Renewed Interest in Prediction Markets Surfaces Despite Doubts
Prediction markets are witnessing a revival, garnering interest from major exchanges, brokerages, and innovative crypto-centric startups. Nonetheless, doubts linger about their capacity to transform into reliable and sustained sources of insight.
Summary
- Prediction markets are making a comeback, attracting the attention of exchanges, brokerages, and crypto startups.
- Platforms like Polymarket, Kalshi, and Robinhood are expanding their offerings in politics, finance, and sports.
- However, there is skepticism about whether these markets will evolve beyond temporary hype, as new players attempt to blend decentralization with regulatory adherence.
The excitement is palpable. Prediction markets have re-entered the limelight, now featuring notable exchanges, mainstream brokerages, and a new generation of crypto-native startups.
Political events, financial markets, and sports outcomes are being examined. Polymarket and Kalshi are diversifying their product ranges, while brokerage giant Robinhood is integrating prediction contracts into its app, and a Coinbase-backed team has successfully secured substantial seed funding to develop a regulated, on-chain alternative.
Still, the concerns that plagued earlier endeavors persist. Can these markets evolve into significant and dependable sources of information, or are they merely cycles of hype, liquidity, and caution?
Blockchain Bets and Regulation
This summer, a newcomer named The Clearing Company announced a $15 million seed funding round led by Union Square Ventures, with participation from Haun Ventures, Variant, and Coinbase Ventures. The goal is to create “the first on-chain, permissionless, and regulated prediction market.” Founded by a former Polymarket executive, this startup aims to harmonize decentralization with the compliance demanded by institutional and regulatory partners.
At the same time, Polymarket — the leading crypto-native prediction platform — has signaled a renewed commitment to the U.S. market following a strategic investment from 1789 Capital and the addition of Donald Trump Jr. to its advisory board.
Retail platforms are joining the fray as well. Robinhood has embedded prediction markets into its app, starting with professional and college football, treating them as tradable assets rather than simple betting tickets. Users enjoy live pricing, the option to adjust or close positions during events, and user-friendly onboarding and payment processes akin to stock trading.
This expansion has attracted attention not just from investors and entrepreneurs but also from regulators who are adapting their frameworks. The CFTC is implementing Nasdaq’s Market Surveillance platform to gain deeper insights into trading behaviors across derivatives, crypto, and event markets, aiming to identify manipulation, wash trading, and other abuses that could undermine public trust if prediction markets achieve mainstream acceptance.
Sports leagues and their partners remain vigilant as well. For instance, the NFL has publicly warned that open markets on game outcomes could pose integrity risks if they lack the oversight and information-sharing mechanisms that regulated sportsbooks use.
CFTC.
Structural Constraints
Despite the influx of capital and users, many designers and economists argue that the fundamental challenges lie within the structure of these markets, rather than solely in regulatory frameworks. Works in Progress, a publication supported by Stripe focusing on economics and market design, released an essay in May 2024 asserting that “without savers or gamblers to increase market volume, these markets cannot attract enough sharp participants to generate the liquidity necessary for accurate price discovery.”
Essentially, in the absence of a steady influx of capital or a wave of gamblers, these markets risk remaining niche, as suggested in the article.
This viewpoint is corroborated by current data. In areas where prediction markets experience substantial activity — such as elections or certain macro hedges — interest tends to peak just before resolution dates, with most contracts failing to achieve sizes suitable for professional market-making profitability.
Lack of liquidity can lead to erratic price movements. The absence of savers creates no persistent capital pool to stabilize markets, while the scarcity of gamblers limits retail participation. As a result, small markets emerge, with wide spreads and minimal incentive for major players to invest in research and tighten prices.
The Start of Something Bigger
Scott Duke Kominers, a research partner at a16z crypto, noted in a blog post that he doesn’t think “it’s the prediction markets themselves that will be groundbreaking in 2025.”
“Instead, prediction markets lay the groundwork for enhanced technology-based mechanisms for information aggregation — applicable in areas spanning from community governance and sensor networks to finance and beyond.”
Scott Duke Kominers
He further argues that markets aren’t always the most reliable tools for aggregation. For specific inquiries, they can be unreliable, and many micro-questions involve pools that are too small for effective signaling. However, Kominers believes that the design toolkit — which includes data pricing and peer-prediction models — combined with the auditability of blockchains, could empower creators to develop new methods for capturing and showcasing collective wisdom.
What is emerging is a hybrid thesis. Venture capitalists and established players are backing initiatives that blend on-chain transparency with regulatory frameworks, betting that improved user interfaces, compliant infrastructures, and institutional market makers can tackle liquidity and trust issues.
Critics argue that these solutions don’t address the core demand equation. If savers, gamblers, and hedgers don’t find these contracts more attractive than stocks, options, or betting outlets, the markets are likely to remain small and inconsistent.