> For the complete documentation index, see [llms.txt](https://docs.fuyo.markets/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.fuyo.markets/markets/what-is-fuyos-lmsr.md).

# What is Fuyo's LMSR?

#### Fuyo**'s pricing engine is LMSR —** Logarithmic Market Scoring Rule

LMSR is not a new concept and used my countless protocols such as Augur and Gnosis.  Despite the intimidating name, the concept is straightforward.

#### The Bookshelf Analogy

Think of Fuyo'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 Fuyo 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 Fuyo 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.                                                                                                                |