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

Original Title: Maverick Takes Aim at the DEX Landscape

Author: Jordan Yaekley, Delphi Digital

Compiled by: Peng SUN, Foresight News

Maverick offers directed liquidity provision, high capital efficiency, nearly zero slippage, and some QOL improvements for LPs. Next, this article will explore why Maverick is not just another DEX; it may pose a significant challenge to Uniswap v3's leading position.

Maverick AMM Design

Unlike most AMMs, Maverick 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 trading. Slippage only occurs when all liquidity in a bin is consumed, causing the Active bin to move up or down. Although Uniswap has very high capital efficiency, the existence of the constant product formula means that there will still be a small amount of slippage within the ticks.

Compared to ticks, the standardized nature of bins has the characteristic of being interchangeable LP positions, allowing 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. For a deeper understanding of the differences between the two, you can read "Trader Joe's Novel Take on Concentrated Liquidity."

Maverick's main features include 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.

The ALP-driven directed liquidity provision allows LPs to accept the positive-delta nature of liquidity provision. Previously, LPs had to bear market risks for two assets without a corresponding degree of upside potential. The Maverick model allows LPs to be bullish or bearish, enabling them to earn more if their predictions are correct. Additionally, this model minimizes impermanent loss. Furthermore, trading fees are automatically accounted for in LP positions, further enhancing returns. Maverick offers users four ways to provide liquidity: Mode Right, Mode Left, Mode Both, and Mode Static.

Mode Static

Mode Static is Maverick's "normal" mode, operating similarly to existing AMMs. Mode Static does not employ an automated liquidity transfer mechanism but provides users with significant freedom in how to deploy liquidity through three default options:

• Exponential: Liquidity is highly concentrated around the current pool price. Remaining liquidity is distributed in an exponentially decreasing manner across surrounding bins.
• Flat: Liquidity is evenly distributed across a series of bins centered around the current pool price. Similar to Uniswap v2.
• Single Bin: Liquidity is deployed only in the Active bin. Similar to Uniswap v3.

Of course, users can also choose not to select any of these three liquidity distributions and instead create any form of custom liquidity model using a single bin.

Mode Right

Mode Right is similar to a dynamic range order, moving with the price in the pool when the price rises.

Mode Right is suitable for LPs who are continuously bullish on the market. As the pool moves to the right, Mode Right keeps the bin of the quoted asset directly to the left of the price range, ready to capture profits when the price falls within the range.

When depositing funds into the USDC-ETH pool in Mode Right, users are advised to deposit to the left of the current Active bin to reduce impermanent loss. When the price falls, the user's LP position will convert into ETH.

Mode Left

Mode Left is similar to Mode Right but completely opposite. When bearish, Maverick continuously shifts liquidity to the right side of the current Active bin. If the prediction is correct, they can earn a lot with minimal impermanent loss.

LPs in Mode Left can directly hold a bin of the base asset on the right side of the price range as the pool moves to the left, ready to match orders when the price rebounds.

Mode Both

Mode Both allows LPs to add liquidity to the current Active bin or adjacent bins. When the price moves in either direction, Mode Both will re-concentrate liquidity back to the previous Active bin, following price increases and decreases.

For example, let's assume a user deposits unilateral USDC liquidity to the left of the current Active bin in the USDC-ETH pool. If the price of ETH rises, this position effectively acts like Mode Right, shifting liquidity to the left of the current Active bin, but the position remains entirely in USDC. If the price of ETH falls back into this range, the LP will re-concentrate to the right side of the Active bin, similar to Mode Left, and the position will be entirely in ETH.

Mode Both is essentially a very narrow Uniswap v3 range that continuously rebalances around the current price. Therefore, the risk of impermanent loss in Mode Both is much higher. Additionally, due to rebalancing in a continuously volatile price environment, LPs may suffer from permanent loss. In such cases, LPs may buy high and sell low, leading to immediate losses. In such situations, a wider bin can be used.

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

Bin size and lookback period are key variables influencing LP returns based on price trends. A longer lookback period will yield less responsiveness. Liquidity is less likely to move from short-term fluctuations but is more likely to lag behind strong trends.

Comparing Liquidity Distribution

In brief, bins are an alternative, standardized implementation of ticks that can vertically build liquidity. Ticks build liquidity horizontally, with higher precision but sacrificing flexibility. Uniswap v3 is known for its high capital efficiency for LPs within the range, but it is also known for some suboptimal liquidity distributions.

Maverick's ALP allows liquidity to be passively concentrated around the current price, and its liquidity distribution appears to be much more efficient than Uniswap's, with this change being more pronounced in non-major pools.

