> For the complete documentation index, see [llms.txt](https://docs.0y.world/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.0y.world/markets/what-is-0ys-lmsr.md). # What is 0Y’s LMSR? #### 0Y’s pricing engine is LMSR — Logarithmic Market Scoring Rule LMSR is not a new concept and used by countless protocols such as Augur and Gnosis. Despite the intimidating name, the concept is straightforward. #### The Bookshelf Analogy Think of 0Y’s LMSR pricing engine as a smart bookshelf that holds two stacks of books — one stack for YES shares and one stack for NO shares. * When users buy YES, that stack grows and YES becomes more expensive. * When users buy NO, that stack grows and NO becomes more expensive. * The bookshelf always keeps both stacks in balance so it never collapses. * The platform knows in advance exactly how tall the stacks can get before it needs to stop. That maximum height is the treasury's liability cap — the most 0Y can ever lose on a single market. It is set before the market opens and cannot be exceeded. This is LMSR's core guarantee. #### Price Movement is Automatic and Honest Every trade automatically adjusts the price for the next trader. This happens through a mathematical formula, not a human decision. This means: * No one at 0Y manually adjusts odds. * No sharp trader can freeze the odds by trading slowly. * The more one-sided the trade, the more expensive it becomes to keep trading that way. * Prices self-correct naturally as new information flows in. #### A quick scenario on how LMSR pricing engine works You buy **$10 on YES** at 0.5 on a 5-minute crypto market. | What you do | What happens | | ------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | | **YES wins, you held to the end** | You collect your winnings minus only 10% fees on profit. The spread was paid once on entry and never again — barely noticeable. | | **YES is winning, you sell early at $0.75** | You lock a gain, but pay the 3% exit spread + the 10% fees on profit. Selling always costs more than holding. | | **YES loses, you held to the end** | You lose your $10 stake. No extra spread is charged at settlement — the fee never piles onto a wipeout. | | **Market gets voided** | Full $10 refund. | --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation by asking a question. Perform an HTTP GET request on the following URL with the `ask` and `goal` query parameters: ``` GET https://docs.0y.world/markets/what-is-0ys-lmsr.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is what the user is ultimately trying to achieve, the reason they need the answer. Sharing it helps GitBook give you a better, more relevant answer. A goal is most helpful when it describes the outcome the user wants rather than restating the question. For example, with `ask=how do I create an API token`, a goal like `automate deployments from our CI pipeline` lets GitBook tailor the answer to that use case. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.