What are prediction markets, and how do they work?
Prediction markets are exchanges where traders buy and sell contingent claims, or shares that pay $1 if a stated future event happens and $0 otherwise. The instantaneous trading price, therefore, mirrors the market-implied probability of the outcome. Because prices update whenever informed traders act, prediction markets aggregate dispersed information faster than surveys or expert panels and have been used to forecast elections, macro data releases, sports scores, and even corporate KPIs.
A standard binary contract lists an event (“Will U.S. GDP grow > 2% in Q3 2025?”) and an end date when it resolves. Traders go long Yes or short No in $0.01 increments; if the event occurs, Yes settles at $1 and No at $0, and vice versa if it does not.
More complex products - like range contracts on CPI prints or bracketed “number-of-Fed-rate-cuts” markets - payout on multi-bucket ladders but follow the same principle: the sum of bucket prices equals $1 so the contracts collectively form a complete probability distribution.
Early venues such as Betfair used a continuous limit-order book: traders post bids and offers and wait for a counterparty. In crypto-native venues, the dominant design is an automated market maker (AMM). Polymarket and Manifold rely on Robin Hanson’s logarithmic market-scoring rule (LMSR), which quotes both sides of every market at all times, updates prices after each trade, and guarantees bounded loss to the house, very much a key property for thin, long-tail markets.
Order-book platforms like Kalshi side-step the inventory problem by matching buyers and sellers directly, but then need market-makers or incentives to seed quotes. Polymarket mitigates inventory risk by paying rebates that reward 7.5% of all volume in 2024 to designated LPs.
Each platform maintains an oracle - a data feed or human committee - that declares the official outcome. Kalshi, as a CFTC-regulated Designated Contract Market (DCM), must source settlement data from government bulletins or audited third-party reports. Polymarket users vote in an on-chain dispute process if the first oracle call is contested, while Manifold’s play-money site simply defers to staff arbitration. These resolution layers cap oracle risk, or more simply put, the chance that the factual outcome diverges from the platform’s declaration.
Platforms typically collect a trading fee - Polymarket charges 2% of matched volume, Kalshi charges $0.01 per contract, and withdrawal or settlement fees. With volumes surging ahead of the 2024 U.S. election, Polymarket cleared $3.1 billion on election contracts alone, while Kalshi processed $197 million, implying mid-seven-figure annualized fee revenue even before maker-rebates.
Blockchains allow non-custodial trading: users post USDC on Polygon via Polymarket or testnet Mana points via Manifold to an AMM contract that escrows funds until resolution hits. Every trade is an on-chain transaction, meaning balances settle atomically without counterparty risk present in centralized alternatives.
Kalshi settles in fiat inside a trust-bank omnibus account, much safer for U.S. compliance, but slower and limited to U.S. hours. Gas-efficient L2s and account-abstraction wallets are lowering frictions, so on-chain prediction tickets clear in seconds at sub-cent cost.
Cryptonative markets now dwarf their Web2 predecessors. In calendar-year 2024, Polymarket logged $9 billion cumulative volume and surpassed 314k active traders, according to platform disclosures reported by The Block; its daily active traders averaged 7,800 in Q4 2024 and peaked above 18,000 on election-debate nights.
Kalshi’s regulated order-book crossed $30 million in its first three weeks of reopened U.S. election trading (October 2024) and maintains 2,400 DAUs in 2025. Even play-money Manifold managed around 1,200 DAUs for most of 2024, though traffic dipped to a record-low 886 active traders on March 14, 2025.
How do blockchains fit in?
Blockchains supply atomic settlement for cryptonative markets: trader A sends a stablecoin to the smart-contract AMM and, in the same transaction, receives event-contingent shares. The contract escrows funds until an oracle posts the outcome, so counterparty and clearing-house risk collapse to smart-contract risk.
L2 networks like Polygon keep fees below one cent and let Polymarket clear thousands of trades per minute while maintaining public, tamper-proof ledgers that outside auditors can replay at will. By contrast, Kalshi escrows dollars in a trust-bank omnibus account and batch-settles at end-of-day, a design choice driven by U.S. regulation rather than technology.
Polymarket deposits USDC on Polygon; each market is an LMSR AMM contract where the liquidity parameter B and oracle address are hard-coded. Resolution relies on UMA’s optimistic oracle: after the stated end-time, the contract proposes an outcome, any address may dispute for 24 h by posting a bond, and UMA token-holders vote if challenged.
As of April 2025, UMA has settled more than 8,000 Polymarket markets with fewer than 2% ending in dispute.
The optimism model is not bullet-proof: in June 2024, UMA voters ruled that Barron Trump was not involved in the DJT memecoin, but Polymarket’s ops team overrode the oracle and refunded traders, pledging oracle upgrades for 2025.
Kalshi runs a CFTC-registered Designated Contract Market with its own derivatives-clearing organisation (Kalshi Klear). Orders match in a central limit book; collateral and settlement remain in U.S. dollars to satisfy customer-asset segregation rules. A March 2024 filing notes Kalshi will list crypto-price contracts, but settle them in cash, underscoring the platform’s fiat-first approach versus Polymarket’s token-native rails.