It is important to note that the above image only compares liquidity distribution, not the TVL within each tick/bin. Uniswap has significantly more liquidity than Maverick. For example, at the time of writing, there are only 206 USDC and 12.06 ETH in Maverick's current Active bin (indicating that ETH is about to fall into a lower bin).

Maverick Market Performance

Maverick's market strategy is quite unique. After launching on Ethereum, it did not launch on Arbitrum and Optimism but instead debuted on zkSync Era. zkSync Era launched in March, and the ecosystem is still immature, but trading volume is steadily increasing.

Maverick's fee growth has even outpaced its trading volume, especially on zkSync. This may be due to a higher proportion of trading volume on risk asset pools.

Currently, most users are only utilizing a few pools on Maverick, including stablecoins and wrapped assets. The vast majority of trading volume in risk asset pools comes from the USDC-ETH 4bp pool, which has taken some market share from Uniswap's 5bp pool.

At present, there is limited data on LP performance, but early signs indicate that keeping LP positions within a narrower range with ALP can yield high profits for risk pools. It is evident that there is upside potential for risk assets on Maverick, and the product-market fit should be achievable. Users may need time to learn how to fully leverage ALP, but Maverick certainly has the capability to surpass its current niche through this 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 can attract new users, as it is very popular among aggregators. Ideally, Maverick will gradually begin to bring in more direct traffic. Nevertheless, its popularity among aggregators has already set a solid baseline for its growth and demonstrated the reliability of its design.

In addition to aggregators, Maverick is also favored by large 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 partly due to gas fee costs, but the concentration of liquidity around the current price and the constant sum formula used in liquidity bins are very favorable for large trades.

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

Advantages

LSTs will be an important narrative to watch next year. They may become the primary trading pairs on AMMs and could become a major type of collateral for options and CDPs. It remains to be seen to what extent LSTs can replace native ETH as a Store of Value (SoV) in DeFi, but the battle for the LST market has already begun.

Due to the predictability of LST-ETH price movements, Mode Both is an 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 leaders in LST trading volume and is currently vying for the top position.

Although liquidity is an order of magnitude lower, Maverick's ability to challenge the leading position in LST trading volume is impressive. Liquidity that incentivizes specific strategies will make Maverick's LST even stronger. In the foreseeable future, Maverick has the potential to stand out in this area.

Competitive Landscape

Trader Joe

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

The main differences between Trader Joe and Maverick lie in their fee structures and methods of automated liquidity provision. Trader Joe has dynamic fees that help protect LPs from impermanent loss. Maverick's fee structure is more akin to Uniswap's, foregoing any potential spike fees that might deter traders. Instead, Maverick allows users to create pools with various fee tiers.

Trader Joe has its own automated liquidity placement feature, called "Auto Pools." Auto Pools appear different from Maverick. Maverick's ALP mechanism is passive and hard-coded into the smart contract. Trader Joe's mechanism is more active/self-directed and based on scripts, similar to a treasury. "The General" is Trader Joe's first automated pool, following a strategy of maximizing fee capture while maintaining market neutrality.

Uniswap

For most new DEXs, the biggest challenge is to capture market share from Uniswap. Maverick may be more capable of competing with Uniswap than most DEXs. In the past, DEXs that successfully defeated Uniswap (albeit for a short time) targeted market gaps: Curve—stablecoins; SushiSwap—liquidity mining; Bancor—impermanent loss protection for retail investors. Maverick excels in these areas and has already become a significant player in the LST space.

The additional flexibility offered by Maverick compared to Uniswap v3 represents a significant QOL improvement for LPs. Adding a 0.04% or 2% fee tier through Uniswap governance may 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 natively provided in the Maverick application.

The recently announced Uniswap v4 seems to significantly mitigate Uniswap's weaknesses. Dynamic fees, more customizable pools through hooks, and the potential for new LP strategies may threaten the value that Maverick provides.

Maverick's greatest potential advantage lies in how the ALP model directly embeds LP flexibility into the core user experience of the protocol. Maverick combines the simplicity and standardization of Uniswap v2 with the complexity and expressiveness of concentrated liquidity. Maverick allows more users to participate in market making.

Liquidity Mining DEXs

Setting aside Uniswap v4, Maverick's ability to facilitate efficient, passive, incentivized liquidity should at least make it an attractive alternative to 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 gained widespread attention. Recently, Maverick announced its governance token MAV, and the complete tokenomics have yet to be released, but it will adopt some form of veToken structure.

Conclusion

Maverick is at the forefront of AMM design with its automated/directed liquidity provision, liquidity shaping, and seamless incentives. Maverick has strong fundamentals and a solid position in promising narratives like LSTs. Maverick's early success on the Ethereum mainnet serves as an important proof of concept for this new design. The natural synergy between Maverick and LST-fi, along with the growth of activities on zkSync, can unlock its potential for sustained growth and broader adoption.