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Decentralized finance (DeFi) as a niche has leveraged blockchain technology to bring diverse products into the cryptocurrency market. At the heart of DeFi is the automated market maker (AMM), which allows permissionless and immediate trading without traditional intermediaries.
Since the introduction of AMMs into DeFi, various projects have been developed to refine the concept and address the challenges of using such a model. However, DeFi still fundamentally lacks a project that provides increased capital efficiency, regardless of market conditions.
Maverick Protocol has created a revolutionary AMM ecosystem that fills this void with an infrastructure that lets DeFi enthusiasts gain the most value from their capital, irrespective of price movement.
Let’s learn more about Maverick’s next-level AMM structure.
Key Takeaways:
Maverick Protocol introduces a Dynamic Distribution AMM that allows liquidity providers (LPs) to stake their liquidity in specific pools, and define how that liquidity should move as the price fluctuates.
This dynamic approach improves capital efficiency by ensuring that LPs' capital remains active and generates fees, even when the price moves away from the specified range.
Unlike other AMMs, Maverick Protocol enables LPs to customize their liquidity distribution strategies through four different pool modes: Mode Right, Mode Left, Mode Both and Mode Static.
An automated market maker (AMM) is a smart contract designed to implement trades and negotiate prices without the need for a centralized order book. AMMs are the cornerstone of DeFi. They’re fully automated, and are always available to facilitate trades in decentralized exchanges (DEX).
In order to function, AMMs need asset deposits supplied by liquidity providers (LPs) who earn from users' transaction fees. These assets are deposited into AMM liquidity pools in the DEX, which then issue the liquidity provider with LP tokens to represent their share in the pools.
One of the earliest platforms to implement AMMs in the DeFi space was Uniswap, featuring a constant product AMM in their first version. From this algorithm, many other AMM variations, such as Balancer and Curve Finance, were born.
However, this model had challenges in terms of slippage and minimal capital efficiency. Uniswap V3 introduced an AMM to counter these challenges, which allowed LPs to concentrate liquidity by staking a range of prices. This updated AMM significantly improved capital efficiency, but also introduced an increased risk of impermanent loss for liquidity providers when the price moved out of range.
Despite the progression in AMMs, most are designed to provide value when the market moves sideways. As such, many liquidity providers stay away from DeFi, which thins the market and leads to poor pricing.
The Maverick Protocol is a DeFi platform designed to increase liquidity and improve capital efficiency in the DeFi space through its innovative Dynamic Distribution AMM, which enables liquidity providers to both stake a price range and define how that liquidity should move as the price fluctuates.
Maverick’s AMM is built on the concept of Directional LPing, which automates the way liquidity is concentrated by granting LPs more freedom to choose how their capital is utilized when there’s price movement.
By automating liquidity strategies through the Dynamic Distribution AMM, Maverick gives LPs better control over their capital — which boosts capital efficiency, resulting in more liquidity in the DeFi market. With enhanced liquidity in the market, traders benefit from better pricing, while LPs earn more from the fees generated.
Maverick launched its revolutionary AMM on the Ethereum blockchain on Mar 8, 2023, and quickly rose in DEX rankings in terms of trading volume. In its second phase, introduced a month later, Maverick brought DeFi its Boosted Positions liquidity incentivization product, which attracted liquidity staking platforms such as Lido and Rocket Pool.
Maverick will soon launch its utility token, MAV.
Based on remedying the various limitations in current AMMs, Maverick has developed an infrastructure to offer the most liquid markets to DeFi users. Uniswap V3’s concentrated liquidity AMM restricts LPs to the sideways movement of the market, which can expose them to impermanent loss, should the price move out of the specified range.
However, Maverick has introduced the Directional LPing concept, which allows LPs to move their liquidity in four modes, benefiting both traders and LPs. Concentrated liquidity AMMs such as Uniswap’s aren’t always capital-efficient, since an LP’s capital is only valuable if it remains within a given liquidity pool range. The LP’s capital becomes less effective once the token's price moves away from the designated range. To remain capital-efficient, LPs will have to move their liquidity to a new range, which can be time-consuming and also incurs gas fees.
Maverick offers a solution using automated smart contracts that reconcentrate liquidity, allowing the capital to generate fees by moving with the price. Since smart contracts automate the liquidity reconcentration, LPs don’t need to actively monitor their liquidity positions. All they need to do is select the mode, based on the price direction in which they believe the token will move.
Another benefit is that Maverick allows LPs to customize their LP distribution strategy, unlike other AMMs in which the AMM fixes a range for the LP. As such, Maverick’s fee-reward ratio better balances the risk of impermanent loss.
Key features on the Maverick Protocol include the following.
To increase capital efficiency, liquidity providers on Maverick can choose to stake their assets based on four pool modes, which ensures that their capital never stagnates.
These pools use a pricing mechanism known as time-weighted average price (TWAP) to regulate liquidity. The TWAP used in Maverick’s AMM is similar to that used in automated trading strategies, though their implementation and objectives differ slightly.
In the Maverick Protocol, TWAP tracks and manages liquidity within a pool by continuously registering the pool's price at the end of each asset swap. After the first swap, the TWAP is updated, and the contract checks to see if any liquidity needs to be moved. Shifting of liquidity in any of the four modes is done automatically by a smart contract, which means that the LP doesn’t incur any gas fees.
The four modes are as follows.
In this liquidity strategy, the LP’s capital shifts when the price of a token increases and moves to the right of a given price range. An LP activates this mode when they’re bullish on a token.
This mode is the reverse of Mode Right, and shifts liquidity when the price of an asset decreases.
Mode Both follows the direction in which the market moves by reconcentrating liquidity to a range near the price. Although Mode Both offers the potential for higher returns by maximizing fee capture, it also presents a greater risk of impermanent loss, since LPs are exposed to price movements in both directions.
By choosing this mode, an LP opts to use a strategy similar to Uniswap’s concentrated liquidity AMM. It’s the least capital-efficient of the four modes.
Maverick Protocol’s Boosted Positions offer liquidity providers the opportunity to earn additional rewards by staking their liquidity in specific pools. These positions provide greater control and flexibility for LPs.
Once an LP opens a Boosted Position, other LPs can add their liquidity to the pool, and the additional token rewards earned on top of trading fees are then shared among all contributing LPs. Such incentives are particularly attractive to projects looking to bootstrap liquidity and attract liquidity providers.
MAV is the utility token for Maverick Protocol. Its main uses are staking, boosting liquidity and giving holders voting rights. To participate in voting, users can stake their MAV tokens to receive veMAV, which act as the platform’s governance tokens.
Maverick has also announced an airdrop that will be used to reward those who participated in the growth of the platform’s ecosystem. Over 30 million MAV tokens have been allocated to the incentivization airdrop, which represents 1.5% of MAV’s total token supply.
There will also be a further airdrop, to incentivize those who stake their MAV tokens, so they can receive veMAV governance tokens.
Full tokenomics of MAV are still to be released.
The platform has also cautioned users from claiming the airdrop from scam websites with malicious token contracts. The details of the airdrop allocation are shown below.
Maverick’s innovative AMM model could provide a much-needed paradigm shift in liquidity provision. Its Dynamic Distribution AMM provides LPs with higher capital efficiency, while reducing the risk of impermanent loss by giving users better control over their capital.
Having quickly climbed the charts on Ethereum’s DEX rankings, Maverick Protocol is changing the AMM game by significantly improving liquidity in the market through better pricing mechanisms for traders and more fees for LPs. Indeed, the project will make an impact on how AMMs work in decentralized finance.
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