When Polymarket processed over $3.3 billion on the 2024 US presidential election, it signaled a shift. This wasn't just online betting; it was a powerful demonstration of how financial incentives can aggregate information with stunning accuracy. Now, with Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, making a $2 billion investment, prediction markets are impossible to ignore.
Ethereum founder Vitalik Buterin once described prediction markets as "a betting site for participants and a news site for everyone else." This dual function is fueling explosive growth. In September 2025 alone, over 24,000 new markets were created on Polymarket. For crypto builders, these platforms represent a powerful use case for blockchain technology, one that aggregates information more accurately than traditional polls or statistical models.
This post explains how prediction markets work, why they are growing so quickly, their advantages over traditional forecasting, and the regulatory landscape shaping their future.
What Are Prediction Markets?
Prediction markets are platforms where traders buy and sell shares tied to the outcome of future events. These events can range from election results and cryptocurrency prices to celebrity news and corporate earnings.
The mechanics are simple:
Shares are created for a specific outcome (e.g., "Will Polymarket US go live in 2025?").
If the event occurs, shares for "Yes" pay out $1, and "No" shares become worthless.
If the event does not occur, "No" shares pay out $1, and "Yes" shares are worthless.
The market price of a share reflects the collective belief in the probability of that event happening. For example, if "Yes" shares are trading at $0.60, the market is signaling a 60% chance of that outcome occurring. This model transforms forecasting from a passive exercise into an active, incentive-driven system.
The Numbers Don't Lie: Market Growth Explodes
The growth of prediction markets has been immense. Polymarket's transaction volume on the 2024 election cycle alone shows massive user engagement. Meanwhile, Kalshi, a regulated alternative, processed over $7.5 billion in trading volume in less than 15 months.
This scale isn't just about betting volume; it's about participation. Thousands of users are actively staking capital on their beliefs, creating a rich dataset of collective intelligence. The rate of new market creation on platforms like Polymarket—over 24,000 in a single month—highlights an accelerating demand for this form of information discovery.
Why Prediction Markets Beat Traditional Forecasting
Prediction markets consistently outperform polls and other forecasting methods. They achieve this through a unique combination of incentives and information aggregation.
Real Money Creates Honest Data
A core advantage of prediction markets is "skin in the game." When individuals stake their own money, they are incentivized to be accurate, not just to voice an opinion. This financial risk acts as what some call a "bullshit tax," filtering out noise and low-effort predictions common in free online polls. The result is a more honest and reliable signal.
Information Aggregation at Scale
Prediction markets harness the "wisdom of crowds" by aggregating dispersed information through price discovery. No single participant needs to know everything. Instead, the market price reflects the collective knowledge of all traders. When these markets have predicted a 40% chance of an event, historical data shows the event occurred approximately 40% of the time. This level of calibration is difficult to achieve with other forecasting methods.
Speed and Accuracy Advantages
Prediction markets often react faster and more accurately than mainstream media or statistical models. By tapping into real-time information from a global pool of participants, they can predict trend directions with remarkable precision. During the most recent presidential election, these markets were strong predictors of the final outcome well before traditional outlets made their calls.
Crypto's Role in Prediction Market Evolution
Blockchain technology is a natural fit for prediction markets, providing the infrastructure needed for global, permissionless, and trustworthy operation.
Trustlessness
Crypto enables commitment. Smart contracts ensure that market rules are executed exactly as written and can be audited by anyone. This removes the need for a trusted central intermediary to resolve outcomes and pay out winnings. Trustless resolution functions provide an immutable and fair mechanism for determining event outcomes.
Composability
Composability is another key benefit. Blockchain-based markets can be combined with other DeFi tools. For example, outcomes from a prediction market could trigger actions in other smart contracts, creating new financial products and automated systems.
Accessibility
Blockchain infrastructure supports global participation without jurisdictional barriers, allowing anyone with an internet connection to trade. It also provides instant settlement and full auditability of all transactions. This infrastructure is particularly valuable in regions where financial institutions are weak or untrustworthy, enabling trusted activities where they were previously impossible.
The Future of Information Markets
Prediction markets generate honest data and provide superior forecasting accuracy. While the regulatory landscape is still evolving, the path forward is becoming clearer. The CFTC's legal battles with platforms like Polymarket and Kalshi have led to pivotal court decisions, establishing a route for regulated, election-related contracts in the U.S.
For builders in the crypto space, prediction markets are more than just a compelling application; they are a fundamental tool for information discovery. As you develop new products and navigate the market, consider these platforms a valuable source of real-time intelligence.
To get started, explore major platforms like Polymarket and Kalshi, understand the regulatory frameworks they operate under, and begin incorporating their data into your own decision-making.
FAQs
What are prediction markets?
Prediction markets are platforms where users can trade on future event outcomes. They are tools for information discovery, offering real-time insights for decision-making and strategies.
Are prediction markets compliant with regulations in the U.S.?
Platforms like Kalshi operate under U.S. regulated frameworks. Always research specific regulations for each platform.
What benefits can prediction markets provide?
Prediction markets offer real-time intelligence, enhance user engagement, and help understand market dynamics through aggregated wisdom from participants.
