Conversation with Maverick: Two years of hard work have brought not only DEX.Chat with Maverick: Two years of hard work resulted in more than just DEX.
By making centralized liquidity follow price movements, Maverick has reduced impermanent loss while increasing capital efficiency.
Written by: Babywhale, Foresight News
On June 13th, Binance announced that Maverick had become its 34th project on Launchpool. In a crowded DeFi market that includes established giants such as Uniswap and Curve, as well as up-and-coming challengers like Trade Joe, why has Maverick been able to attract investment? What makes its mechanism design special? To answer these questions, we interviewed founder Alvin and will present a three-dimensional DeFi basic infrastructure protocol, Maverick, to readers through this article.
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To better understand Maverick’s innovations, we first need to understand where DEXs based on AMM currently fall short.
From the author’s perspective, DEXs developed based on AMM still have room to improve in terms of increasing LP yield and capital utilization efficiency.
First, why emphasize LP yield rather than impermanent loss? Essentially, it’s because LPs, as counterparties to users and arbitrageurs, almost inevitably experience losses. In the case of Uniswap on Ethereum, for example, the vast majority of the 80% of arbitrage transactions that are profitable, combined with the fact that many users who use DEXs are not “leeks” who simply chase rising and falling prices indefinitely, make impermanent losses unavoidable. Trying to reduce impermanent losses may also be a low-cost proposition. Therefore, as a DEX, focusing more on how to increase LP yield may be the way to solve the problem.
Second, in terms of capital utilization efficiency, the liquidity on most DEXs is static, meaning it can only provide liquidity within a specific range. Uniswap v3 and Curve have both provided enhanced solutions for liquidity in a particular range, but if the price deviates from the zone with the highest liquidity, the efficiency of capital utilization is greatly reduced or even zeroed out. If you want to increase the utilization of limited funds, you need to increase the cost through manual adjustment and other means.
These may also be the reasons why established DEXs such as Uniswap are unable to monopolize new public chains and Layer 2 networks. For example, Velodrome, designed with reference to Solidly, has a TVL on Optimism that is nearly four times that of Uniswap, while QuickSwap on Polygon is also ahead of Uniswap. For Maverick, which has increased LP yield and capital efficiency through a special liquidity plan, the influx of more intelligent money in the future and the increase in market demand for DEXs provide it with the opportunity to come from behind.
Maverick’s Innovative Liquidity Mechanism
One of the most important things discussed in the conversation with Alvin was understanding the details of the liquidity mechanism. Maverick provides users with four ways to provide liquidity: Mode Right, Mode Left, Mode Both, and Mode Static. Mode Static is similar to Uniswap v3, supporting liquidity provision within a fixed price range, which doesn’t need further introduction.
The first three liquidity modes are the important moat for Maverick. The key feature is that liquidity is not locked into a specific price range, but instead is allowed to move with price changes to stay near the latest price. Mode Both also requires users to provide bilateral liquidity, but the liquidity will always stay near the latest price as it changes, making limited funds infinitely reusable. Although this method cannot avoid impermanent loss, compared to the inefficiency of Uniswap v2 liquidity and the inability of v3 to generate fees when the price deviates from the concentrated liquidity range, Maverick’s Mode Both mode achieves fee income surpassing Uniswap both in the simulation environment and the actual environment after launch.
Maverick introduced the concept of Bins for liquidity before Trade Joe, but Trade Joe’s Bin is still static liquidity, while Maverick’s Bin is more of a liquidity module that can move with price changes. However, to understand the mechanism of Mode Both, it is necessary to first explain the Mode Right and Mode Left modes.
Let’s use the ETH/USDC trading pair as an example to explain Mode Right.
Mode Right is a way to provide liquidity when the outlook is bullish. Users only need to provide unilateral USDC liquidity. Assuming that the price of Ethereum rises from 1900 USDC to 1950 USDC, the USDC liquidity added by the user will be moved to the left of the 1950 USDC price, providing “buyer liquidity.”
If the price of Ethereum continues to rise, Mode Right allows users to convert their provided USDC liquidity into ETH during the sideways or retracement process in the middle of the rise, gaining fee income while continuously buying ETH. Although some ETH will still be consumed during the process (when the provided liquidity changes from USDC to USDC and ETH, the trader’s buying behavior during the retracement will consume some Ethereum), overall, the profit is still considerable.
Mode Left is a way to provide liquidity for continuous bearish trends, offering one-sided ETH liquidity. Providing liquidity in this way can reduce ETH losses in a sustained market downturn and partially offset losses through continuous transaction fee income.
After understanding the two liquidity provision methods mentioned above, let’s return to Mode Both. Mode Both is actually the combination of the two liquidity modes mentioned above. When the market experiences a one-sided rise or fall, the one-sided liquidity method mentioned above is used to increase revenue or reduce losses. When sideways oscillations occur, normal bilateral liquidity is provided for the market.
