to create a price for the meme coin.

Here, we will directly join someone else's pool. The first search result is a pool with the highest APR, and you can see that the fee for this pool is 0.1%, with a price range size of 2%.

If you want to change this information, you can click into the pool and select "Edit" for customization, but be aware of the following two points:

1. The higher the fee, the fewer transactions may occur. After all, traders are not foolish and will prioritize choosing liquidity with lower fees.

2. If the range is set too wide, some liquidity may become idle and unable to earn fees, which ultimately depends on the volatility of the token pair and the accuracy of the range setting.

Based on the above two points, we can conclude that the smaller the price range is set, the higher the fees can typically be earned. However, someone might ask, "What if I set a wide range and still earn high fees?"

The result is evident: the APR of this pool will drop significantly. For example, the highest APR in the above image reached 281.88%, while the lowest was even below 1%, showing a severe wealth gap.

Thus, we can see that to earn the most money while providing liquidity, one must study how to set a reasonable price range and fee.

(2) Four Modes of Range Movement

Continuing with the above operation, once you confirm that the range and fee are correct, click "Next" to enter the selection of range movement modes.

Here, four movement modes are provided for users to choose from:

1. Mode Static------The price range is fixed and does not change, but the distribution of the range can be adjusted.

2. Mode Right------The range only moves with the price when the token price rises.

3. Mode Left------The range only moves with the price when the token price falls.

4. Mode Both------The range moves with the price regardless of whether the token price rises or falls.

As mentioned earlier, the capital utilization in Uniswap v2 did not improve, and users bore the risk of impermanent loss while not earning much in fees.

Then, Uniswap v3 updated the range setting function, improving capital utilization and increasing user fee income, but the range is fixed and requires manual adjustment.

Now, with Maverick, the range follows price movements, further increasing fee income and capital utilization. Additionally, in Mode Right and Mode Left, since only one side of the range moves, users only bear unilateral losses. Compared to Uniswap v3, the impermanent loss in unilateral market conditions has been optimized, but the impermanent loss in Mode Both still carries significant uncertainty.

From this optimization process, we can observe:

1. Although users earn more in fees, the earnings still come with risks.

2. From the choice of modes, it is clear that tools can only provide convenience; ultimately, whether one makes money still relies on their judgment.

When you choose Mode Static, although the range is fixed, the distribution of the range varies.

The first type is exponential distribution, dividing liquidity funds into 11 price ranges. The closer to the price line, the more liquidity funds are allocated, allowing your funds to be effectively utilized in a short time. However, if the price moves far from your concentrated position, such as the price line moving to either side, your fee earnings will decrease.

The second type is uniform distribution, where liquidity funds are equally allocated across the 11 ranges. The benefit is that as long as you are within the range, you will not miss out on fees regardless of where you are.

However, if the price line mostly hovers in the middle, and you do not place the majority of your funds in the middle section, then the funds on either side become wasted.

The third type is single-range distribution, which is more aggressive than the first type, directly putting all funds into the middle range, allowing all funds to be effectively utilized while also earning the most fees.

However, if the price moves outside the range, you will not earn any fees. Since there is only one range, it is easy for the price line to jump out of the range.

When you choose Mode Right, as shown in the image, your liquidity range will be to the left of the price line, with the price not entering the range at all. You only need to provide USDC and wait for the price to fall back into your range to take over someone else's ETH and earn fees.

If the price of ETH continues to rise, meaning the price line moves to the right, your USDC as liquidity will shift one range to the right, continuing to use USDC to take over ETH sold by others. When the price rebounds in the new range, you can sell ETH for USDC and earn fees.

However, if the price continues to fall, the range will not move to the left anymore because you chose Mode Right, where the range only moves when the token price rises. The same logic applies to Mode Left.

Mode Both requires adding both tokens because the price line will be positioned in the middle of your liquidity range, and the range will move left and right with the price, regardless of whether the price rises or falls.

(3) Liquidity Incentives

Maverick's homepage also has an option called "Boosted Positions." Clicking on it reveals which pools have additional rewards. For example, one pool here offers an extra 1.95% APR, mainly to attract users to add liquidity to this pool.

In the top right corner under Engage, there is a "Liquidity Shaping" button. Do not click this randomly; it does not provide liquidity but rather donates money to fund liquidity incentives for the pool.

If you deposit money in Liquidity Shaping, this money will not help you earn fees; it will directly become an additional APR reward for a certain pool, which will be given as extra rewards to others when they provide liquidity to that pool.

In the previous webpage, Liquidity Shaping was directly placed behind the pool, and many users did not notice it, mistaking it for a place to provide liquidity. Once the money was deposited, it became someone else's reward, which was quite misleading. Now that it has been changed, it is somewhat better.

According to the community MOD's statement, this feature seems to be used by project parties to increase the rewards of a certain pool to attract users to provide liquidity for that pool. However, in terms of actual effectiveness, it may not be as innovative as the automatic price range changes mentioned above.