Manifold is a play-money site; trades settle in Mana points inside a Postgres database, and market creators themselves post the resolution. If users contest an outcome, staff moderators can overrule, but there is no on-chain audit trail or immutable escrow (gas-free UX at the cost of cryptographic guarantees). The team is experimenting with optional KYC and hints at a real-money Polygon fork, yet today only the social layer resides on-chain (creator NFTs and referral badges).
Chainlink is testing AI oracles that use LLMs plus decentralized validator committees to scrape documents, generate verifiable proofs, and post a consensus hash on-chain, a model aimed squarely at complex, long-tail prediction questions. Kalshi, meanwhile, ties each contract to a single Source Agency (BLS for CPI) embedded in its CFTC rulebook, while Manifold relies on creator honesty backed by community reputation.
Kalshi’s fully-KYC model can serve all 50 U.S. states; Polymarket geoblocks U.S. IPs after a 2022 CFTC settlement but remains accessible globally. Manifold has no formal KYC yet, though community polls support optional identity tiers. Regulators are watching: the CFTC convenes a 2025 round-table on event contracts that will include Polymarket and Chainlink representatives alongside Kalshi.
The outcome will determine whether tokenized prediction shares can legally trade in U.S. venues or remain the province of offshore chains.
Major players in the prediction market space and differentiators
By early 2025, the sector will have coalesced around three distinct models.
Polymarket sits in the crypto-native, non-custodial camp; Kalshi is a fully regulated U.S. derivatives exchange; and Manifold runs a play-money, reputation-driven social site. A fourth vector is emerging as FinTech brokers like Robinhood bolt event contracts onto retail trading apps.
Running an LMSR AMM on Polygon, Polymarket cleared $9 billion in 2024 and served 314,000 active traders - an order of magnitude more than any rival. The protocol’s on-chain order flow, sub-cent gas fees, and USDC settlement attract both information traders and crypto-savvy speculators. A 2% taker fee funds rebates that seeded 1,500+ long-tail markets last year.
Kalshi lists “event contracts” under a Designated Contract Market licence. After a favourable court ruling, its presidential market amassed $30 million in matched volume within three weeks of the October 2024 launch, somewhat small next to Polymarket but unprecedented for a fully U.S.-compliant venue. Trades settle in dollars via a trust-bank omnibus account; the exchange charges $0.01 per contract and passes all customer funds through a registered clearing house.
Because Manifold resolution is handled by staff arbitration and balances live in a Web2 database, onboarding is frictionless, but cryptographic guarantees are minimal. Daily active users averaged roughly 1,200 through 2024, according to internal community dashboards, keeping liquidity modest but discourse lively.
Sensing retail appetite, Robinhood opened a Prediction Markets Hub in March 2025 that pipes Kalshi contracts into its brokerage interface; the election-beta in October 2024 alone drove a 500 million-contract week on Harris vs. Trump markets. A Super Bowl contract on Chiefs v. Eagles followed in February 2025, showing the platform’s attempt at blending sports betting dynamics with heavily regulated derivatives rails.
Legal U.S. sportsbooks posted a record $13.71 billion in 2024 revenue on nearly $150 billion in handle: up 22% year-over-year.
With 38 states live and broadcast partners integrating live odds, Americans are increasingly comfortable staking money on uncertain outcomes. Prediction-market operators piggyback on this familiarity, offering lower fees and, in Polymarket’s case, 24/7 global access unconstrained by state geofencing.
Polymarket’s token-centric design draws crypto whales and arbitrage desks; Kalshi leans on designated market-makers who post continuous two-sided quotes; Manifold relies on creator networks to bootstrap interest. Robinhood, by contrast, imports 11.8 million existing brokerage users, so liquidity is a by-product of its broader trading ecosystem.
A Polymarket trader pays 2% of matched volume; Kalshi charges $0.01 per side and credits idle balances with 3.75% APY; Manifold is free, monetising via donations and premium features. Robinhood extracts zero explicit fees today - hoping order-flow and cross-sell lift ARPU - but still faces CFTC scrutiny over gamification, as seen in a March 2025 Massachusetts probe.
CFTC staff are questioning whether Super Bowl event contracts are futures in disguise, while the FBI continues monitoring Polymarket’s U.S. geo-blocking compliance. The divergence explains platform tactics: Kalshi and Robinhood embrace KYC and CFTC rulebooks; Polymarket migrates risk offshore to Polygon; Manifold remains in a type of legal grey area as a play-money game.
Prediction markets price binary contracts the same way sportsbooks price money-line odds, yet spreads are often tighter because liquidity is continuous and combinable (parlay-like state-bundle contracts). FanDuel and DraftKings still dominate mainstream betting, but Polymarket’s $1.1 billion Super Bowl LIX handle shows that crypto venues can compete head-to-head on marquee sports events.
Future of prediction markets across industries
Multinational treasuries already hedge FX and rates; event contracts could let them lock in regulatory approval or product-launch risks. A pharma firm might short “FDA approves rival drug by Q4 2026” on Kalshi, offsetting competitive downside without insider-trading baggage because payouts are detached from underlying securities.
Asset managers can overlay macro views cheaply - buying “Fed holds in June” instead of Eurodollar futures - and retail traders can express nuanced opinions without leverage. Robinhood’s hub aims exactly here: contracts on the May 2025 FOMC rate have already drawn over $12 million since launch.
