# Introduction

[Liquidity Party](https://liquidity.party) is a new game-theoretic multi-asset AMM based on this paper:

[Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation](https://mason.gmu.edu/~rhanson/mktscore.pdf) (R. Hanson, 2002)

A Logarithmic Market Scoring Rule (LMSR) is a pricing formula for AMM's that know only their current asset inventories and no other information, naturally supporting multi-asset

Compared to Constant Product (CP) markets, LMSR offers:

1. Less slippage than CP for small and medium trade sizes
2. N-asset pools for trading long-tail pairs in a single hop
3. Lower fees (smaller spread)


## Deeper Liquidity

According to game theory, CP's slope at the current marginal price is too steep, overcharging takers with too much slippage at small and medium trade sizes. LMSR pools offer less slippage and cheaper liquidity for the small and medium trade sizes common for arbitrageurs and aggregators.


## Multi-asset

Naturally multi-asset, Liquidity Party altcoin pools provide direct, one-hop swaps on otherwise illiquid multi-hop pairs. Pools will quote any pair combination available in the pool:

| Assets | Pairs | Swap Gas |  Mint Gas |
|-------:|------:|---------:|----------:|
|      2 |     1 |  131,000 |   143,000 |
|     2* |     1 |  118,000 |   143,000 |
|     10 |    45 |  142,000 |   412,000 |
|     20 |   190 |  157,000 |   749,000 |
|     50 |  1225 |  199,000 | 1,760,000 |
|    100 |  4950 |  269,000 | 2,684,000 |

\* Stablecoin pair pool optimization

Liquidity Party aggregates scarce, low market cap assets into a single pool, providing one-hop liquidity for exotic pairs without fragmenting LP assets. CP pools would need 190x the LP assets to provide the same pairwise liquidity as a single 20-asset Liquidity Party pool, due to asset fragmentation.

## Lower Fees

Since market makers offer the option to take either side of the market, they must receive a subsidy or charge a fee (spread) to compensate for adverse selection (impermanent loss). By protecting LP's against common value-extraction scenarios, LMSR pools have a reduced risk premium resulting in lower fees for takers.

### Minimized Impermanent Loss

### No Intra-Pool Arbitrage

LMSR 
This leads to LP's of CP pools demanding higher fees than theoretically necessary. By minimizing impermanent loss for LP's, LMSR pools reduce the risk premium, providing lower fees and higher liquidity for takers.
