Hotcoin Research | Prediction Market Surge: The Rise of a $50 Billion Sector and Opportunities Ahead in 2026

Introduction

The cryptocurrency prediction market surged at an astonishing pace in 2025, with the total annual trading volume reaching a new high of approximately $50.25 billion. With the U.S. Commodity Futures Trading Commission (CFTC) gradually clarifying its compliance positioning, Wall Street giants entering the investment scene, and significant events occurring frequently, the prediction market has become one of the most anticipated Web3 sectors for 2026. On December 27, 2025, a trader placed a bet on Polymarket that "Venezuelan President Maduro will step down by January 31," yielding a return of over ten times. While it remains to be investigated whether this transaction involved insider information, it sparked amplified discussions in the market regarding Polymarket and the entire prediction market sector. According to the CEO of Kalshi, the potential global scale of prediction markets could reach $150 billion. Major events such as the 2026 U.S. midterm elections and the World Cup are on the horizon, and the industry widely expects the market size to achieve another significant leap next year.
This article will focus on the hot sector of prediction markets, systematically sorting out its concepts, differences from gambling, reasons for the explosive growth in 2025, analyzing the current market landscape and data performance, reviewing the characteristics and models of representative platforms, and delving into the risks and opportunities contained within, ultimately looking ahead to the trends and directions of prediction markets in 2026.

I. Overview of Prediction Markets

Definition of Prediction Markets

A prediction market is a mechanism that aggregates dispersed information through financial incentives, transforming the collective knowledge and opinions of the public into a single probability data point. Participants place bets on the outcome of a certain event: if they favor a particular outcome, they buy the corresponding position; otherwise, they sell or short it. As numerous participants engage based on their information and judgments, market prices gradually converge to reflect the "collective probability of the event occurring."
Compared to traditional opinion polls or expert predictions, the advantage of prediction markets lies in their incentive mechanisms and accuracy. Only participants who bet on the correct outcome can profit, while incorrect predictions incur losses. This "money voting" model encourages people to think carefully and make full use of information, thereby enhancing prediction accuracy. Research has indicated that prediction markets often achieve a Brier score close to 0.09, with overall accuracy surpassing that of polls, experts, and even some weather models.

Differences Between Prediction Markets and Gambling

It is essential to emphasize that prediction markets ≠ gambling; there are fundamental differences in their mechanisms.

• Different Price Formation Mechanisms: Prediction markets use market-based pricing mechanisms such as open order books or AMM, where prices are generated through the competition between buyers and sellers. The platform does not preset odds or bear the risk of outcomes, only charging transaction fees. In contrast, traditional gambling is characterized by fixed odds set by the platform, ensuring profitability through the "house edge," with odds adjustments aimed at controlling risk rather than reflecting true probabilities.
• Different Functional Uses: The prices in prediction markets serve as a data product that can be referenced externally, useful for macro decision analysis, policy expectations, corporate risk management, etc., and can even influence media narratives and decision-making references. The odds in gambling primarily cater to entertainment consumption, lacking information discovery value.
• Different Participant Structures: The main participants in prediction markets are information-driven traders, including researchers, macro traders, data analysts, and institutions, whose core goal is to exploit information asymmetries for arbitrage and price discovery. In contrast, gambling attracts more ordinary consumers, often driven by emotions and preferences, with participation motives less correlated with information accuracy.

In summary, prediction markets aggregate collective wisdom through financial incentives, generating probability information with spillover value, positioning them distinctly from traditional gambling. This is one of the key reasons why U.S. regulatory authorities are willing to legitimize them as part of the derivatives market.

Reasons for the Explosive Growth of Prediction Markets

The explosive growth of prediction markets in 2025 can be attributed to the maturation of various "favorable conditions."

