Author: Kaviish, Artemis Analytics data analyst; Source: Artemis; Compiler: Shaw Golden Finance

Summary

• Prediction markets convert uncertainty into tradable assets, and their prices reflect the probability of financial backing rather than pure opinions.

• The industry is expanding rapidly, but growth is currently driven primarily by sports betting rather than the information-rich market that represents its long-term value.

• Encrypted channels break geographical and settlement restrictions, enable global participation, and improve signal effectiveness through scale.

• Regulatory direction will determine whether liquidity is aggregated into deep global markets or dispersed into inefficient regional markets.

• The gap between the positioning of prediction markets (information infrastructure) and the current profit model is growing.

Prediction markets will reach $63.5 billion in trading volume by 2025.

This number is more than three times the size of the previous year. In the first 86 days of 2026 alone, the combined transaction volume of Kalshi and Polymarket reached US$52.7 billion, of which Kalshi was US$28.3 billion and Polymarket was US$24.3 billion (data from Artemis). On an annualized basis, that would reach $223 billion for the full year. The industry tripled in size last year and is expected to triple in size again this year.

Three years ago, prediction market trading volume was less than $100 million per month. Today, the same scale can be achieved in just a few hours. Federal Reserve decisions, elections, escalating geopolitical conflicts, corporate earnings results - any event can now be converted into a market with a price. This price is not a simple prediction, but a probability of financial backing, which will be continuously updated as new information flows in.

Polls collect opinions, models process historical data, and analysts issue judgments, and they all suffer from the same structural flaw: There is no cost to forecasting errors, so accuracy is not a requirement. Prediction markets eliminate this flaw and give predictions financial consequences: correct judgments lead to profits, while mistakes lead to direct financial losses.

The Federal Reserve has confirmed that forecast markets are more accurate and responsive than traditional methods. In a January 2026 research note, the Fed found that Kalshi forecast markets "significantly outperformed the Bloomberg consensus" in forecasting headline CPI data. On the day of every Federal Open Market Committee (FOMC) meeting since 2022, the mode of the Kalshi market probability distribution has been exactly consistent with the eventual federal funds rate (Federal Reserve FEDS Working Paper 2026-010).

Why now

Prediction markets have been around for decades. For example, the Iowa Electronic Market was launched as early as 1988; another platform called Intrade also operated for many years before finally closing in 2013. Its core concept can be traced back to Friedrich Hayek, who proposed that the market is the most efficient mechanism for aggregating dispersed information. Although this concept has always been very convincing, its implementation has always been unsatisfactory due to structural limitations: limited channel coverage, dispersed liquidity, slow settlement, and localization. Today, all of these issues are improving rapidly.

Channel native penetration

Prediction markets are now directly embedded into brokerages, media platforms and API interfaces. Robinhood has added event contracts in addition to stocks and options; media platforms such as CNN have begun to label probabilities next to news headlines, and each news cycle can be immediately converted into tradable opportunities.

In the past, if you wanted to trade based on macro judgments, you needed to open an account, transfer funds, and wait for the trading session. Today, such friction costs have basically disappeared. Prediction markets are becoming the default entry point for people to interact and trade on uncertainty.

Globalization of settlement

The second change is more critical. Under the traditional financial system, prediction markets are subject to layer-by-layer restrictions on geography, supervision, and settlement speed; on cryptographic infrastructure, these constraints no longer exist.

Users in New York, Lagos or Jakarta can see the same market, the same prices, the same opportunities, and achieve near-instantaneous trade settlement.

The higher the participation, the more accurate the prediction market will be. If the market is limited to a single country, the signal quality will naturally be weak; global expansion can improve the reliability of the output results. Cryptotechnology not only makes prediction markets more efficient, but also makes their price signals more realistic.

Regulatory Game

Regulation gives prediction markets legitimacy, but also exposes clear financial conflicts of interest. Prediction markets lie at the intersection of finance and gambling and cannot be clearly classified into either category. It is this misalignment that leads to contradictions.

Nowhere is this conflict more evident than in sports. U.S. states benefit directly from sports betting, with the market reaching $165 billion in 2025 and contributing billions in tax revenue (SportsHandle data). The current system is set up by handing out licenses on a state-by-state basis, requiring operators such as DraftKings and FanDuel to pay high fees, partner with casinos and operate with high tax rates (Legal Sports Report data).