Maverick’s liquidity mechanism makes originally static liquidity flexible, similar to a market maker or quantitative trading strategy in a centralized exchange, which can quickly place or cancel orders when the market changes. For traders, this mechanism allows limited liquidity funds to provide good depth at any price, without creating a temporary liquidity vacuum zone after large price fluctuations, reducing the slippage of both small and large transactions.
However, the “power” of this mechanism is not only reflected at the trader level.
As explained earlier, liquidity providers benefit greatly from this mechanism. Under the premise of equivalent trading volume, on-chain market makers can obtain higher yield rates through Maverick, and can also amplify profits during uptrends and reduce losses during downtrends.
On the other hand, Maverick gives project parties the ability to customize liquidity incentives and delay price anchoring.
Users can find trading pairs with additional incentives provided by the project party on the “Boosted Positions” page. Taking the wstETH/ETH trading pair as an example, stETH experienced a slight anchoring issue for a short period of time last year, which, although not severe, also caused panic in the market.
On Maverick, Lido can provide liquidity incentives for positions slightly below the current price, thereby providing support in the event of anchoring caused by subjective market factors and stabilizing prices in a timely manner to ease negative market sentiment. Specifically, assuming that the current price of wstETH/ETH is 1, Lido can set a certain liquidity incentive at the position of 0.99, and when the price falls abnormally, it can anchor the price at the position of 0.99, giving the market time to repair sentiment.
The same strategy can also be applied to stablecoins such as LUSD and FRAX. Since liquidity on Maverick can move automatically, both on-chain liquidity and temporary liquidity added during times of unanchoring can benefit. For the project team, liquidity incentives are clearly more cost-effective than spending more energy and capital to save the market during serious unanchoring.
Alvin, who used to be the product manager of MetaMask Swap, has long had the idea for Maverick. The most impressive thing he expressed to the author at the beginning was that Maverick is not a DEX, but a liquidity infrastructure.
Alvin said that when doing MetaMask Swap, he found that the liquidity infrastructure at that time was not user-friendly. Protocols like PERP that wanted to use AMM as the underlying derivative trading were severely limited. At that time, he was considering building a better underlying infrastructure to provide liquidity for similar derivative protocols.
Perhaps many people are skeptical about this. Why build for protocols with AMM-based liquidity infrastructure after existing derivative protocols such as dYdX, Kwenta, and GMX? Simply put, many current on-chain derivative protocols still rely on CEX data. The ultimate ideal of decentralization is for DEXs to dominate price fluctuations and serve as the underlying liquidity for some derivatives, with the opening and liquidation of derivatives protocols taking place through DEXs. This requires DEXs to not only have sufficient liquidity, but also to have sufficient liquidity for almost all prices to cope with derivatives actions, which are not currently available.
Alvin said that the Maverick team has multiple PhDs, but it still took more than a year to finally present the “complete” Maverick. As a product person, Alvin does not like to iterate after hastily launching a product, but rather hopes to spend enough time polishing a mature enough product so as not to waste energy on “mending”.
In addition to the protocol itself, the author also discussed many issues in the DeFi sector with Alvin, such as MEV, liquidity decentralization, and aggregators. Alvin also expressed his own thoughts on this: although MEV may have some front-running and sandwich attack behaviors, including arbitrage, MEV is indeed an important part of DeFi. As an underlying protocol, Maverick will not take the initiative to prevent MEV, but it also supports developers to develop products with MEV protection based on Maverick.
On the issue of liquidity dispersion, the author has always been pessimistic because as more and more DEXs emerge, the high short-term returns generated by liquidity mining will attract a lot of liquidity migration, leading to the dispersion of liquidity. However, Alvin expressed a relatively optimistic view: each liquidity infrastructure has its advantages and disadvantages, such as Uniswap and Curve, which have accumulated liquidity barriers through the first-mover advantage to become the main places for transaction execution, Maverick’s main battlefield is LST, CowSwap is more suitable for trading memes, and iZUMi also has its own characteristics. Each DEX plays to its strengths and, through an aggregator, aggregates these strengths to make up for weaknesses. Many times, this may be more effective than a single DEX.
Finally, the author would like to say that the launch of Uniswap v4 will undoubtedly have a certain impact on the emerging DEXs in the current market, but Maverick’s mechanism still has certain advantages in liquidity design convenience and other aspects. Whether these characteristics will nurture “new species” in the soil of Maverick, which is not a DEX but a liquidity infrastructure, and what kind of sparks can be rubbed between perpetual contracts, leveraged trading, lending, on-chain asset management, and hedge funds, are also worth looking forward to.
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