• Regulatory Breakthrough: In 2025, the CFTC provided a clear positioning for prediction markets, recognizing them as legitimate commodity derivatives rather than gambling activities.
• Inflow of Capital and Institutions: Progress in compliance has significantly boosted investor confidence, leading to continuous financing for prediction market projects in 2025. Reports indicate that Polymarket and Kalshi each completed multiple rounds of financing, cumulatively exceeding $1 billion. Additionally, compliance advantages helped Kalshi attract liquidity support from renowned Wall Street market maker SIG.
• Expansion of Event Categories: Early prediction markets primarily focused on macro events such as political elections, but the sector has now extended into broader areas like economic indicators, hot topics in the cryptocurrency industry, and sports events. The continuous occurrence of various breaking news, political events, and major sports competitions in 2025 has provided a sustained catalyst for prediction markets.
• Maturity of Technical Conditions: Advances in blockchain scaling solutions (such as Layer 2 reducing gas fees), on-chain settlement, and the development of automated market-making tools, along with the application of AI in information analysis and trading assistance, have made it easier for ordinary users to participate in prediction markets. Furthermore, improvements in wallet experiences, the opening of fiat deposit channels, and social distribution have simplified the onboarding process for new users.

II. Current Status of Prediction Markets: Sector Landscape and Data Performance

1. Overall Scale and Duopoly Landscape

In 2025, the prediction market sector delivered impressive results: the total annual trading volume reached approximately $50.25 billion, compared to about $900 million in 2024. The user base expanded simultaneously, growing from around 4 million in 2024 to approximately 15 million in 2025. The market landscape has formed a "duopoly" dominated by Kalshi and Polymarket, which together account for over 90% of the market share. Specifically, Kalshi's nominal trading volume for the entire year of 2025 reached $23.8 billion, while Polymarket's annual trading volume was around $22 billion.

Source: https://predictionindex.xyz/
Kalshi and Polymarket exhibit significant differences in positioning and operational models, each reflecting different advantages. Kalshi, as the first prediction market to obtain compliance licensing in the U.S., operates more like a traditional regulated exchange, employing centralized matching and off-chain settlement, primarily serving the U.S. market, with standardized contract designs and a user base predominantly consisting of institutions and professional traders. Polymarket, originating from the crypto community, is a decentralized, permissionless platform that uses on-chain smart contracts and trustless oracles to create and settle markets, allowing users to participate directly with Ethereum wallets, becoming synonymous with decentralized prediction markets.
The distribution of topics also reflects the strategic focus of the two platforms. According to Dune data, Kalshi's prediction market in 2025 was predominantly focused on sports events, with sports contracts accounting for about 85% of its nominal trading volume. Polymarket's market composition is more diverse, with sports (39%), politics (34%), and cryptocurrency (18%) being its three pillars, collectively contributing over 90% of the trading volume. Additionally, some long-tail topics such as economic indicators, technological innovations, and social culture began to emerge in 2025.

Source: https://keyrock.com/prediction-markets-the-next-frontier-of-financial-markets/

2. Market Heat and Capital Trends

In the second half of 2025, the heat of prediction markets reached unprecedented heights, with multiple indicators setting historical records. Statistics show that the total number of trades for the year soared to 97 million, a year-on-year increase of nearly 17.8 times, making the market a true real-time information engine. Another important indicator is Open Interest, which reflects the scale of bets on unresolved events. The open interest on the Kalshi platform accumulated to $225 million in 2025, a year-on-year increase of 169%; among these, the open interest for economic and social events grew the fastest, reaching approximately $800 million and $700 million, respectively. This indicates that more users are utilizing prediction markets for medium- to long-term hedging and positioning rather than merely betting on short-term outcomes.
The capital market's enthusiasm for the prediction sector is equally fervent. In 2025, Polymarket and Kalshi announced substantial financing: Polymarket's valuation soared to the $8-9 billion range after an investment from ICE, and it is rumored to be planning a new financing round with a valuation in the hundreds of billions; Kalshi also raised $300 million during the year, with a post-investment valuation of approximately $5 billion. The investment lineup behind the two giants is impressive, including top institutions such as the parent company of the New York Stock Exchange, Sequoia Capital, and SV Angel. According to CoinMarketCap, mainstream crypto companies like Coinbase, Gemini, Robinhood, and MetaMask also announced investments or new layouts in the prediction market sector by the end of 2024.
Kalshi's compliance model and Polymarket's on-chain model are beginning to permeate each other: Kalshi is exploring the tokenization of contracts on-chain (having piloted on Solana), introducing non-custodial trading and on-chain settlement; Polymarket is re-entering the U.S. market with a compliant identity through regulatory approval. This "two-way integration" suggests that future prediction markets may simultaneously possess the credibility endorsement of traditional finance and the open innovation of decentralized networks.