Although prediction markets are in the same category as sports betting, they operate according to a different set of rules. In the view of state governments, prediction markets divert business that would otherwise go to tax-paying sports betting platforms, bypassing a regulatory system that took years to establish. This is also the reason why traditional gambling platforms are strongly opposed to it - it is not that the prediction market is flawed, but that it impacts the industry interest pattern that already has a mature regulatory system.

At the same time, the U.S. Commodity Futures Trading Commission (CFTC) is moving to regulate prediction markets, while courts are defining the boundaries of its regulatory authority. This game will determine the final pattern of the prediction market. If forced to adopt a state-by-state governance model, liquidity will tend to be dispersed; but if allowed to operate under a unified financial framework, liquidity will be concentrated, and the prediction market will grow into a global uncertainty pricing system.

Structural risk

Currently, the vast majority of revenue from prediction markets comes from sports-related fields.

On the Kalshi platform, sports contracts account for approximately 83% of its total notional trading volume. Polymarket's categories are more diverse, but even so, the sports category still dominates, accounting for 38.4% of total notional volume. (Data source: Artemis)

This creates an obvious mismatch. The current industry growth is driven by the sports market, which has led to outsiders generally equating it with the gambling business, and it is this area that faces the most severe regulatory pressure. The result is that the current revenue structure is closer to sports betting than financial infrastructure.

This kind of business concentration brings timing risks. If sports-related regulations are tightened before other categories have reached scale, the industry's core revenue source will shrink early, and its long-term business model has not yet been fully established.

But market valuations are clearly pricing in its future potential. Kalshi is valued at $22 billion, and Polymarket’s target valuation is in a similar range, which means the market expects it to be much larger than sports betting and expand into the institutional-level information market. However, this transformation has not yet really taken place, thus forming a core contradiction: the prediction market is valued based on information infrastructure, but at this stage it still relies on sports products for monetization.

The sports market has contributed to growth, but it is not a long-term moat. Its true value lies elsewhere.

The real core advantage areas of the prediction market

Besides sports, prediction markets have real and strong product value in a number of other areas.

Political sphere

The 2024 US election is proof of this. Polymarket's presidential election winner market has a total transaction volume of $3.7 billion. On the Monday before the election, Polymarket showed Trump winning 58% and Harris 42%, while traditional polls (CNN) showed the two sides were evenly matched. The final market forecast is accurate. A peer-reviewed study by the IMDEA Networks Institute in Madrid, Spain, which analyzed 86 million bets, found that Polymarket’s predictions were more than 94% accurate a full month before the outcome was determined. (arXiv:2603.03136)

Prediction markets do not replace polling, but incorporate it into the system. Polls become input variables, while prices aggregate all information to form a final judgment under the incentive mechanism of “make a mistake and you lose money”.

Economic and policy fields

This is the most important track and where the real moat lies.

Kalshi now provides intraday trading data on macroeconomic indicators, including CPI (month-on-month, year-on-year, calendar year), core CPI, PCE inflation, unemployment rate, non-farm payrolls, GDP growth and recession probability.

Federal Reserve research has validated the value of such products. In 2025, the transaction volume of the economic market will surge by 905%, and the technology market will surge by 1,637%. Although the current trading volume is still small, the signal quality has reached institutional level. The market-implied probability of interest rate hikes is not just a data point, but a key signal that affects the asset allocation, risk management and strategic decisions of top financial institutions. It is here that prediction markets transform from consumer-grade products to financial infrastructure.

Why encryption infrastructure is critical

From consumer products to financial infrastructure, the key is scale, and scale depends on accessibility.

Kalshi operates only within the United States, with a market population of approximately 330 million people. Polymarket is globally oriented and relies on encryption infrastructure to allow any user with a network and wallet to participate. This difference completely changed the size of the market.

Users in New York, Lagos or Jakarta can participate in the same market and trade at the same price. No permission is required to participate, and coverage is truly global. This is the channel advantage that encryption brings.

Cryptocurrency has also changed the way markets are created: instead of relying on centralized operators, independent adjudication agencies and oracle systems define and settle results, allowing the market size to far exceed the limit that a single platform can support.

Various trading platforms are moving towards this model: Robinhood has integrated event contracts in addition to stocks, options and crypto assets; almost at the same time, Hyperliquid also launched prediction market contracts through HIP-4.

Market Overview

Although there are many market participants, the market structure has been a duopoly from the beginning. Kalshi and Polymarket combined control 97.5% of trading volume. The current change in the industry is not further integration, but stratification: a clear hierarchical structure is forming around these two platforms.

