TBA @okochipat - Twitter Profile

TBA

@Okochipat

3 days ago

@brucecd2 Where my 10$

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TBA

@Okochipat

3 days ago

@brucecd2 I believe you

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Bruce (pred arc)

@brucecd2

3 days ago

mbappe not winning the balondor is so controversial that's what an attention seeker would say, now i have your attention let's talk about how a market can put a price on arguments like this, in real time it's called LMSRs most prediction markets you use run on an order book but there's another way to run a market, and it's called LMSR which means logarithmic market scoring rule it was proposed by economist @robinhanson , and the idea is simple be ready for a lot of maths :) what if a market maker was always ready to trade, with a price that moves as people buy? with no waiting for someone to take the other side here is how it works: C = b × ln( e^(q_yes / b) + e^(q_no / b) ) ⤷C is the cost function, that's the market running total ⤷q is how many shares have been sold on each side ⤷b is a setting that decides how deep the prediction market is you don't pay a fixed price, you pay the difference in C before and after your trade let's use b = 100 and a market that starts at 50c ⤷ you buy 50 YES shares and pay $28, the price of YES then moves to 62% ⤷ you buy 50 more and pay $34, because the price is now higher, YES now moves to 73% your own buying pushes the price up and that's slippage now the part I like most, the market maker can never lose more than b × 0.693 why? the cap exists because of the maths the formula is built so the market maker's worst case loss is b × ln 2, no matter how much anyone buys with b = 100, the most it can lose is $69 the person who creates the market puts that in up front, and that's the whole risk so b is a trade off ⤷ buy 200 YES at 50c with b = 100 and you pay $143, and the price jumps to 88% ⤷ buy the same 200 with b = 1000 and you pay $105, and the price only moves to 55% a big b means a deep market, low slippage, but the creator risks more money a small b means a thin market, big price swings, but little risk for the creator so the next time you see a price jump on a small market, ask yourself how deep it is in LMSRs, the depth is just a letter "b" thanks for reading :)

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