How it Works

A simple guide to understanding share-based prediction markets and the LMSR engine.

What is a Prediction Market?

A prediction market is a platform where you can trade shares based on the outcome of future events. The price of a share represents the collective probability the market assigns to that event occurring.

Information Discovery

Prices aggregate information from thousands of users, often outperforming expert polls.

Financial Incentives

Users are rewarded for having accurate information and penalized for being wrong.

Shares and Payouts

In our market, every outcome (like "YES" or "NO") is represented by a share. Each share pays out exactly **$1.00** if the outcome is correct and **$0.00** if it is incorrect.

Payout = (Shares Held) * ($1.00 if Correct)

If you buy a share at **$0.45**, you are essentially saying you believe there is a 45% or greater chance of the event happening. If you're right, you profit **$0.55** per share.

The LMSR Engine

To ensure there is always liquidity (the ability to buy or sell), Agora uses the **Logarithmic Market Scoring Rule (LMSR)**. This is a mathematical formula that adjusts prices based on total shares bought.

P_i = exp(q_i / b) / sum(exp(q_j / b))

Where b is the liquidity parameter. This ensures that the more people buy a specific side, the higher the price goes, correctly reflecting the increased demand.

Create Your Own

Unlike traditional platforms, Agora allows you to propose your own markets. If your event meets the criteria and starts occurring in real-time, it will go Live for everyone to trade.

Start Creating