Rikiddo Scoring Rule

The Rikiddo scoring rule is a specialized automated market maker (AMM) mechanism for prediction markets, designed to improve on classic models like LMSR by making pricing:

• more capital efficient
• more adaptive to liquidity
• more stable under large trades

It’s most closely associated with Gnosis / GnosisDAO research.

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First: What is a “scoring rule” market maker?

A scoring rule is a mathematical function that:

rewards traders based on how accurate their probability estimates are.

In markets, this becomes:

• You “move” probabilities
• You pay a cost to do so
• If you’re right → profit

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Canonical baseline: LMSR

The classic model is the Logarithmic Market Scoring Rule (LMSR):

C(q) = b * log( sum_i exp(q_i / b) )

Where:

• q_i = shares for outcome i
• b = liquidity parameter

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Problem with LMSR

• Fixed liquidity parameter b
• Either:
  • too expensive → no trading
  • too cheap → market maker risk explodes

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Enter Rikiddo

Rikiddo is a dynamic scoring rule that:

adapts liquidity based on market conditions (volume, uncertainty, participation)

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Core idea

Instead of fixed b, Rikiddo:

• adjusts pricing sensitivity dynamically
• reacts to:
  • trading volume
  • market entropy
  • participation levels

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Intuition

• Early market (low liquidity) → gentle price movement
• Active market → tighter spreads, more confidence
• Large trades → controlled slippage

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Conceptual model

Traditional LMSR:

• fixed curvature

Rikiddo:

• adaptive curvature (breathes with the market)

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What it improves

1. Capital efficiency

• Requires less locked capital than LMSR

2. Price stability

• Avoids extreme swings from small liquidity

3. Better early-stage markets

• Bootstrap liquidity without huge subsidies

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Comparison

Feature	LMSR	Rikiddo
Liquidity parameter	Fixed	Dynamic
Capital efficiency	Low	Higher
Early market behavior	Fragile	Stable
Adaptivity	None	High
Complexity	Simple	More complex

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Deep insight

Rikiddo is essentially:

A feedback-controlled AMM

Where:

• the pricing function adapts based on system state

This is very different from:

• AMMs → static curves
• vAMMs → static formula + funding

Rikiddo introduces:

• control theory into market design

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Connection to systems thinking

1. Like a dynamic aggregation structure

• LMSR = static
• Rikiddo = adaptive weighting over time

2. Like a liquidity system with feedback

• liquidity becomes a function of participation

3. Similar to sketches

• not exact
• optimized for:
  • responsiveness
  • bounded risk
  • efficiency

Trade-offs

Pros

• More efficient
• Better UX for traders
• Lower capital requirements

Cons

• Harder to reason about
• Requires tuning
• Less battle-tested than LMSR

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Where it fits

Ideal for:

• prediction markets
• low-liquidity environments
• long-tail event markets

Less ideal for:

• high-frequency trading
• deep, liquid markets

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Bottom line

Rikiddo is an adaptive scoring-rule market maker that dynamically adjusts liquidity to improve efficiency and stability in prediction markets.