III. Review of Representative Prediction Market Platforms

In the current prediction market sector, in addition to the two giants Kalshi and Polymarket, a number of emerging platforms are rising. According to historical trading volume rankings compiled by PredictionIndex, the Top 5 platforms are: Kalshi, Polymarket, Opinion, Limitless, and Azuro. Additionally, the recently incubated new project Probable by PancakeSwap has also garnered attention.

Source: https://predictionindex.xyz/

1. Kalshi -- Compliant American Prediction Exchange

• Platform Overview: Kalshi launched in June 2021 and is the world's first prediction market exchange to receive CFTC approval. Based in the U.S., it employs a centralized matching trading mechanism and compliant settlement. Users must complete KYC to trade in fiat currencies such as USD, primarily using Yes/No binary contracts covering various categories including politics, economic data, climate, cryptocurrency, and sports. With the launch of its sports market, Kalshi's trading volume exploded in the second half of 2025. Kalshi's trading volume reached $23.8 billion in 2025, a year-on-year increase of over 11 times; its historical cumulative trading volume is approximately $27.1 billion.
• Event Types: Sports events are the platform's most significant feature, accounting for over 85% of its trading volume. It also offers predictions on political and economic events (elections, macro indicators, etc.) and cryptocurrency market events, with plans to expand into new types of contracts such as predictions on publicly traded companies' earnings starting in 2025. The diversification of prediction topics enhances the practical value for hedging and speculation.
• Mechanism and Revenue Model: Kalshi uses a Central Limit Order Book (CLOB) model for trade matching. It profits by charging transaction fees, with rates varying slightly by contract type (e.g., $0.01 per contract). To enhance liquidity, Kalshi launched a market maker subsidy program in 2024-2025, investing at least $9 million to incentivize liquidity provision. It also collaborates with professional market makers like SIG to enhance order depth. Currently, it has not issued tokens, primarily supporting operations through equity financing and trading revenue.

2. Polymarket -- Leading Decentralized Prediction Market

• Platform Overview: Polymarket launched in 2020 and is a representative decentralized prediction market platform on the Ethereum and Polygon networks. Users connect their crypto wallets through a web interface to participate, supporting binary and multiple-choice event markets. Polymarket employs a publicly shared order book and a mixed automated market-making mechanism, utilizing smart contracts to escrow funds and decentralized methods like UMA oracles to determine outcomes. The operational team and server front end are relatively centralized, but settlement is completed on-chain. Polymarket's trading volume in 2025 is estimated to be around $22 billion. Its historical cumulative trading volume is approximately $23.2 billion, with over 314,000 active users. The frequency of events in the second half of 2025 significantly boosted Polymarket's trading volume, leading its market depth ahead of other decentralized peers.
• Event Types: The platform features a diverse range of themes, making it one of the most varied in the industry. Sports, politics, and cryptocurrency are its three pillars, accounting for approximately 39%, 34%, and 18%, respectively. Additionally, markets have been created in areas such as economic data, technological development, and pop culture. Notably, Polymarket closely follows hot topics in the crypto circle, such as "Will a certain coin price hit a new high?" or "Will a certain project deliver on time?", providing unique hedging/speculation tools for crypto investors.
• Mechanism and Revenue Model: Polymarket's trades are settled through on-chain smart contracts, using a shared order book to match prices, ensuring that the Yes and No prices always sum to 1 (Yes + No = $1). Initially, the platform charged zero fees to users to stimulate growth, but it actually operates through spreads and liquidity subsidy mechanisms. Around 2025, Polymarket gradually began charging small fees to winners for profit and plans to open more third-party front-end revenue-sharing models.

