> For the complete documentation index, see [llms.txt](https://limelight-1.gitbook.io/limelight-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://limelight-1.gitbook.io/limelight-docs/the-basics/how-limelight-works.md).
# How Limelight Works
Limelight is a prediction market. You buy and sell shares whose value depends on the outcome of a future event. If you're right, your shares are worth about $1. If you're wrong, they're worth $0.
If you've used a trading platform before, the basics will feel familiar. The difference is that you're not trading tokens — you're trading on outcomes.
## Shares and Prices
Every market on Limelight asks a question about the future. Take a simple example:
> "Will Bitcoin exceed $100,000 by December 31, 2026?"
This market has two tradable shares: **YES** and **NO**.
* If Bitcoin exceeds $100K by the expiry date, YES shares resolve to \~$1.00 and NO shares resolve to $0.00.
* If it doesn't, NO shares resolve to \~$1.00 and YES shares resolve to $0.00.
Share prices reflect probability. If YES is trading at $0.35, the market collectively estimates roughly a **35% chance** the event happens. If you think that probability is too low, buying YES **backs your view** that you know something the market doesn't.
## The Math Is Simple
You buy 100 YES shares at $0.35 each. Your cost: **$35**.
* If YES wins: your shares are worth 100 × \~$1.00 = \~$100. Profit: \~$65.
* If NO wins: your shares are worth 100 × $0.00 = $0. Loss: $35.
That's it. Your maximum loss is always what you paid.
## Three Ways to Participate
**Featured Markets**\
Higher-profile, event-driven markets around elections, championships, policy announcements, and other time-specific events. Curated by the Limelight team to drive new-user acquisition through social sharing.\
Examples: election outcomes, World Cup match results, central-bank rate decisions, crypto governance votes.
**Creator-Led Markets**\
The core of Limelight. Any user can create a market on any well-defined, resolvable event and earn 0–2% of traded volume. For the first month after launch, **market creation is open to everyone** — after that it's gated to [Limelight Catalyst](/limelight-docs/for-creators/limelight-catalyst.md) badge holders. See [Creating a Market](/limelight-docs/for-creators/creating-a-market.md).
**Recurring Markets** *(coming soon)*\
Time-boxed prediction markets on observable variables — crypto prices, commodities, macro indicators — that reset on a fixed cadence. Because each instance shares an identical structure, participants build familiarity and return with minimal friction. Recurring Markets arrive in the next phase.
## How Prices Move
When more people buy YES, the YES price goes up. When more people buy NO, the NO price goes up. Prices adjust automatically — you don't need to find a counterparty.
Limelight uses a pricing engine called **LS-LMSR** (Liquidity-Sensitive Logarithmic Market Scoring Rule) that manages liquidity behind the scenes. What this means in practice:
* **You can always trade.** Every outcome in every market is tradeable from the moment it launches — no waiting for a counterparty.
* **One shared pool per market.** All outcomes share a single pool of collateral. Buying YES doesn't just move YES — every other outcome's price adjusts coherently in the same trade.
* **Liquidity grows with activity.** The more a market is traded, the deeper the pool becomes and the tighter the spreads get. Small markets stay tradeable; big markets get deeper automatically.
> Think of share prices as probabilities. YES at $0.65 means roughly a 65% chance. If you disagree, that's your edge.
### Advanced (Optional): LS-LMSR Mechanics
Limelight uses the Liquidity-Sensitive Logarithmic Market Scoring Rule (LS-LMSR). It's an adaptive bonding curve with several useful properties:
* **Cost function:** `C(q) = b · ln(Σ e^(q_i/b))`, where `q` is the vector of outstanding shares per outcome and `b` is the liquidity parameter.
* **Adaptive depth:** `b = α · Q`, where `Q` is the total depth of the market. Early on, `Q` is small and the curve is sensitive — small trades nudge prices noticeably. As volume builds, `Q` grows, `b` scales with it, and the pool deepens automatically. Spreads tighten and large trades glide through without blowing up the odds.
