Economics

Money In: Traders pay for shares
Money Out: Winners get paid

The Protocol: Manages the flow, takes a small fee

Creator deposits: $10,000 USDC
This becomes: The prize pool

Alice buys: $100 on range $96K-$97K (gets 400 shares)
Bob buys: $200 on range $97K-$98K (gets 500 shares)  
Charlie buys: $150 on range $95K-$96K (gets 800 shares)

Pool grows: $10,000 + $100 + $200 + $150 = $10,450

Result: BTC = $97,200 (Bob's range wins!)

Bob's 500 shares × $1 = $500 payout
Alice: $0 (wrong range)
Charlie: $0 (wrong range)

Bob's profit: $500 - $200 = $300 ✅

Pool started: $10,450
Bob claimed: $500
Pool remaining: $9,950

This stays in the system for:
- LP withdrawal
- Protocol fees
- Next market seeding

Losers paid: $250 (Alice + Charlie)
Winner received: $500 (Bob)
Gap of $250 from: Initial liquidity

Initial LP: $10,000
Total bets: $450 (Alice $100, Bob $200, Charlie $150)
Pool: $10,450

If winners claim $500:
Losers contribute: $250
LP contributes: $250
Winner receives: $500

Sum of all range probabilities = 100%
Sum of implied prices = slightly > $1 (spread)

This spread = market maker's edge = system stays solvent

Max possible payout = Total shares × $1/share
Pool balance = Initial liquidity + All bets - Payouts

LMSR ensures: Pool balance ≥ Max possible payout (always)

Max LP loss = 50% of initial liquidity

If creator deposits $10,000:
Worst case for LP: Lose $5,000
Best case for LP: Profit from fees and losers

All traders bet on Range C
Range C probability → very high
Range C odds → very low (close to 1x)

Result: Everyone wins... but wins very little
Pool still covers all payouts

Fee: 0.3% (30 basis points)

On a $100 bet:
Fee: $0.30
Net bet: $99.70

Total fees collected
├── Protocol treasury (30%)
├── Market creator (30%)  
└── Liquidity providers (40%)

Create market with $10,000 liquidity
Risk: Lose up to 50% ($5,000) in worst case
Return: Share of trading fees + any remaining liquidity

Market generates $50,000 in trading volume
Fees at 0.3%: $150
Creator share (30%): $45

Plus: Return of remaining liquidity at market close

You bet $100:
├── $99.70 goes to buy shares
└── $0.30 goes to fees

If you win:
You receive: Shares × $1/share = deterministic payout

If you lose:
Your $99.70 pays other winners

EV = (Your probability estimate × Payout) - Cost

Positive EV = Good bet
Negative EV = Bad bet

Example:
Market says: 25% (4x odds)
You think: 35%
EV = (0.35 × $400) - $100 = +$40 ✅

You bet $100
House edge: 5-10%
House always profits
Zero-sum for bettors

You bet $100 against other users
Platform takes ~2% fee
Winners take from losers
Platform always profits

You bet $100 against the market state
LMSR prices your bet fairly
If you have edge, you profit
Platform takes 0.3% fee
LPs take bounded risk for fee share