Principle and user guide for Maverick on the Binance LaunchPool

Reprinted from Biteye Community

Author: Crush, Core Contributor of Biteye
Editor: Crush, Core Contributor of Biteye
Community: @BiteyeCN

*The full text is about 3500 words, with an estimated reading time of 8 minutes.

Advertisement - Please scroll down for the full content

Binance has recently been embroiled in controversies, and its dispute with the SEC caused its own BNB to plummet to 220 at one point. However, the sudden launch of a new mining round has once again shifted everyone's focus to this project named Maverick.

According to Binance's introduction, Maverick is a composable decentralized financial infrastructure that enables builders and liquidity providers to achieve high capital efficiency and execute the LP strategies they need.

Just by looking at this introduction, you may be confused and unclear about what this is about, so let's start with Uniswap v2 and understand what problems they have solved.

1. Gameplay of Uniswap v2

If a user provides liquidity in Uniswap v2, how does this liquidity flow?

Using ETH as an example, if you want to add liquidity in Uniswap v2 when ETH is at 2000U, preparing 4000U, where 2000U buys one ETH, and the remaining 2000U is added to the pool at a ratio of 1ETH:2000U.

For simplification purposes, let's assume that the pool only contains your liquidity.

At this point, when someone sells 0.5 ETH, it is equivalent to giving you 0.5 ETH for your liquidity, providing 1000U to this person at a price of 2000U per ETH.

After one transaction, the liquidity in the pool becomes 1.5 ETH:1000U.

Due to the person's sale, 1.5 ETH can only be exchanged for 1000U, meaning the ETH price has been pushed down to approximately 666.67U, while the previous price was 2000U.

LP (Liquidity Provider)

Since you added 1 ETH and 2000U to the pool, you are what we commonly refer to as an LP. Without your funds, the user above wouldn't be able to sell.

By providing the pool for others to sell, the corresponding benefit is earning transaction fees, typically ranging from 0.05% to 1%.

Impermanent Loss

Initially, you invested 4000U (1ETH+2000U). Later, when the ETH price was pushed down to 666U, your liquidity became 1.5ETH:1000U. Following the principle of equal value on both sides, at this point, your asset value is only 2000U, resulting in a loss of 2000U.

If you didn't provide liquidity and instead held 1 ETH and 2000U, even if ETH fell to 666U, your assets would still be worth 2666U, gaining an additional 666U due to impermanent loss.

Slippage

When you place a sell order and there isn't enough liquidity in the pool, the price at which you create the order and the final execution price may differ, resulting in a lower selling price due to insufficient liquidity, known as slippage.

Range

In Uniswap v2, once your liquidity is provided, it is spread across the entire price range. If ETH keeps rising, you must keep selling ETH, and if ETH keeps falling, you must keep buying ETH.

This leads to three disadvantages:

Low capital utilization efficiency, with most funds being idle

ETH prices do not skyrocket to infinity in a short period, nor do they crash to zero, usually hovering within a range, like 1800-2200.

By spreading all liquidity across the entire range while ETH trades only within 1800-2200, most funds are wasted on either side, becoming idle funds.

All price range pools are equally thick, leading to high slippage in extreme market conditions

As shown in the image, if the price only fluctuates between 1800-2200, in case of extreme market conditions, since all price range pools are equally thick, the price is likely to be pushed down significantly, while idle funds stand by without contributing.

Assuming idle funds are utilized, forming a green triangle part as shown in the image, concentrated liquidity support within the 1800-2200 price range would stabilize the ETH price, reduce slippage, and significantly enhance user experience.

Low LP fee income

This issue arises due to low capital utilization efficiency. Users provide liquidity to earn fees, but if most funds are not utilized, the fees earned by users are inevitably reduced.

2. Upgrade to Uniswap v3

After the upgrade to Uniswap v3, several issues mentioned above were quickly resolved. v3 introduced concentrated liquidity, allowing users to fix their liquidity within the 1800-2200 range. Once the price exceeds this range, the user's liquidity will no longer work. The benefits of concentrated liquidity include increased capital utilization efficiency and optimized slippage, which I believe you can now answer.

However, a new issue arises. If I am a user dedicated to mining on Uniswap v3, and I set a range of 1800-2200, where my liquidity works normally within this range and earns fees, what happens when the price goes beyond this range?

The common practice is to withdraw the liquidity, set a new range, e.g., 2200-2600, and then reintroduce the liquidity back into the pool. Only by doing so can the liquidity continue to earn money for me.

There are two problems here:

• Moving back and forth between price ranges is very time-consuming.
• Changing the range incurs fees, which can accumulate over time as a significant cost.

3. Innovations of Maveric

Finally, Maveric is here to solve the range movement issue mentioned above, turning manual operations into automatic operations. Moreover, the automatic range movement incurs no fees.

All you need to do is set a range size and fee, choose your preferred mode, and your range will move along with the price.

For example, when the price is at 1126, and your range is between 1000-1400.

When the price rises to 1866, Maveric will automatically adjust your range to the vicinity of the new price line. Once successfully in the new range, your liquidity will still be able to earn fees.