With legal sports betting revenue topping $13.71 billion in 2024, media companies are embedding live odds into streams. Prediction-market APIs could display crowd-priced win probabilities that update second-by-second, creating interactive betting overlays far cheaper than sportsbook odds because liquidity is pooled globally, not siloed state-by-state.
Internal markets at Google and Microsoft improved project-deadline accuracy by 17% in academic studies. Tokenised prediction shares could automate payouts and anonymity, enabling any company to spin up a Polygon-based market on quarterly sales or product timelines without compliance overhead. The research-funding DAO RetroPGF already uses Polymarket odds as one signal for grant allocation. Climate-risk markets could crowd-price CO₂ levels or hurricane landfalls, directing insurance payouts instantaneously when Chainlink oracles confirm sensor data.
LMSR pools can be inverted into protection pools: farmers buy “Did rainfall less than 10 cm in July?” shares; if drought hits, the contract pays $1. Smart contracts escrow premiums, slashing settlement lag from months to minutes once satellite oracles post data. Protocols already gauge sentiment via Snapshot polls; augmenting with real-money markets tightens feedback loops and deters sybil attacks. MakerDAO pilots a “MKR-burn odds” market to flag governance exploits before damage spreads.
Projects like Zeitgeist and Prophecy want to route order flow across Polkadot, Solana, and Ethereum, arbitraging price gaps and deepening liquidity. Interoperability layers will make the underlying chain invisible to end-users, crucial if Robinhood or ESPN wants instant quotes in the near future.
Chainlink’s upcoming decentralized AI oracles will parse more natural-language sources, hash outcomes, and broadcast towards multiple chains simultaneously, reducing the possibility and resolution latency from hours to just minutes. UMA plans zero-knowledge proof add-ons so voters can prove their stake without doxxing wallets.
The CFTC round-table slated for Q3 2025 will debate lifting the $100-million position cap and approving sports contracts, potentially unlocking a regulated path for crypto-settled markets in the U.S. MiCA’s event derivative sandbox in the EU could serve as a blueprint, giving Polymarket a compliant on-ramp to Europe.
The CFTC round-table slated for Q3 2025 will debate lifting the $100-million position cap and approving sports contracts, potentially unlocking a regulated path for crypto-settled markets in the U.S. MiCA’s “event derivative” sandbox in the EU could serve as a blueprint, giving Polymarket a compliant on-ramp to Europe. Manipulation - especially in thin markets tied to low-information events - remains a threat. Mandatory “liquidity caps” and slashing bonds for oracle voters are emerging best practices. Privacy trade-offs need care: anonymous markets boost honesty but raise AML flags.
Blockchains supply the three ingredients legacy venues lack: instant global settlement, transparent order books, and composable collateral. As oracle tech matures and regulators converge on clear event-contract rules, prediction markets can jump from today’s $10-12 billion niche to a multi-industry risk-pricing layer rivaling traditional options.
In short, prediction markets crystallise collective intelligence by turning information into tradable assets. Blockchain rails strip away custody and clearing frictions, letting any user anywhere price the future in real time. Whether the contract settles on a presidential race, a Super Bowl drive, or a drug-approval milestone, the underlying mechanism is the same: an oracle posts the truth, and smart contracts release funds.
As compliance frameworks catch up and oracle reliability hardens, blockchains will shift prediction markets from quirky side-bet venues to indispensable forecasting engines for finance, media, and public policy. The technology isn’t just enabling prediction markets, but rather reinventing them into a global utility for probabilistic truth.
What are prediction markets, and how do they work?
Prediction markets are exchanges where traders buy and sell contingent claims, or shares that pay $1 if a stated future event happens and $0 otherwise. The instantaneous trading price, therefore, mirrors the market-implied probability of the outcome. Because prices update whenever informed traders act, prediction markets aggregate dispersed information faster than surveys or expert panels and have been used to forecast elections, macro data releases, sports scores, and even corporate KPIs.
A standard binary contract lists an event (“Will U.S. GDP grow > 2% in Q3 2025?”) and an end date when it resolves. Traders go long Yes or short No in $0.01 increments; if the event occurs, Yes settles at $1 and No at $0, and vice versa if it does not.
More complex products - like range contracts on CPI prints or bracketed “number-of-Fed-rate-cuts” markets - payout on multi-bucket ladders but follow the same principle: the sum of bucket prices equals $1 so the contracts collectively form a complete probability distribution.
Early venues such as Betfair used a continuous limit-order book: traders post bids and offers and wait for a counterparty. In crypto-native venues, the dominant design is an automated market maker (AMM). Polymarket and Manifold rely on Robin Hanson’s logarithmic market-scoring rule (LMSR), which quotes both sides of every market at all times, updates prices after each trade, and guarantees bounded loss to the house, very much a key property for thin, long-tail markets.
Order-book platforms like Kalshi side-step the inventory problem by matching buyers and sellers directly, but then need market-makers or incentives to seed quotes. Polymarket mitigates inventory risk by paying rebates that reward 7.5% of all volume in 2024 to designated LPs.
