Maverick, The Smartest AMM With Breakthrough Automatic Liquidity Placement

Automatic Liquidity Placement (ALP) is just one of several groundbreaking features of the Maverick AMM. However, ALP makes Maverick AMM the smartest and most flexible in DeFi, giving liquidity providers (LPs) more options to manage their liquidity.

What is Maverick Protocol (MAV)?

Maverick Protocol is an AMM DEX protocol launched three months ago on the Ethereum & zkSync Era networks and has already recorded impressive projections for collecting a large number of transaction fees on the protocol.

Maverick AMM helps its users maximize capital efficiency by automating the concentration of liquidity as price moves. Higher capital efficiency leads to more liquid markets, which means better prices for traders and more fees for liquidity providers.

This built-in feature also helps LPs eliminate the high gas fees that come from adjusting positions around price. From there, optimize the user experience and minimize price risk using a rich source of liquidity. This helps users avoid price fluctuations and enjoy fair pricing. At the same time, liquidity providers will also enjoy more fees from this transaction.

LPs in the Maverick Protocol must make two important choices. First, select the price range that the user wants to provide liquidity for. Second, decide how your liquidity will move in response to price changes.

Correlation between capital efficiency and Concentrated Liquidity

Capital efficiency measures the volume that a given amount of capital generates for a given price movement. Fees collected by LPs are directly proportional to volume, so Capital Efficiency directly represents how much fees a given amount of TVL can generate. The higher the efficiency, the better.

The AMM space and related technology have evolved rapidly over the past few years. Uniswap was the first pioneer with their constant product (x * y = k) AMM. But constant product AMMs are capital inefficient in nature, because the capital of each LP is spread over all prices from 0 to infinity, leaving only a very small amount of liquidity available at current price.

As a result, even a small trade will change the price dramatically, causing slippage for the trader and causing the LP to collect very little in fees.

The AMM range has given LPs a new level of freedom to centralize their liquidity in whatever price range they choose. If their chosen range contains current prices, capital efficiency can be significantly higher than a constant product AMM. How much higher depends on how narrow the LP bet range is.

The problem to be solved is

Existing centralized liquidity AMMs (i.e. range AMMs) allow LPs to concentrate their liquidity within a defined range. As long as the gross price stays within that range, their capital efficiency remains high, meaning their capital is working, generating fees for them – such as more than they would otherwise earn. The product AMM remains unchanged.

Most AMMs use some variation of Uniswap V2’s constant product formula. This formula can be graphed as an invariant curve (so named because it is the curve produced by a procedure with constant or invariant product k).

While this is a practical tool for automatically detecting prices in smart contracts, it certainly also introduces slippage into the trading experience.

In the simplest terms, slippage is when the price a trader pays is different from the price they see in a group. This happens in a constant product AMM because the constant product formula must adjust the price of every upcoming transaction to keep k constant.

The problem occurs when the group price moves outside the range of the LP. Their capital efficiency drops to zero at this point, as none of their capital is put to work in the AMM. If LPs want to stay capital efficient, they have to assume the responsibility of moving their liquidity into a new range, which costs them time and gas fees. In fact, many LPs have difficulty keeping up with price movements, and a lot of liquidity is stagnant in the Range AMM.

Basically, to increase the effectiveness of the Range AMM, the LP needs to change the range continuously as the price moves. This requires effort, and technical expertise to write integration contracts and pay gas fees.

How does Maverick’s Automatic Liquidity Placement (ALP) solve it?

Automatic Liquidity Placement (ALP) secret weapon allows users to enjoy greater capital efficiency in AMMs powered by Maverick. Higher capital efficiency is better for everyone: it promotes better prices for traders and, therefore, more income from trading fees for LPs.

The Maverick ALP AMM solves all of these problems by naturally and dynamically centralizing liquidity within the pool, eliminating the need for LPs to reallocate their own liquidity constantly. In other words, Maverick automates liquidity concentration. As a result, traders benefit from less slippage, and LPs enjoy higher capital efficiency and less aggressive liquidity management costs.

This protocol provides LPs with “four flexible modes” for added liquidity:

• Right mode – liquidity moves with the price when the price rises, but does not move when the price falls.
• Left mode – liquidity moves with the price when the price falls, but does not move when the price rises.
• Both mode – liquidity moves with the price as the price rises and falls.
• Static mode – liquidity does not move.

ALP uses an innovative mechanism based on swap orders placed by traders, using those orders as signals on when to move the liquidity distribution. When traders swap and move prices, this is a reliable signal that the asset’s intrinsic value is also moving. In this case, the liquidity distribution will also move to support the new price range.

Accordingly, the Maverick ALP mechanism changes the liquidity in each pool as a function of the transaction input. By moving the distribution, the ALP ensures that there will always be a broad base of support around the desired price level, meaning lower slippage for traders.

This is equivalent to the AMM automatically moving part of the constant slope of the price curve so that it tracks the price set by the swaps. This is beneficial for both the LP and the trader since (as we saw with Uniswap V3) a constant slope indicates an area of low slippage.

What awaits ahead?

In the development trend of the crypto market, Maverick protocol is one of the breakthrough products when most of the current products are just forks from Uniswap.

With dynamics from this built-in Automatic Liquidity Placement (ALP) mechanism, Maverick offers traders and LPs better performance in both slippage and capital efficiency. AMM powered by ALP intelligently reallocates liquidity to ensure better price support without the need for LP to manage directly. This effectively eliminates the arbitrage role, in favor of automated group management that benefits the LP more directly.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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