4. Maveric Practical Exercise

After understanding what they are doing in detail, the next steps are simple. Open Maverick's website, connect your wallet. Here, we use the ZkSync Era network, as it offers a chance to receive future ZkSync airdrops and lower fees compared to the mainnet.

https://mav.xyz/

In the top left corner of the website are "Swap," "Boosted Positions," and "Pools." The first "Swap" is for token exchanges, and "Pools" is where you can provide liquidity.

(1) Relationship between Fees and Ranges

You can directly search for keywords and join pools created by others or click "New" in the top right to customize a pool by adding liquidity for a pair of tokens. For example, providing liquidity for a token and ETH pair, creating a price for the token.

Here, you can directly join an existing pool. The top result shows a pool with the highest APR, with a fee of 0.1% and a range size of 2%.

If you wish to modify this information, you can click into the pool and select "Edit" for customization. However, consider the following:

1. The higher the fee, the fewer transactions may occur. Traders prefer lower fees, so they may choose pools with lower fees.

2. If the range is set too wide, some liquidity may remain idle, unable to earn fees, depending on the volatility of the token pair and the accuracy of the range setting.

Thus, the smaller the range set, the higher the fee usually earned. But some may ask, what if I set a large range and charge a high fee, what can you do?

The result is evident; the APR of the pool will decrease significantly. For example, the highest APR in the image reaches 281.88%, while the lowest is even less than 1%, showing a severe disparity.

From this, we can see that to maximize earnings when providing liquidity, one must research how to set a reasonable price range and fee.

(2) Four Range Adjustment Modes

Continuing from the previous steps, after confirming the range and fee, click "Next" to select the range adjustment mode.

Here, four range adjustment modes are provided for users to choose from:

1. Mode Static—The price range remains fixed, but the distribution within the range can be adjusted.
2. Mode Right—The range moves with token price increases.
3. Mode Left—The range moves with token price decreases.
4. Mode Both—The range moves with token price changes, regardless of direction.

As discussed earlier, Uniswap v2's capital utilization efficiency is lacking, with users bearing impermanent loss risks and earning minimal fees. Uniswap v3 updated with the range setting function, improving capital utilization efficiency and user fee income, but the range is fixed and requires manual adjustment.

With Maveric, the range moves with the price, further increasing fee income and capital utilization. In Mode Right and Mode Left, as only one side of the range moves, the impermanent loss in one-sided market conditions is optimized compared to Uniswap v3, but the impermanent loss in Mode Both still carries significant uncertainty.

From this optimization process, we can see:

1. While users earn more fees, returns are still accompanied by risks.
2. From the mode selection, it's clear that tools can only provide convenience; ultimately, profitability depends on personal judgment.

When choosing Mode Static, although the range remains fixed, the distribution within the range varies.

The first type is an exponential distribution, dividing liquidity funds into 11 price ranges. The closer to the price line, the more liquidity funds are allocated, allowing your funds to be effectively utilized in a short time. However, if the price moves far from your main position, such as when the price line moves to the sides, your fee earnings decrease.

The second type is an equal distribution, where liquidity funds are equally distributed among the 11 ranges. The benefit is that as long as you're within the range, fees will not decrease.

However, if the price mostly stays in the middle, and your primary funds are not in the middle, the funds on both sides are wasted.

The third type is single-range distribution, more aggressive than the first, placing all funds directly into the middle range. All funds are effectively utilized, allowing for maximum fee earnings. However, if the price line exits the range, you won't earn any fees. With only one range, it's easy for the price line to move out of the range.

When selecting Mode Right, as shown in the image, your liquidity range will be to the left of the price line, where the price never enters the range. You only need to provide USDC and wait for the price to fall back into your range to buy other users' ETH and earn fees.

If the ETH price continues to rise, moving the price line to the right, your USDC liquidity will shift one range to the right, continuing to use USDC to buy ETH from users selling until the price rises back into the range. However, if the price continues to fall, the range will not move left because you chose Mode Right. The same principle applies to Mode Left.

Mode Both requires adding both tokens since the price line will fall within your liquidity range and the range will move with price changes, regardless of the direction.

(3) Liquidity Incentives

On Maveric's homepage, there is a "Boosted Positions" option, showing pools with additional rewards. For example, one pool here has an extra 1.95% APR, mainly to attract users to provide liquidity to this pool.

In the "Engage" section at the top right, there is a "Liquidity Shaping" button. Be careful not to click it randomly; it's not for providing liquidity but for donating funds to boost liquidity incentives in a pool.

If you deposit money in Liquidity Shaping, it won't help you earn fees but will directly become an additional APR reward in a pool. When others provide liquidity to this pool, the additional reward goes to them.

In previous versions, Liquidity Shaping was placed directly behind the pool, causing confusion among users who mistook it for providing liquidity. Once funds were deposited, they became rewards for others. This was a bit misleading, but now that it has been changed, it's better.

According to the MOD in the community, this feature seems to be intended for project teams to increase rewards in a specific pool to attract users to provide liquidity. However, from the actual effect, it might not be as innovative as the automatic price range adjustment mentioned above.