* **Unified pool:** All outcomes share a single collateral pool — there's no fragmentation between YES and NO (or between A/B/C/D in multi-outcome markets). Under the hood, LS-LMSR behaves like a softmax over outcomes, so the distribution stays mathematically consistent at all times.
* **Bounded loss:** The creator's seed liquidity caps the maximum loss the market maker can take. Traders can't drain more value than was provided.
**Why not a constant-product AMM?** A `x·y=k` AMM (like Uniswap v2) spreads capital evenly across price ranges and was designed for token swaps where both sides are continuously valued. LS-LMSR is purpose-built for outcome markets: collateral only needs to fund the winning side at resolution, so the math is more capital-efficient for fixed-outcome bets.
**Payouts can deviate slightly from $1.00 per share.** Because LS-LMSR keeps trade slippage inside the pool (rather than extracting it as a fee), deep and balanced markets can settle slightly above $1.00 per winning share at resolution. Thin or heavily lopsided markets can settle slightly below $1.00. Most middle-of-the-road markets land near $1.00. 100% of the pool's collateral is redistributed to winning shares at resolution — none of it is extracted by the protocol.
## How Markets Resolve
Every market moves through the same stages:
`Created → Pending → Active → Resolved → Dispute Period → Closed`
* **Resolved:** Once the observation window ends, an outcome is posted. **Price-based markets resolve automatically** against a [Pyth](file:///1333365/for-creators/resolution-sources.md) price feed read on-chain in the resolution transaction. **Event markets** (politics, sports, culture) resolve from the external sources defined in the market's rules.
* **Dispute Period:** A 24–48 hour challenge window opens. Any user can dispute the outcome by posting a bond. The Judge Team reviews and either approves the change or rejects the dispute.
* **Closed:** If no dispute succeeds, the outcome is final. Winners redeem \~$1.00/share, losers get $0.00. Unclaimed winnings remain available for 90 days.
> The dispute period is the one chance to correct a bad resolution. Once a market is **Closed**, the outcome can't be changed.
For the full lifecycle, dispute mechanics, and void resolution, see [Market Lifecycle & Disputes](/limelight-docs/knowledge-base/market-lifecycle-and-disputes.md).
## Multi-Outcome Markets
Not every question is YES/NO. Limelight also supports markets with multiple options.
Example: "Which AI company will have the highest market cap by end of 2026?" — Option A: Nvidia · B: Microsoft · C: Google · D: Other.
All options share a single LS-LMSR pool, so every trade updates the whole distribution coherently. Buy Option A, and A ticks up while B, C, and D all tick down in the same motion. Share prices across all options sum to approximately $1.00, and only the winning option pays out at resolution.
## You Don't Have to Wait
You can sell your shares at any time before the market closes, at the current market price. This lets you take profit early if prices have moved your way, cut losses if your view changes, or react to breaking news. You're never locked in.
## FAQ
Can I lose more than I put in?
No. Your maximum loss is the amount you paid for your shares. There are no margin calls or liquidations.
How fast do trades confirm?
Sub-second finality on Movement, with fees of a fraction of a cent per transaction.
What can I use to trade?
USDCx, the native USDC-backed stablecoin on Movement. Fund your balance from almost any chain with the in-app deposit (it converts to USDCx in seconds). See [Wallets & Networks](/limelight-docs/knowledge-base/wallets-and-networks.md) and [Supported Tokens & Collateral](/limelight-docs/knowledge-base/supported-tokens-and-collateral.md).
Who creates the markets?
Featured Markets are curated by the Limelight team. Creator-Led Markets are open to everyone for the first month, then to [Limelight Catalyst](/limelight-docs/for-creators/limelight-catalyst.md) badge holders.
What if a market's resolution is disputed?
Every resolved market enters a 24–48 hour dispute period. Any user can challenge the outcome by posting a dispute bond — the Judge Team reviews and may update the outcome. See [Market Lifecycle & Disputes](/limelight-docs/knowledge-base/market-lifecycle-and-disputes.md).
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