Pricing a prediction market on-chain with LMSR, no order book

A new ERC draft binds each binary (YES/NO) market one-to-one to an ERC-721: question, odds, pool, and resolution all live on-chain and render into the tokenURI. The interesting part is the pricing.

Instead of matching buyers and sellers, it uses Hanson's Logarithmic Market Scoring Rule. A single liquidity parameter b sets depth; the cost to move the market is the difference of a cost function:

C(q) = b * ln(exp(q_yes/b) + exp(q_no/b))
price_yes = exp(q_yes/b) / (exp(q_yes/b) + exp(q_no/b))

Any trade size gets a deterministic price, so there is always liquidity and no counterparty needed. The hard part on-chain is the exp/ln math: fixed-point implementations (PRBMath, ABDK) are mandatory, and overflow in exp(q/b) is the real footgun — bound q/b or the cost function reverts.

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