3. Opinion.trade -- A Prediction Terminal for the Masses Focused on Macroeconomics

• Platform Overview: Opinion operates on the BNB Chain blockchain and is a prediction market platform focused on global macroeconomic and financial indicators. It positions itself as "a terminal for the masses," aiming to turn macro insights into tradable markets, allowing ordinary people to participate in macro information betting. The platform architecture integrates on-chain trading infrastructure, AI-assisted oracles, DeFi modules, etc., enabling users to create, trade, and resolve contracts on real economic events through decentralized means. Opinion's historical total trading volume has reached $13.1 billion, ranking third among all prediction markets. Such high data may partly be attributed to aggressive liquidity mining or volume manipulation.
• Event Types: It primarily focuses on economic and financial predictions, including macroeconomic indicators (inflation, employment, interest rates, etc.), changes in national policies, and market index trends. It also covers some political events and cryptocurrency market predictions, but unlike more entertainment-focused platforms, Opinion emphasizes serious financial content. Its design aims to lower the cost barrier of traditional financial terminals, allowing users to participate in macro trading that would typically require significant capital, similar to Bloomberg terminals.
• Mechanism and Revenue Model: The platform employs AI-assisted oracles: using artificial intelligence to gather and assess event results from authoritative data sources, enhancing oracle efficiency and accuracy. Revenue models include transaction fees, market creation fees, etc. PredictionIndex labels Opinion as "pre-TGE," indicating potential plans for token issuance.

4. Limitless -- High-Frequency Prediction Market Based on Base Chain

• Platform Overview: Limitless is a decentralized prediction market platform deployed on Coinbase's Base chain, aiming to provide high-frequency, short-cycle prediction trading services. Limitless focuses on hourly and daily frequent markets, including various judgments on both crypto and traditional assets, offering conditions for users to trade in natural language. The low fees and fast confirmations on the Base chain enable Limitless to support users in frequently adjusting positions, achieving near-real-time price discovery. Limitless currently has a historical cumulative trading volume of approximately $512 million, ranking fourth in the prediction market sector. Thanks to user traffic from the Base ecosystem and Coinbase's backing, Limitless has seen steady trading volume growth since its launch in the second half of 2025.
• Event Types: It focuses on short-cycle market trend predictions. Areas covered include cryptocurrency prices (e.g., "Will BTC's closing price today be above X?"), intraday trends in traditional stocks and commodities, and the immediate impact of specific macro events. Limitless tends to design binary contracts (Yes/No) or range contracts (e.g., what range will the price fall within) for users to trade in extremely short time frames. Additionally, the platform also provides real-time predictions for sports events, such as the outcome direction during a match, allowing users to continuously buy and sell positions during events.
• Mechanism and Revenue Model: Limitless operates entirely on the Base chain, issuing collateralized Outcome Shares through smart contracts. Users buy Yes or No shares, with the correct side's shares redeemable for $1 at the event's conclusion, while the incorrect side's shares become worthless. Trading employs a mixed AMM + order book model, ensuring continuous liquidity while allowing users to place orders. The platform's revenue primarily comes from transaction fees, market-making spreads, etc. Its advantage lies in leveraging the low-fee Base chain for a better user experience and potential collaboration with the Coinbase ecosystem.

5. Azuro -- Decentralized Prediction Market Infrastructure Protocol

• Platform Overview: Azuro is a decentralized protocol focused on providing prediction market infrastructure. Unlike user-facing trading platforms, Azuro offers a toolkit for developers, DApps, and operators to quickly build various prediction applications. Azuro is deployed on multiple EVM-compatible chains (Ethereum mainnet, Base, BNB chain, etc.), using a vAMM (virtual automated market maker) + "Liquidity Tree" funding management model to support liquidity for large-scale markets. Its goal is to become the Uniswap of the prediction market space, providing universal infrastructure for others to build front ends and customize gameplay. Azuro's self-reported total "processed" prediction trading volume is approximately $444 million, ranking fifth in the industry.
• Event Types: Azuro initially focused on sports betting/prediction, providing markets for outcomes in events such as football, basketball, and esports. Subsequently, through community governance, the protocol expanded to support other categories like politics and cryptocurrency prices, but most applications still concentrate on sports and gaming predictions. Azuro's design allows for diverse odds structures, not limited to simple binary markets, such as supporting scores, spreads, etc., thereby attracting traditional gambling users.
• Mechanism and Revenue Model: Azuro's uniqueness lies in its virtual AMM + liquidity tree model. Liquidity providers deposit funds into Azuro's pool, and the protocol algorithmically allocates funds among different odds options, effectively automating market-making for all options. Thus, even if certain options have no active orders, there is still liquidity for users to place bets. Azuro collects fees through smart contracts and periodically settles them to LPs and the protocol treasury. Revenue sources include: marginal fees from player bets and profit-sharing for LPs providing liquidity. The Azuro protocol has issued a governance token, AZUR, allowing holders to participate in DAO governance and receive a share of platform fees. However, the low price of AZUR indicates market skepticism regarding its tokenomics and profitability prospects.