Each platform maintains an oracle - a data feed or human committee - that declares the official outcome. Kalshi, as a CFTC-regulated Designated Contract Market (DCM), must source settlement data from government bulletins or audited third-party reports. Polymarket users vote in an on-chain dispute process if the first oracle call is contested, while Manifold’s play-money site simply defers to staff arbitration. These resolution layers cap oracle risk, or more simply put, the chance that the factual outcome diverges from the platform’s declaration.
Platforms typically collect a trading fee - Polymarket charges 2% of matched volume, Kalshi charges $0.01 per contract, and withdrawal or settlement fees. With volumes surging ahead of the 2024 U.S. election, Polymarket cleared $3.1 billion on election contracts alone, while Kalshi processed $197 million, implying mid-seven-figure annualized fee revenue even before maker-rebates.
Blockchains allow non-custodial trading: users post USDC on Polygon via Polymarket or testnet Mana points via Manifold to an AMM contract that escrows funds until resolution hits. Every trade is an on-chain transaction, meaning balances settle atomically without counterparty risk present in centralized alternatives.
Kalshi settles in fiat inside a trust-bank omnibus account, much safer for U.S. compliance, but slower and limited to U.S. hours. Gas-efficient L2s and account-abstraction wallets are lowering frictions, so on-chain prediction tickets clear in seconds at sub-cent cost.
Cryptonative markets now dwarf their Web2 predecessors. In calendar-year 2024, Polymarket logged $9 billion cumulative volume and surpassed 314k active traders, according to platform disclosures reported by The Block; its daily active traders averaged 7,800 in Q4 2024 and peaked above 18,000 on election-debate nights.
Kalshi’s regulated order-book crossed $30 million in its first three weeks of reopened U.S. election trading (October 2024) and maintains 2,400 DAUs in 2025. Even play-money Manifold managed around 1,200 DAUs for most of 2024, though traffic dipped to a record-low 886 active traders on March 14, 2025.
How do blockchains fit in?
Blockchains supply atomic settlement for cryptonative markets: trader A sends a stablecoin to the smart-contract AMM and, in the same transaction, receives event-contingent shares. The contract escrows funds until an oracle posts the outcome, so counterparty and clearing-house risk collapse to smart-contract risk.
L2 networks like Polygon keep fees below one cent and let Polymarket clear thousands of trades per minute while maintaining public, tamper-proof ledgers that outside auditors can replay at will. By contrast, Kalshi escrows dollars in a trust-bank omnibus account and batch-settles at end-of-day, a design choice driven by U.S. regulation rather than technology.
Polymarket deposits USDC on Polygon; each market is an LMSR AMM contract where the liquidity parameter B and oracle address are hard-coded. Resolution relies on UMA’s optimistic oracle: after the stated end-time, the contract proposes an outcome, any address may dispute for 24 h by posting a bond, and UMA token-holders vote if challenged.
As of April 2025, UMA has settled more than 8,000 Polymarket markets with fewer than 2% ending in dispute.
The optimism model is not bullet-proof: in June 2024, UMA voters ruled that Barron Trump was not involved in the DJT memecoin, but Polymarket’s ops team overrode the oracle and refunded traders, pledging oracle upgrades for 2025.
Kalshi runs a CFTC-registered Designated Contract Market with its own derivatives-clearing organisation (Kalshi Klear). Orders match in a central limit book; collateral and settlement remain in U.S. dollars to satisfy customer-asset segregation rules. A March 2024 filing notes Kalshi will list crypto-price contracts, but settle them in cash, underscoring the platform’s fiat-first approach versus Polymarket’s token-native rails.
Manifold is a play-money site; trades settle in Mana points inside a Postgres database, and market creators themselves post the resolution. If users contest an outcome, staff moderators can overrule, but there is no on-chain audit trail or immutable escrow (gas-free UX at the cost of cryptographic guarantees). The team is experimenting with optional KYC and hints at a real-money Polygon fork, yet today only the social layer resides on-chain (creator NFTs and referral badges).
Chainlink is testing AI oracles that use LLMs plus decentralized validator committees to scrape documents, generate verifiable proofs, and post a consensus hash on-chain, a model aimed squarely at complex, long-tail prediction questions. Kalshi, meanwhile, ties each contract to a single Source Agency (BLS for CPI) embedded in its CFTC rulebook, while Manifold relies on creator honesty backed by community reputation.
Kalshi’s fully-KYC model can serve all 50 U.S. states; Polymarket geoblocks U.S. IPs after a 2022 CFTC settlement but remains accessible globally. Manifold has no formal KYC yet, though community polls support optional identity tiers. Regulators are watching: the CFTC convenes a 2025 round-table on event contracts that will include Polymarket and Chainlink representatives alongside Kalshi.
The outcome will determine whether tokenized prediction shares can legally trade in U.S. venues or remain the province of offshore chains.
Major players in the prediction market space and differentiators
By early 2025, the sector will have coalesced around three distinct models.
Polymarket sits in the crypto-native, non-custodial camp; Kalshi is a fully regulated U.S. derivatives exchange; and Manifold runs a play-money, reputation-driven social site. A fourth vector is emerging as FinTech brokers like Robinhood bolt event contracts onto retail trading apps.
Running an LMSR AMM on Polygon, Polymarket cleared $9 billion in 2024 and served 314,000 active traders - an order of magnitude more than any rival. The protocol’s on-chain order flow, sub-cent gas fees, and USDC settlement attract both information traders and crypto-savvy speculators. A 2% taker fee funds rebates that seeded 1,500+ long-tail markets last year.
