Original Title: State of Prediction Markets

Original Author: Paul Veradittakit, Partner at Pantera Capital

Original Compiler: Saoirse, Foresight News

Abstract

· Prediction markets are not a new phenomenon—today they have finally achieved decentralization. Humans have historically wagered on the outcomes of predictions, but cryptographic technology has transformed this ancient practice into a permissionless, transparent global market. In such markets, prices reflect real-time collective wisdom rather than poll results.

· Infrastructure and regulation are the dual driving forces opening the market. The clear regulatory stance of the U.S. Commodity Futures Trading Commission (CFTC), collaboration in the traditional finance (TradFi) sector, and multi-chain scalability have propelled prediction markets from niche experiments to a track with weekly trading volumes reaching $3.9 billion, with related platforms directly embedded in brokerage firms, media, and consumer applications.

· "Uncertainty" has become a new asset class. As prediction markets gradually evolve into core hedging, data, and prediction infrastructures, platforms that combine liquidity, credibility, and coverage to "price" real-world outcomes globally will continue to accumulate value.

For thousands of years, humanity has explored ways to leverage collective wisdom to predict the future. The ancient Greeks would receive exclusive tokens and cast votes through a pipeline system; jurors at the time would choose solid stones or perforated stones to express their verdicts. Private betting in the ancient taverns known as "kapeleia" was likely also quite common.

In the 17th-century Amsterdam stock exchange, merchants would bet on the arrival times of cargo ships; in 19th-century America, political betting venues dominated during elections until they were banned in the 1940s. Additionally, commodity futures trading on the Chicago Mercantile Exchange falls into this category. Clearly, humanity has long understood that wagering on prediction outcomes can generate highly valuable informational signals.

Today, crypto-driven prediction markets represent a digital rebirth of this ancient practice—but with a key distinction: they are permissionless, transparently open, and globally accessible.

The Information Market Revolution: What Makes Crypto Prediction Markets Different?

Traditional prediction markets require trusted intermediaries to hold funds, verify results, and distribute prizes, while cryptographic technology eliminates these intermediaries through blockchain. When you place a bet on Polymarket regarding geopolitical, macroeconomic, or cultural issues—whether it's "Will the Federal Reserve cut interest rates in January?" or "Who will win the Best Picture at the 2026 Oscars?"—your funds are held in a smart contract, results are verified transparently, and prizes are automatically distributed via USDC. The entire process requires no bank account, has no geographical restrictions, and incurs no intermediary fees or participant eligibility limitations.

Another industry giant, Kalshi, focuses 90% of its business on sports, covering topics like "Who will win the PGA Farmers Insurance Open?" and "Kent State vs. Akron basketball game results." The emerging prediction market platform Novig is even more focused on sports.

The Convergence Moment: Why Now?

Current prediction market trading volume has reached $3.9 billion over seven days, showing explosive growth, attributed to three main factors: regulatory maturation, integration with traditional finance, and infrastructure breakthroughs.

On the regulatory front, the CFTC's approval has cleared the way for platforms to operate in the U.S. For example, in July 2025, Polymarket acquired the CFTC-licensed derivatives trading platform QCX LLC and clearinghouse QC Clearing LLC. This allows traders to confidently participate in prediction market contract trading on the Polymarket platform, with clear and defined rules. Kalshi completed a $1 billion funding round at a $11 billion valuation in December 2025, reflecting institutional investors' confidence in the sector. Overall, regulatory clarity is unlocking institutional capital and retail participation through mature brokerage channels.

Intercontinental Exchange (ICE) has invested $2 billion in Polymarket and will become the global distributor of Polymarket's event-driven data—this move highlights the growing trend of integration between traditional finance and prediction markets.

Partnerships further deepen this integration. Polymarket has entered into a multi-year collaboration with TKO Group Holdings, becoming the official exclusive partner of the Ultimate Fighting Championship (UFC) and Zuffa Boxing, directly combining prediction market technology with live fan experiences.

In 2026, Kalshi will collaborate with CNN and CNBC, allowing viewers to see real-time prediction probabilities in news tickers. Both Polymarket and Kalshi have partnered with Google; companies like Robinhood, Fanatics, and Coinbase are also entering the space through partnerships or native applications. In November 2025, Robinhood's prediction market contract trading volume reached 300 million, a 20% month-over-month increase, confirming massive retail participation.

Technological advancements have driven infrastructure breakthroughs, including multi-chain scalability via Polygon, Solana, Base, Gnosis Chain, and others; integration of AI oracles for permissionless instant settlements; and the adoption of hybrid automated market maker (AMM) and order book models to reduce trading friction and enhance liquidity. In contrast, early platform Augur faced significant challenges due to immature technology and regulatory environments.

Market Dynamics: Leading Players and Challengers

Although Polymarket currently dominates the industry, its position may face challenges from competitors offering users more choices. In fact, in 2025, 12 institutions either submitted "Designated Contract Market (DCM)" applications or successfully obtained that qualification, a 500% increase from the previous year. Additionally, some companies are looking to partner with DCMs to provide prediction market services as "futures commission merchants."

