LMSR (Hanson 2003): cost function C(q) = b·ln(Σ exp(qᵢ/b)). Price of outcome i: pᵢ = exp(qᵢ/b)/Σexp(qⱼ/b). Liquidity parameter b controls price sensitivity. Market maker always willing to buy/sell at LMSR price. Bounded loss: max loss = b·ln(n) where n=outcomes. Used in: Augur v1, Gnosis, Manifold Markets, Polymarket (AMM variant). Properties: proper scoring rule, myopic loss-minimization, subsidized liquidity. Limitations: creator must fund initial liquidity, bounded but non-zero loss....
- prediction-markets
- amm
- defi