> For the complete documentation index, see [llms.txt](https://funarchy.gitbook.io/funarchy/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://funarchy.gitbook.io/funarchy/security-for-prediction-market/trading-mechanism/amm-risks/permanent-loss/equal-market-state.md).

# Equal market state

Equal market state mean that Yes/No shares price are equal.

{% stepper %}
{% step %}
**Liquidity provision after Market Creation**

* Situation: User A deposits 1,000 USDC to create a Trump win (YES/NO) market just now.\
  User C add liquidity this market same 1000USDC.
* LP Position: Since User A provided initial liquidity and User C came in and provided liquidity when there were no transactions thereafter, we only need to add $1000 worth of liquidity to the existing equation.
* $$Yes(2000) \* No(2000) = 2000^2$$
* Status: Since no transaction has yet occurred, both Users A and B hold LP shares worth 1,000. Furthermore, the market is split 50:50.<br>
  {% endstep %}

{% step %}
**Trading occurs**

* Situation: As time passes and information and news emerge that Trump is likely to win, User B purchases $1,000 worth of Yes at once.
* AMM Operation: FPMM temporarily provides liquidity to the formula that processes this order.
  * But $$2000^2$$must not be broken.\
    \
    So, with the information we know, $$No(3000)$$, and the fixed value $$2000^2$$we can calculate the Yes share that will come out later.
  * $$Yes(x) \* No(3000)  = 2000^2$$
    * $$Yes(x) = 2000^2 / No(3000)$$\
      $$Yes(x) =  1333.33$$
  * This should leave you with a total of 1333.33 Yes shares for a total of $1000.
* LP Position Change:\
  In conclusion, Yes's share was left at 1333.33, so B received a total of 1666.67.\
  \
  $$Yes(3000) - Yes(1333.33) =  1666.67$$\
  \
  so B received a total of 1666.67.\
  In other words, while the liquidity provider is still "providing liquidity," in reality, **they are heavily betting on the No side, which is more likely to lose.**
  * $$Yes(1333.33) \* No(3000) = 2000^2$$
  * This changes the Yes/No price ratio from 50:50 ⇒ 69:31.
  * User A and B are loss up to this point can be derived using the following formula.
    * $$V(p) = (\text{YES Price}) + (\text{No Price})$$
    * $$V(p) = \mathbf{2} \cdot \sqrt{k} \cdot \sqrt{p(1-p)}$$
    * *Initial price ratio*: $$V(0.5) \propto \sqrt{0.5 \times 0.5} = \sqrt{0.25} = 0.5$$
    * *Price ratio thereafter*: $$V(0.69) \propto \sqrt{0.69 \times 0.31} = \sqrt{0.2139} = 0.46$$
    * $$Ratio = \frac{V(0.69)}{V(0.5)} = \frac{0.46}{0.5} = 0.92 \quad (92%)$$
  * So, User A and B's funds are reduced from $1000 to only $920.
    {% endstep %}

{% step %}
**Market closed and loss confirmed**

* Result: \
  The actual election results are confirmed as Trump's victory, so YES wins and NO loses.
* Conclusion: \
  Users A and B will both be left with approximately $666.67. Even if the market has a 3% transaction fee, $15 will go to each user, leaving only $681.67.<br>
  {% endstep %}
  {% endstepper %}


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