Explaining our Concentrated Liquidity Pool on Maverick
An overview of Maverick's dynamic liquidity distribution — and why it doesn't impact the collection of pearls!
Jun 13, 2023
Abishek Kannan, Swell Chief Liquidity Surgeon
A DeFi liquidity pool will consist of two assets (e.g. WETH and swETH). Users, called Liquidity Providers or LPs, add assets to the pool so traders can make swaps.
Concentrated liquidity works by LPs selecting a range over which to place their liquidity for swaps, instead of just spreading their assets across the whole pool. Basically, your bottom sell/buy price and your top sell/buy price.
The price in the pool will change as the balance between the two assets changes. Fo example, in a WETH-swETH pool, the price of swETH will be lower when there is more swETH in the pool.
When lots of swETH is bought, the price will move up the overall price range as the composition moves towards less swETH and more WETH being in the pool.
For our range of concentrated liquidity, we will see similar changes in the asset composition as price moves with buy/sell activity. If more and more swETH buys occur, the range will eventually be swapped entirely to WETH. This coincides with the pool price reaching the top of our price range.
Maverick is special in that it’s a dynamic range AMM, meaning it can adjust an LP’s range as price moves. In general, we can group these ranges into three categories:
Out of Range and Below Price Liquidity
In Range Liquidity
Out of Range and Above Price Liquidity
Specifically, Maverick relies on the TWAP(Time Weighted Average Price) of WETH-swETH in this pool to move ranges such that once the TWAP crosses into a bin that is two positions over from the current bin, it will move ranges.
So, once this TWAP crosses that border, the liquidity will shift over to the next price tick, set new price ranges and then facilitate swETH selling into the pool, which will rebalance the pool and incentivize arbitrageurs to bring the pool back into a more even ratio.
What about pearls?
For the collection of pearls in the Swell Voyage, we don't look at only your swETH in your LP position, but at the total value of your position.
This means it doesn't matter if your position is fully ETH or fully swETH, as you will earn pearls at the same rate regardless of the pool's composition.
All you have to do is LP into Maverick, ideally into the boosted position so you can get the extra incentives we are directing to the pool.