The Basics
This page explains the fundamental ideas behind liquidity provision in Maverick AMM.
LPs supply liquidity to a pool on Maverick for traders to swap against. In return, they receive trading fees charged to traders for each of their swaps.
Each pool consists of two tokens. In general, an LP supplies quantities of both tokens, although in some cases they may provide only one (sometimes called “single-sided liquidity”) and the actual ratio of the tokens depends on the distribution the LP selects (more on that below!).
An LP’s liquidity is distributed using a series of bins that correspond to different price ranges in a pool. Prices in a pool are a reflection of the ratio between the two tokens in that pool. The widths of the bins vary from pool to pool, and are set by the LP who initially deploys the pool. LPs add liquidity to particular bins in order to execute a particular liquidity strategy.
Example of liquidity distributed across bins, with each bin corresponding to a price range for the token pair. The price line shows that currently the central bin is active, which means this is the only bin where liquidity is collecting fees.
At any one time, only one bin in a pool is active. This means that swaps are actively occurring at that price point using the liquidity in that bin. As the ratio in the pool changes, the price will move to a new bin, making that the active bin. LPs only collect fees when they own liquidity in the currently active bin.
When a pool is first deployed on Maverick, the deploying LP chooses a fee tier in addition to bin width. The fee tier determines what percentage of the value of their swap a trader will be charged for swapping with the pool.
From an LP perspective, it is possible for multiple pools with different fee tiers and widths to be deployed for the same pair. Traders, however, do not choose between pools: they decide how much they want to swap, and the AMM intelligently routes their swap to the pool which will give them the best value at any given moment. Sometimes this means they will pay a higher fee in return for getting a better price. Ultimately, the market will decide what is the optimal fee tier and width for each token pair.
An LP collects fees based on their pro rata share of the current active bin. Any fees earned are auto-compounded back into the pool, and so the LP’s position in the pool grows proportionally. When an LP exits their position, they redeem their proportional share from the bins in which they are staked.
Positions are the foundation of Maverick’s uniquely flexible market making, which allows LPs to enjoy greater capital control and maximize their capital efficiency.
When a user deposits liquidity into a Maverick pool, they select from several options to open a specific position in that pool. Between the token pair, fee tier, bin width, liquidity mode, and liquidity distribution, each user’s position can be heavily parameterized and therefore very different from all other liquidity providers on Maverick. Even within the same pool, users might have their liquidity staked at different price points under different liquidity movement modes. All of these variables make up a user’s position in a pool, which is highly customizable and specific to them.
Last modified 4mo ago