Kalshi lists “event contracts” under a Designated Contract Market licence. After a favourable court ruling, its presidential market amassed $30 million in matched volume within three weeks of the October 2024 launch, somewhat small next to Polymarket but unprecedented for a fully U.S.-compliant venue. Trades settle in dollars via a trust-bank omnibus account; the exchange charges $0.01 per contract and passes all customer funds through a registered clearing house.
Because Manifold resolution is handled by staff arbitration and balances live in a Web2 database, onboarding is frictionless, but cryptographic guarantees are minimal. Daily active users averaged roughly 1,200 through 2024, according to internal community dashboards, keeping liquidity modest but discourse lively.
Sensing retail appetite, Robinhood opened a Prediction Markets Hub in March 2025 that pipes Kalshi contracts into its brokerage interface; the election-beta in October 2024 alone drove a 500 million-contract week on Harris vs. Trump markets. A Super Bowl contract on Chiefs v. Eagles followed in February 2025, showing the platform’s attempt at blending sports betting dynamics with heavily regulated derivatives rails.
Legal U.S. sportsbooks posted a record $13.71 billion in 2024 revenue on nearly $150 billion in handle: up 22% year-over-year.
With 38 states live and broadcast partners integrating live odds, Americans are increasingly comfortable staking money on uncertain outcomes. Prediction-market operators piggyback on this familiarity, offering lower fees and, in Polymarket’s case, 24/7 global access unconstrained by state geofencing.
Polymarket’s token-centric design draws crypto whales and arbitrage desks; Kalshi leans on designated market-makers who post continuous two-sided quotes; Manifold relies on creator networks to bootstrap interest. Robinhood, by contrast, imports 11.8 million existing brokerage users, so liquidity is a by-product of its broader trading ecosystem.
A Polymarket trader pays 2% of matched volume; Kalshi charges $0.01 per side and credits idle balances with 3.75% APY; Manifold is free, monetising via donations and premium features. Robinhood extracts zero explicit fees today - hoping order-flow and cross-sell lift ARPU - but still faces CFTC scrutiny over gamification, as seen in a March 2025 Massachusetts probe.
CFTC staff are questioning whether Super Bowl event contracts are futures in disguise, while the FBI continues monitoring Polymarket’s U.S. geo-blocking compliance. The divergence explains platform tactics: Kalshi and Robinhood embrace KYC and CFTC rulebooks; Polymarket migrates risk offshore to Polygon; Manifold remains in a type of legal grey area as a play-money game.
Prediction markets price binary contracts the same way sportsbooks price money-line odds, yet spreads are often tighter because liquidity is continuous and combinable (parlay-like state-bundle contracts). FanDuel and DraftKings still dominate mainstream betting, but Polymarket’s $1.1 billion Super Bowl LIX handle shows that crypto venues can compete head-to-head on marquee sports events.
Future of prediction markets across industries
Multinational treasuries already hedge FX and rates; event contracts could let them lock in regulatory approval or product-launch risks. A pharma firm might short “FDA approves rival drug by Q4 2026” on Kalshi, offsetting competitive downside without insider-trading baggage because payouts are detached from underlying securities.
Asset managers can overlay macro views cheaply - buying “Fed holds in June” instead of Eurodollar futures - and retail traders can express nuanced opinions without leverage. Robinhood’s hub aims exactly here: contracts on the May 2025 FOMC rate have already drawn over $12 million since launch.
With legal sports betting revenue topping $13.71 billion in 2024, media companies are embedding live odds into streams. Prediction-market APIs could display crowd-priced win probabilities that update second-by-second, creating interactive betting overlays far cheaper than sportsbook odds because liquidity is pooled globally, not siloed state-by-state.
Internal markets at Google and Microsoft improved project-deadline accuracy by 17% in academic studies. Tokenised prediction shares could automate payouts and anonymity, enabling any company to spin up a Polygon-based market on quarterly sales or product timelines without compliance overhead. The research-funding DAO RetroPGF already uses Polymarket odds as one signal for grant allocation. Climate-risk markets could crowd-price CO₂ levels or hurricane landfalls, directing insurance payouts instantaneously when Chainlink oracles confirm sensor data.
LMSR pools can be inverted into protection pools: farmers buy “Did rainfall less than 10 cm in July?” shares; if drought hits, the contract pays $1. Smart contracts escrow premiums, slashing settlement lag from months to minutes once satellite oracles post data. Protocols already gauge sentiment via Snapshot polls; augmenting with real-money markets tightens feedback loops and deters sybil attacks. MakerDAO pilots a “MKR-burn odds” market to flag governance exploits before damage spreads.
Projects like Zeitgeist and Prophecy want to route order flow across Polkadot, Solana, and Ethereum, arbitraging price gaps and deepening liquidity. Interoperability layers will make the underlying chain invisible to end-users, crucial if Robinhood or ESPN wants instant quotes in the near future.
Chainlink’s upcoming decentralized AI oracles will parse more natural-language sources, hash outcomes, and broadcast towards multiple chains simultaneously, reducing the possibility and resolution latency from hours to just minutes. UMA plans zero-knowledge proof add-ons so voters can prove their stake without doxxing wallets.