Here is a brief comparison between Polymarket and Opinion platforms (data period: 30 days ending December 3, 2025):

· Polymarket Key Data: Open contracts of $247.1 million; nominal trading volume of $4.39 billion; market share accounting for 82% of the industry’s total locked value (TVL); utilizing a historical zero-fee model to drive user growth.

· Opinion Key Data: TVL surged 110% in 30 days (from $30 million to $63 million); estimated monthly trading volume of $4 billion poses a potential threat to existing market share; achieving product-market fit on emerging Layer 2 infrastructure.

Network effects and a "winner-takes-all" market structure are attracting significant growth capital—these platforms provide scalable diversified options for traditional derivatives and betting products. Revenue models have also evolved beyond a single fee structure, including: licensing real-time probability data to news media and financial terminals; API integration with social platforms and applications; and some companies (like Robinhood) leveraging this for cross-selling core financial services.

User Behavior Shift

Traders are gradually shifting towards prediction markets—these markets have a more sophisticated speculative structure, serving as both hedging tools and providing alpha returns for decentralized finance (DeFi) portfolios. Given that real-time prediction probabilities have outperformed traditional polls in political and economic forecasting accuracy, this migration trend may extend to more related event contract areas.

Although Polymarket initially garnered media attention for political predictions, it is not limited to that domain. Its largest open contract markets include:

· Non-election politics: $55 million

· Cryptocurrency: $52 million

· Business: $36 million

· Elections: $22 million

· Pop culture: $20 million

· Sports: $20 million

· Total: $242 million

New entrants continue to emerge: Crypto.com has partnered with Hollywood.com to launch an entertainment-focused prediction market covering topics such as movies, television, drama, actors, musicians, and award outcomes; Limitless focuses on short-term prediction markets for cryptocurrency and stock prices, originating from the X (formerly Twitter) project, with investment support from Coinbase and 1confirmation.

Controversies, Challenges, and Emerging Solutions

Prediction markets still face several pain points, including centralization risks, manipulation issues under traditional oracle models, and settlement delays caused by manual reporting systems.

Regulatory gray areas persist, including classification disputes over sports betting. For example, in November 2025, a judge in Nevada ruled that Kalshi is classified as a betting platform and is not exempt from the state's gambling regulations. However, Kalshi argues that its platform is a federally regulated financial trading platform offering legal derivatives contracts (event-based contract swaps), not betting wagers. Following the ruling, Kalshi has initiated an appeal, and similar disputes have arisen in Massachusetts.

Regardless of the case outcome, several issues remain to be addressed, including age restrictions, concerns related to responsible gambling, and potential cross-border regulatory arbitrage that may hinder industry development.

Market manipulation risks also need to be managed, such as the impact of large players on low liquidity markets, wash trading and price manipulation in decentralized environments, and the balancing act between "permissionless trading" and "market credibility."

Current market forms are continually evolving, including: launching perpetual prediction markets for "continuous outcomes," handling complex multi-variable events through composite markets, and enhancing dynamic liquidity through binding curve mechanisms. Additionally, there are multiple opportunities: using prediction market probabilities as oracle inputs for DeFi protocols; enabling secondary trading and leverage through tokenized positions; and combining prediction markets with yield strategies and portfolio hedging.

Emerging solutions focus on three main directions: providing AI-driven instant settlements for permissionless markets; integrating trading platform oracles to reduce front-running; and developing application chains embedded with consensus mechanisms to ensure oracle credibility.

Future Outlook

From the current perspective, three major factors will drive the broader adoption of prediction markets in the short term: CFTC-approved U.S. platforms launching through mature brokers; integration with social platforms (such as embedding prediction APIs in tweets); and emerging banks embedding prediction markets to merge financial and speculative functions.

Moreover, as prediction markets gradually evolve into an independent financial market category, vertical prediction markets targeting niche areas (such as sports, business, etc.) may emerge. For instance, the sports-focused prediction market Novig is concentrating on creating highly customized markets and user experiences for sports betting users. As prediction markets become a more common consumer behavior, these vertical platforms may offer a superior user experience compared to "one-size-fits-all" comprehensive platforms.

In the next 1-3 years, privacy-focused prediction markets may adopt zero-knowledge proof technology; governance applications such as prediction-based governance (Futarchy) and outcome-based decision-making may also gradually develop.

(Note: "Futarchy" is a new governance concept proposed by economist Robin Hanson around 2000, centered on using "predictions of future outcomes" to guide decision-making rather than relying on traditional voting, expert judgment, or power hierarchies. Its name is a combination of future and archy, which can be literally translated as "predictive governance" or "future-oriented governance.")

However, the industry may still face obstacles, including: tightening regulatory controls that limit global access or product scope; potential user fatigue if markets fail to improve prediction accuracy; and intensified competition as traditional platforms adopt blockchain technology.

As integration deepens, prediction markets will bring multiple positive social impacts: providing collective wisdom support for resource allocation and policy decision-making; establishing decentralized predictions as public infrastructure; and driving the media and governance sectors from a "polling model" to a "participatory probability market model."

The question is no longer "Can prediction markets scale?" but rather "How many prediction markets will emerge in the future?" and "Which models can capture this trillion-dollar opportunity—pricing real-world uncertainties on-chain?" These predictions will become an important complement to human wisdom and predictive capabilities.

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