Additionally, Probable is an upcoming new on-chain prediction market platform jointly incubated and supported by the BNB chain DEX protocol PancakeSwap and YZi Labs. Probable will be exclusively deployed on the BNB Chain, emphasizing zero fees and an extremely user-friendly experience to attract widespread participation. Currently, Probable is still in the preparation stage for launch and is expected to open for public testing soon. The prediction market sector continues to see the emergence of new projects such as Myriad, Predict, TrendleFi, and Hyperstrike.

IV. Risks and Challenges Facing Prediction Markets

Despite the rapid development of prediction markets, as an emerging and unique sector, it still faces numerous risks and challenges:

1. Regulatory Compliance Risks: The legal gray area is an unavoidable hurdle for prediction markets. Even with federal CFTC approval in the U.S., some states and countries still view prediction markets as illegal gambling. For example, although Kalshi has a license, it has faced scrutiny from prosecutors in some states regarding its event contracts violating local anti-gambling regulations. A shift in regulatory winds could significantly impact platform operations. For decentralized platforms, meeting regulatory requirements (such as KYC and restrictions on sensitive event types) without sacrificing trustless characteristics is also a challenge.
2. Insider Trading and Manipulation: Since prediction markets are directly linked to real events, there is a risk of being exploited by insider information. Those with access to undisclosed information can profit by betting in prediction markets, leading to distorted pricing and unfairness. This poses legal risks and undermines the confidence of ordinary participants. Additionally, the risk of manipulation by large players should be monitored: theoretically, those with substantial funds could artificially inflate or depress contract prices to create false probability perceptions, influencing others' decisions and even media interpretations.
3. Challenges in Building Liquidity: Compared to ordinary token trading with AMM automatic market-making, prediction markets are closer to order book models, requiring active order management and facing significant price volatility, which places high demands on market makers. New platforms often struggle to attract sufficient market-making capital, negatively impacting user experience; without liquidity, there can be no sustained trading, leading to user attrition. The liquidity barrier results in a pronounced Matthew effect in the industry: leading platforms have ample funds, creating a virtuous cycle, while smaller platforms fall into a "no liquidity → no users → even less liquidity" vicious cycle.
4. Market Mechanism and Technical Risks: On-chain prediction markets also face technical risks such as smart contract vulnerabilities and oracle attacks. Historically, Augur encountered market abuse (users creating meaningless markets for arbitrage) and inaccurate oracle results due to low participation. Nowadays, some platforms use centralized oracles or human arbitration for results, introducing trust issues that could lead to asset disputes and user losses. Furthermore, high-frequency prediction markets require high-performance on-chain support; any congestion or failure in the underlying public chain could disrupt trading continuity.
5. Homogenized Competition and Profit Models: Currently, many new projects essentially replicate the Polymarket or Kalshi model, lacking differentiated selling points, making it easy to fall into a homogenized competition quagmire when vying for users. Intense competition forces platforms to offer high subsidies and zero fees, attracting traffic in the short term but not conducive to long-term profitability. In fact, most prediction market platforms are still unprofitable, relying on financing to sustain operations. Establishing a sustainable profit model without compromising user experience remains a work in progress.

