A new contender is challenging Uniswap for decentralized exchange supremacy. Or so Maverick CTO Bob Baxley believes.
Maverick Protocol, along with Lido, Liquity and Galxe, today deployed a decentralized exchanging that uses smart-contract driven on-chain modular trading strategies designed to offer more capital efficiency and reduced gas fees for liquidity providers.
“In Maverick, we give the LPs a new degree of freedom, which is they pick not just a range, but a distribution,” Baxley told The Block, adding that LPs can deploy liquidity “in an automated way with price so that it stays in range more often and that increases the capital efficiency.”
Maverick will integrate with Lido and use the staking protocol’s wrapped liquid staking token, wstETH, as the predominant ETH-based quote asset, and LPs that choose to use wstETH instead of ETH receive extra APR, since wstETH accrues staking rewards, the company said.
An additional partnership with Galxe and Liquity, will see the Maverick platform host LPs from the both communities establish and support respective LUSD-wstETH and GAL-wstETH pools, according to Maverick.
Market action and capital allocation
In decentralized exchange networks, LPs facilitate trading with capital they allocate to various trading pairs of cryptocurrencies for which they collect fees.
“The challenge with that is when the price leaves the LPS range, their capital efficiency goes to zero,” Baxley said.
On existing automated market makers, liquidity providers depend on sideways market action to maximize capital efficiency, and manually tracking price changes to maintain the concentration of a liquidity pool introduces gas costs and a layer of complexity, according to Baxley.
However, markets don’t always go sideways. Maverick designed approaches that allow LPs to make a bet on price action as they collect fees with automated strategies that operate on-chain and are designed to ensure capital is deployed at the price where trading occurs, said Baxley.
One strategy works like a directional bet that Baxley called “mode right” and only moves liquidity allocations with increases in price. Any subsequent decreases in price don’t change liquidity allocations in this scenario. So if the price decreases or trades below the range for an extended time, another mode may need to be selected.
The same settings can be reversed if the market is contracting for a “mode left” directional bet.
A “mode both” strategy offers the highest possible capital efficiency by tracking price action in either direction and allocating capital accordingly but also comes with a higher risk of impermanent and permanent loss which can occur during extremely volatile conditions, said Baxley.
“If you really believe the price is going to go sideways and just sideways, mode both is your way to go,” said Baxley, noting that it “can be a good position for something like a very stable pair like USDC, USDT, or even an LSD pair where you expect the price to not have kind of drastic undulations left and right.”
Arbitrary capital distributions
Another Maverick strategy is similar to how liquidity functions in Uniswap V3, but differs in that it allows LPs to select arbitrary distributions within a certain range that does not move with price, said Baxley.
These arbitrary distributions allow LPs to direct their support and set price walls or price floors, or distribute capital to markets in ways that Baxley said are designed to reward early adopters.
For protocols interested in maintaining the dollar parity of a native stablecoin, such as Liquity, liquidity may be deployed on either side of the dollar peg to encourage trading where support is needed, Baxley said.
“So this is in contrast to something like a curve stable swap pool where the liquidity is always proportional to the price, and so if it’s off peg and you add more liquidity, you are just exacerbating the problem,” Baxley said, pointing out that the structure of curve stable swap pools can mean LP capital infusions attempting to right the situation can “create a bigger liquidity wall between peg and price.”
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