The CFTC round-table slated for Q3 2025 will debate lifting the $100-million position cap and approving sports contracts, potentially unlocking a regulated path for crypto-settled markets in the U.S. MiCA’s event derivative sandbox in the EU could serve as a blueprint, giving Polymarket a compliant on-ramp to Europe.
The CFTC round-table slated for Q3 2025 will debate lifting the $100-million position cap and approving sports contracts, potentially unlocking a regulated path for crypto-settled markets in the U.S. MiCA’s “event derivative” sandbox in the EU could serve as a blueprint, giving Polymarket a compliant on-ramp to Europe. Manipulation - especially in thin markets tied to low-information events - remains a threat. Mandatory “liquidity caps” and slashing bonds for oracle voters are emerging best practices. Privacy trade-offs need care: anonymous markets boost honesty but raise AML flags.
Blockchains supply the three ingredients legacy venues lack: instant global settlement, transparent order books, and composable collateral. As oracle tech matures and regulators converge on clear event-contract rules, prediction markets can jump from today’s $10-12 billion niche to a multi-industry risk-pricing layer rivaling traditional options.
In short, prediction markets crystallise collective intelligence by turning information into tradable assets. Blockchain rails strip away custody and clearing frictions, letting any user anywhere price the future in real time. Whether the contract settles on a presidential race, a Super Bowl drive, or a drug-approval milestone, the underlying mechanism is the same: an oracle posts the truth, and smart contracts release funds.
As compliance frameworks catch up and oracle reliability hardens, blockchains will shift prediction markets from quirky side-bet venues to indispensable forecasting engines for finance, media, and public policy. The technology isn’t just enabling prediction markets, but rather reinventing them into a global utility for probabilistic truth.
What are prediction markets, and how do they work?
Prediction markets are exchanges where traders buy and sell contingent claims, or shares that pay $1 if a stated future event happens and $0 otherwise. The instantaneous trading price, therefore, mirrors the market-implied probability of the outcome. Because prices update whenever informed traders act, prediction markets aggregate dispersed information faster than surveys or expert panels and have been used to forecast elections, macro data releases, sports scores, and even corporate KPIs.
A standard binary contract lists an event (“Will U.S. GDP grow > 2% in Q3 2025?”) and an end date when it resolves. Traders go long Yes or short No in $0.01 increments; if the event occurs, Yes settles at $1 and No at $0, and vice versa if it does not.
More complex products - like range contracts on CPI prints or bracketed “number-of-Fed-rate-cuts” markets - payout on multi-bucket ladders but follow the same principle: the sum of bucket prices equals $1 so the contracts collectively form a complete probability distribution.
Early venues such as Betfair used a continuous limit-order book: traders post bids and offers and wait for a counterparty. In crypto-native venues, the dominant design is an automated market maker (AMM). Polymarket and Manifold rely on Robin Hanson’s logarithmic market-scoring rule (LMSR), which quotes both sides of every market at all times, updates prices after each trade, and guarantees bounded loss to the house, very much a key property for thin, long-tail markets.
Order-book platforms like Kalshi side-step the inventory problem by matching buyers and sellers directly, but then need market-makers or incentives to seed quotes. Polymarket mitigates inventory risk by paying rebates that reward 7.5% of all volume in 2024 to designated LPs.
Each platform maintains an oracle - a data feed or human committee - that declares the official outcome. Kalshi, as a CFTC-regulated Designated Contract Market (DCM), must source settlement data from government bulletins or audited third-party reports. Polymarket users vote in an on-chain dispute process if the first oracle call is contested, while Manifold’s play-money site simply defers to staff arbitration. These resolution layers cap oracle risk, or more simply put, the chance that the factual outcome diverges from the platform’s declaration.
Platforms typically collect a trading fee - Polymarket charges 2% of matched volume, Kalshi charges $0.01 per contract, and withdrawal or settlement fees. With volumes surging ahead of the 2024 U.S. election, Polymarket cleared $3.1 billion on election contracts alone, while Kalshi processed $197 million, implying mid-seven-figure annualized fee revenue even before maker-rebates.
Blockchains allow non-custodial trading: users post USDC on Polygon via Polymarket or testnet Mana points via Manifold to an AMM contract that escrows funds until resolution hits. Every trade is an on-chain transaction, meaning balances settle atomically without counterparty risk present in centralized alternatives.
Kalshi settles in fiat inside a trust-bank omnibus account, much safer for U.S. compliance, but slower and limited to U.S. hours. Gas-efficient L2s and account-abstraction wallets are lowering frictions, so on-chain prediction tickets clear in seconds at sub-cent cost.
Cryptonative markets now dwarf their Web2 predecessors. In calendar-year 2024, Polymarket logged $9 billion cumulative volume and surpassed 314k active traders, according to platform disclosures reported by The Block; its daily active traders averaged 7,800 in Q4 2024 and peaked above 18,000 on election-debate nights.
Kalshi’s regulated order-book crossed $30 million in its first three weeks of reopened U.S. election trading (October 2024) and maintains 2,400 DAUs in 2025. Even play-money Manifold managed around 1,200 DAUs for most of 2024, though traffic dipped to a record-low 886 active traders on March 14, 2025.
