The Rise of Prediction Markets

Prediction markets have massivley grown in popularity recently. There are many major platforms that have arisen and who’ve secured multi‑hundred‑million to billion‑dollar fundraises as interest has surged. So, I wanted to do a quick dive into these markets and how they work.

What are Prediction Markets?

Prediction markets let traders buy and sell contracts that pay out if a future event occurs. It’s exactly how it sounds. In these markets, you can make bets on the odds on various events occuring, from high temperatures to sports outcomes, political events, and more. A lot of these are often compeltely bizarre. You can even bet on things like a movie’s Rotten Tomato score or a price of a Costco Hot Dog.

Prices for these contracts continuously update similar to probability signals because they’re guided by live market bets/consensus. For example, a contract might pay $1 on a correct prediction, say a correct “Yes” or “No” in this case. The “Yes” trades at $0.62, which means the market is implying a 62% chance of that outcome occuring. On the other hand, “No” is trading at $0.38. Overnight, as new polling or a breaking story shifts expectations, the odds change, and with it the price of each contract.

Industry Outlook

The two biggest fish in the pond are Kalshi and Polymarket. Both of them recorded a combined monthly trading volume near $10 billion in November 2025, which was the strongest month on record for both firms and signaled that headline events and sports markets can drive massive cash flows. At the same time, Kalshi closed a $1 billion funding round that lifted its valuation into the multi‑billion dollar range. This shows a lot about investor conviction in this new industry’s potential for growth. These platforms have also gone through many regulatory hurdles, meaning they’re here to stay. That combination of better product design and clearer regulatory engagement has drawn more consumers into the market.

This leads into the potential opportunity for both companies. Prediction markets are obviously still pretty young, so there should be a lot of room to grow. Multiple market reports estimate that the DeFi prediction market industyr could grow at a CAGR of anywhere from 30-52%, presenting a strong tailwind for both leading companies.

One thing I want to quickly touch on is the regulatory environment and how it’s changed, I think it’s worth noting. U.S. regulators have shifted from treating prediction markets as borderline gambling toward defining how they fit into the financial system. What this means it that they’re more so treating contracts as regulated derivatives while states continue to enforce their own gambling and consumer‑protection rules. To comply with any restrictions or limits, Kalshi and Polymarket, among others, have started seeking formal exchange designations, which are basically just promises to meet reporting, dispute, and other standards. Liquidity was also a prominent concern for people in the regulatory space since contract pricing/probability only makes sense if there’s a decent level of demand. A thin market would create a lot of volatility, meaning a small number of traders could manipulate the market pretty easily. So, building safeguards like position limits, settlement rules, and others has helped get more regulators on board and make prediction markets more viable, which is why we’ve seen many of these hurdles get cleared by Kalshi and the like.

Last Note

The maturation of prediction markets has been very rapid, going from a niche experiment into a high‑volume trading area. It’s pretty obvious too, with Kalshi odds updating live on billboards in Times Square as well as every other mobile game ad having something to do with them. It’s a unique area that shows promising signs for growth for the future and could be an interesting space to watch.