V. Outlook for Prediction Markets in 2026: Opportunities and Trends

Despite the numerous challenges, the prediction market sector still holds immense opportunities. Looking ahead to 2026, we can anticipate the following trends and developments:

1. Continued Rapid Growth in Scale, Major Events Catalyzing Markets. The explosion in 2025 may just be the beginning, with the sector expected to expand several times or even tenfold in 2026. This year coincides with several globally significant events: the U.S. midterm elections will take place in November, expected to attract massive betting funds; the 2026 World Cup will occur in the summer, a global sports event for which platforms like Kalshi have already planned related markets, anticipating a surge in sports trading volume. Additionally, the ever-changing global economic landscape, Federal Reserve interest rate policies, and popular technological breakthroughs could all become focal events, continuously injecting trading momentum into prediction markets.
2. Increased Industry Consolidation, Further Solidifying Duopoly Positions. "The strong get stronger" may be the main theme of 2026. Kalshi and Polymarket are likely to continue dominating the market, leveraging their resource advantages to expand their competitive moat: Kalshi may seek more collaborations with traditional finance, such as launching data products or derivatives based on prediction markets in conjunction with brokerages and asset management institutions; Polymarket may embrace more Web3 ecosystems, deeply integrating with decentralized social platforms, information oracle networks, etc., to increase user stickiness and traffic entry points. Among emerging platforms, Opinion is expected to solidify its vertical in macro predictions, Limitless to establish a foothold in high-frequency markets, and Probable to rise with traffic from the BNB chain. However, overall, the vast majority of trading volume will still be concentrated in a few leading platforms.
3. More Mainstream Participants Entering, Deepening Cross-Industry Integration. In 2026, we may see traditional financial and tech giants more actively participating in prediction markets. Companies like Coinbase and Robinhood announced their layouts in prediction markets in 2025. Some large hedge funds may also attempt to use prediction markets for strategic trading or hedging. Meanwhile, media and data institutions will more frequently reference prediction market data. This cross-industry integration not only enhances the exposure and credibility of prediction markets but also provides platforms with new monetization channels, such as licensing data for third-party use.
4. Emergence of Innovative Products and Derivatives, Enriching Market Layers. As the industry matures, prediction markets are expected to give rise to various innovative products. For instance, data derivatives based on prediction market prices: certain platforms or financial institutions may issue prediction index ETFs, event options, etc., securitizing prediction market outcomes for easier public investment. There are also conceptual information futures and policy-like predictions. In the DeFi space, prediction market result tokens may be used for collateral lending, yield aggregation, etc., becoming new financial Lego components. In the sports entertainment sector, NFTs or fan tokens may also combine with prediction markets to create new social betting experiences. These derivative innovations will attract investors with different preferences, further expanding market size.
5. Deep Integration of AI and Prediction Markets, Enhancing Efficiency. Artificial intelligence technology is expected to be applied more deeply in various aspects of prediction markets in 2026. On one hand, AI can be used for information collection and analysis, helping prediction participants make better decisions. For example, AI bots can gather relevant news and social sentiment online, providing suggestions on the probability of event occurrences for traders. On the other hand, AI will participate more in market-making and arbitrage. High-frequency algorithms based on machine learning models can identify pricing discrepancies between prediction markets and traditional markets in real-time for arbitrage, making prices reflect true probabilities more efficiently. Additionally, AI can help improve oracle systems, such as using natural language processing to automatically interpret news event outcomes or detect subtle differences in outcome declarations, reducing the need for human arbitration.

Conclusion

From a marginal academic experiment to a burgeoning market with hundreds of billions in scale, the prediction market sector has undergone a remarkable transformation in just a few years. The explosion in 2025 demonstrated the allure of "aggregating wisdom through money" and revealed the immense potential of financializing information. When thousands of people trade based on their information and judgments, the market prices reflect not just cold numbers but a collective consensus on future realities.
Looking ahead to 2026, with more mature participants and stronger capital driving forces, the prediction market sector is poised for another leap forward. Perhaps in the near future, "trading the future with probabilities" will become a common feature in the average investment portfolio. In this sense, prediction markets are not only a hot topic in the crypto world but may also represent an important pillar of future financial markets.

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