How do blockchains fit in?
Blockchains supply atomic settlement for cryptonative markets: trader A sends a stablecoin to the smart-contract AMM and, in the same transaction, receives event-contingent shares. The contract escrows funds until an oracle posts the outcome, so counterparty and clearing-house risk collapse to smart-contract risk.
L2 networks like Polygon keep fees below one cent and let Polymarket clear thousands of trades per minute while maintaining public, tamper-proof ledgers that outside auditors can replay at will. By contrast, Kalshi escrows dollars in a trust-bank omnibus account and batch-settles at end-of-day, a design choice driven by U.S. regulation rather than technology.
Polymarket deposits USDC on Polygon; each market is an LMSR AMM contract where the liquidity parameter B and oracle address are hard-coded. Resolution relies on UMA’s optimistic oracle: after the stated end-time, the contract proposes an outcome, any address may dispute for 24 h by posting a bond, and UMA token-holders vote if challenged.
As of April 2025, UMA has settled more than 8,000 Polymarket markets with fewer than 2% ending in dispute.
The optimism model is not bullet-proof: in June 2024, UMA voters ruled that Barron Trump was not involved in the DJT memecoin, but Polymarket’s ops team overrode the oracle and refunded traders, pledging oracle upgrades for 2025.
Kalshi runs a CFTC-registered Designated Contract Market with its own derivatives-clearing organisation (Kalshi Klear). Orders match in a central limit book; collateral and settlement remain in U.S. dollars to satisfy customer-asset segregation rules. A March 2024 filing notes Kalshi will list crypto-price contracts, but settle them in cash, underscoring the platform’s fiat-first approach versus Polymarket’s token-native rails.
Manifold is a play-money site; trades settle in Mana points inside a Postgres database, and market creators themselves post the resolution. If users contest an outcome, staff moderators can overrule, but there is no on-chain audit trail or immutable escrow (gas-free UX at the cost of cryptographic guarantees). The team is experimenting with optional KYC and hints at a real-money Polygon fork, yet today only the social layer resides on-chain (creator NFTs and referral badges).
Chainlink is testing AI oracles that use LLMs plus decentralized validator committees to scrape documents, generate verifiable proofs, and post a consensus hash on-chain, a model aimed squarely at complex, long-tail prediction questions. Kalshi, meanwhile, ties each contract to a single Source Agency (BLS for CPI) embedded in its CFTC rulebook, while Manifold relies on creator honesty backed by community reputation.
Kalshi’s fully-KYC model can serve all 50 U.S. states; Polymarket geoblocks U.S. IPs after a 2022 CFTC settlement but remains accessible globally. Manifold has no formal KYC yet, though community polls support optional identity tiers. Regulators are watching: the CFTC convenes a 2025 round-table on event contracts that will include Polymarket and Chainlink representatives alongside Kalshi.
The outcome will determine whether tokenized prediction shares can legally trade in U.S. venues or remain the province of offshore chains.
Major players in the prediction market space and differentiators
By early 2025, the sector will have coalesced around three distinct models.
Polymarket sits in the crypto-native, non-custodial camp; Kalshi is a fully regulated U.S. derivatives exchange; and Manifold runs a play-money, reputation-driven social site. A fourth vector is emerging as FinTech brokers like Robinhood bolt event contracts onto retail trading apps.
Running an LMSR AMM on Polygon, Polymarket cleared $9 billion in 2024 and served 314,000 active traders - an order of magnitude more than any rival. The protocol’s on-chain order flow, sub-cent gas fees, and USDC settlement attract both information traders and crypto-savvy speculators. A 2% taker fee funds rebates that seeded 1,500+ long-tail markets last year.
Kalshi lists “event contracts” under a Designated Contract Market licence. After a favourable court ruling, its presidential market amassed $30 million in matched volume within three weeks of the October 2024 launch, somewhat small next to Polymarket but unprecedented for a fully U.S.-compliant venue. Trades settle in dollars via a trust-bank omnibus account; the exchange charges $0.01 per contract and passes all customer funds through a registered clearing house.
Because Manifold resolution is handled by staff arbitration and balances live in a Web2 database, onboarding is frictionless, but cryptographic guarantees are minimal. Daily active users averaged roughly 1,200 through 2024, according to internal community dashboards, keeping liquidity modest but discourse lively.
Sensing retail appetite, Robinhood opened a Prediction Markets Hub in March 2025 that pipes Kalshi contracts into its brokerage interface; the election-beta in October 2024 alone drove a 500 million-contract week on Harris vs. Trump markets. A Super Bowl contract on Chiefs v. Eagles followed in February 2025, showing the platform’s attempt at blending sports betting dynamics with heavily regulated derivatives rails.
Legal U.S. sportsbooks posted a record $13.71 billion in 2024 revenue on nearly $150 billion in handle: up 22% year-over-year.
With 38 states live and broadcast partners integrating live odds, Americans are increasingly comfortable staking money on uncertain outcomes. Prediction-market operators piggyback on this familiarity, offering lower fees and, in Polymarket’s case, 24/7 global access unconstrained by state geofencing.
Polymarket’s token-centric design draws crypto whales and arbitrage desks; Kalshi leans on designated market-makers who post continuous two-sided quotes; Manifold relies on creator networks to bootstrap interest. Robinhood, by contrast, imports 11.8 million existing brokerage users, so liquidity is a by-product of its broader trading ecosystem.