The subversion of super apps

Platforms such as Robinhood and Coinbase are no longer just the channel distribution layer, they are cutting directly into the trading platform layer.

Robinhood has proven market demand. The prediction market has become one of its fastest-growing products, with contract trading volume exceeding 12 billion in 2025 and users exceeding 1 million. Its trading volume accounts for the vast majority of Kalshi’s total trading volume, which provides a clear incentive for Robinhood to internalize the traffic. In January 2026, Robinhood formed a joint venture with Susquehanna to acquire MIAXdx, an exchange and clearing agency licensed by the U.S. Commodity Futures Trading Commission (CFTC).

Coinbase is copying the same playbook. It first integrated the prediction market by accessing the Kalshi contract, and then acquired The Clearing Company to build its own infrastructure. Its strategy is straightforward: aggregate demand first, then vertically integrate. Once successful, the existing market structure will be rewritten. Kalshi's core positioning is the licensed exchange layer, but this advantage will be weakened if the distribution platform controls both users and trading venues. The industry moat will shift from licenses to channel distribution capabilities.

Polymarket faces another constraint. In 2022, it withdrew from the U.S. market after reaching a $1.4 million settlement with the CFTC, and then relied on encryption infrastructure to achieve global expansion. When it returned to the U.S. market through QCEX, it launched a completely different product: compared to its unlicensed global version of the service, this version is more restricted, requires brokerage channels, and implements comprehensive real-name verification (KYC). Therefore, its product form that has been highly successful in the international market is not consistent with the version that competes in the U.S. market today, and the domestic channels and funding channels in the United States have long been controlled by existing players.

This pattern will most likely lead to a differentiation of roles: distribution platforms control users and order flows, exchanges provide infrastructure and compliance services, and native encryption platforms dominate global market access. The prediction market will continue to grow at these three levels, but value capture will be concentrated in the links closest to users.

Winners and Losers

The birth of this system has reshaped the winner's echelon.

Winner: Distribution Platform

Robinhood, Coinbase and other platforms directly reach end users and control the account opening entrance, funds and order flow. As they vertically integrate their exchange infrastructure, they will reap both trading volume and profit margins. They are no longer just participants in the prediction market, but are becoming the core entrance.

Surviving but losing value: infrastructure providers

Kalshi has the best chance to become the core pillar of supervision in the system, responsible for contract authorization, transaction clearing and compliance infrastructure. But its role will shift from facing users directly to providing services to user holders, and its business model will be closer to Visa than to a retail bank.

Stay Differentiated: Global Native Encryption Platform

Polymarket retains its advantage in markets outside the United States, where license-free access, instant settlement and broader market coverage are more important than regulatory compliance. It will become the default trading venue for global users, highly contentious markets and crypto-native funds.

Losers: Participants who lack channels and liquidity

The importance of traditional pollsters continues to decline as funded probabilities replace opinion-based forecasts. Small prediction market platforms that lack liquidity and built-in channels will find it difficult to compete. Sports betting companies face structural pressures and the increasing overlap between prediction markets and their core businesses is estimated to have resulted in approximately $600 million in lost tax revenue.

Final form

Prediction markets expand the pricing boundaries of financial markets. Today, financial markets price assets: stocks represent ownership of a company, bonds represent recourse to future cash flows. Prediction markets price event outcomes.

All uncertainties can become trading targets: political events, economic indicators, technological progress, and environmental results. Ultimately, uncertainty itself becomes financialized.

The data clearly shows the development trajectory of the industry:

• 2024: The total transaction volume is approximately US$16 billion, and the feasibility of the business model has been verified through the election

• 2025: Total transaction volume is approximately US$63.5 billion, a 4-fold increase driven by the sports market

• 2026: The annual scale will exceed US$200 billion, and regulatory clarity will become the key to the survival of the industry (data source: Artemis)

Conclusion

Prediction markets mark a shift in the way the world deals with uncertainty. It transforms an intangible thing, the probability of future events, into a target that can be priced, traded, and acted upon.

The core question is whether the core of what makes prediction markets valuable (pricing uncertainty) is consistent with the driving force for their scale. Currently the answer is no. The sports market drives scale, but the value of information gives it real meaning. The gap between the two will determine the future of the entire industry. Once scale is achieved, it will be not just a new market, but a new model for pricing information itself.