AMM Liquidity for New Markets

bitCaster is built around a central limit order book (CLOB): traders and market makers place real bids and asks, and matching happens against that book. That is the long-term shape we want, because active human market makers can compete on spread, size, and judgement.

New markets have a cold-start problem. If the book is empty, early traders have no counterparty; if there are no traders, human market makers have little reason to watch the market yet. To bridge that gap, a market creator can fund an automated market maker (AMM) after creating the market.

What the AMM Does

The AMM uses the creator’s non-refundable funding budget to post initial bid and ask orders on the CLOB. It is not a separate pool that replaces the order book. It is a bot that provides first liquidity so early users can trade and discover a price.

For creators, this matters because it makes a newly-created market look alive from the first visit. A funded market is more likely to receive early trading interest than a completely empty book. The tradeoff is that the funding budget is risk capital: it can be spent paying informed traders, and it is not a withdrawable balance or LP share.

AMM liquidity is meant to bootstrap trading, not dominate the market forever. In a healthy mature market, human and professional market makers should gradually replace the initial AMM quotes with tighter, more informed liquidity.

Why LMSR

bitCaster currently uses an LMSR (Logarithmic Market Scoring Rule) AMM strategy. We chose LMSR for v1 because it gives a clear budget-based loss bound, works well for prediction-market probabilities, and can be sampled into ordinary CLOB limit orders.

That matters for creators: the budget they choose controls how much initial liquidity they provide and how much capital they put at risk. Larger budgets can quote deeper markets; smaller budgets create thinner quotes that move more easily.

LMSR is not intended to be the only possible AMM forever. bitCaster may add other market-making strategies later, especially if they serve different market types, creator preferences, or professional liquidity workflows better.

Funding Choices

After creating a market, the creator can choose No liquidity, a preset funding tier, or a custom budget. Choosing No liquidity leaves the market open for human orders, but bitCaster will not post automated starting quotes.

Funded sat markets use sats. Funded USD markets use US cents backed by the market mint’s USD ecash. Other units may be added later.

The funding deposit is committed to market-making for that market. It does not create a creator withdrawal claim, residual claim, or profit-share claim.

For the human and professional market-maker trading model, see Trading Model & Human Market Makers.