A Polymarket trader pays 2% of matched volume; Kalshi charges $0.01 per side and credits idle balances with 3.75% APY; Manifold is free, monetising via donations and premium features. Robinhood extracts zero explicit fees today - hoping order-flow and cross-sell lift ARPU - but still faces CFTC scrutiny over gamification, as seen in a March 2025 Massachusetts probe.
CFTC staff are questioning whether Super Bowl event contracts are futures in disguise, while the FBI continues monitoring Polymarket’s U.S. geo-blocking compliance. The divergence explains platform tactics: Kalshi and Robinhood embrace KYC and CFTC rulebooks; Polymarket migrates risk offshore to Polygon; Manifold remains in a type of legal grey area as a play-money game.
Prediction markets price binary contracts the same way sportsbooks price money-line odds, yet spreads are often tighter because liquidity is continuous and combinable (parlay-like state-bundle contracts). FanDuel and DraftKings still dominate mainstream betting, but Polymarket’s $1.1 billion Super Bowl LIX handle shows that crypto venues can compete head-to-head on marquee sports events.
Future of prediction markets across industries
Multinational treasuries already hedge FX and rates; event contracts could let them lock in regulatory approval or product-launch risks. A pharma firm might short “FDA approves rival drug by Q4 2026” on Kalshi, offsetting competitive downside without insider-trading baggage because payouts are detached from underlying securities.
Asset managers can overlay macro views cheaply - buying “Fed holds in June” instead of Eurodollar futures - and retail traders can express nuanced opinions without leverage. Robinhood’s hub aims exactly here: contracts on the May 2025 FOMC rate have already drawn over $12 million since launch.
With legal sports betting revenue topping $13.71 billion in 2024, media companies are embedding live odds into streams. Prediction-market APIs could display crowd-priced win probabilities that update second-by-second, creating interactive betting overlays far cheaper than sportsbook odds because liquidity is pooled globally, not siloed state-by-state.
Internal markets at Google and Microsoft improved project-deadline accuracy by 17% in academic studies. Tokenised prediction shares could automate payouts and anonymity, enabling any company to spin up a Polygon-based market on quarterly sales or product timelines without compliance overhead. The research-funding DAO RetroPGF already uses Polymarket odds as one signal for grant allocation. Climate-risk markets could crowd-price CO₂ levels or hurricane landfalls, directing insurance payouts instantaneously when Chainlink oracles confirm sensor data.
LMSR pools can be inverted into protection pools: farmers buy “Did rainfall less than 10 cm in July?” shares; if drought hits, the contract pays $1. Smart contracts escrow premiums, slashing settlement lag from months to minutes once satellite oracles post data. Protocols already gauge sentiment via Snapshot polls; augmenting with real-money markets tightens feedback loops and deters sybil attacks. MakerDAO pilots a “MKR-burn odds” market to flag governance exploits before damage spreads.
Projects like Zeitgeist and Prophecy want to route order flow across Polkadot, Solana, and Ethereum, arbitraging price gaps and deepening liquidity. Interoperability layers will make the underlying chain invisible to end-users, crucial if Robinhood or ESPN wants instant quotes in the near future.
Chainlink’s upcoming decentralized AI oracles will parse more natural-language sources, hash outcomes, and broadcast towards multiple chains simultaneously, reducing the possibility and resolution latency from hours to just minutes. UMA plans zero-knowledge proof add-ons so voters can prove their stake without doxxing wallets.
The CFTC round-table slated for Q3 2025 will debate lifting the $100-million position cap and approving sports contracts, potentially unlocking a regulated path for crypto-settled markets in the U.S. MiCA’s event derivative sandbox in the EU could serve as a blueprint, giving Polymarket a compliant on-ramp to Europe.
The CFTC round-table slated for Q3 2025 will debate lifting the $100-million position cap and approving sports contracts, potentially unlocking a regulated path for crypto-settled markets in the U.S. MiCA’s “event derivative” sandbox in the EU could serve as a blueprint, giving Polymarket a compliant on-ramp to Europe. Manipulation - especially in thin markets tied to low-information events - remains a threat. Mandatory “liquidity caps” and slashing bonds for oracle voters are emerging best practices. Privacy trade-offs need care: anonymous markets boost honesty but raise AML flags.
Blockchains supply the three ingredients legacy venues lack: instant global settlement, transparent order books, and composable collateral. As oracle tech matures and regulators converge on clear event-contract rules, prediction markets can jump from today’s $10-12 billion niche to a multi-industry risk-pricing layer rivaling traditional options.
In short, prediction markets crystallise collective intelligence by turning information into tradable assets. Blockchain rails strip away custody and clearing frictions, letting any user anywhere price the future in real time. Whether the contract settles on a presidential race, a Super Bowl drive, or a drug-approval milestone, the underlying mechanism is the same: an oracle posts the truth, and smart contracts release funds.
As compliance frameworks catch up and oracle reliability hardens, blockchains will shift prediction markets from quirky side-bet venues to indispensable forecasting engines for finance, media, and public policy. The technology isn’t just enabling prediction markets, but rather reinventing them into a global utility for probabilistic truth.
