2025 has been the year of the prediction market. While prediction markets aren’t new, they’ve certainly seen a major boom this year, reaching $2B+ in weekly trading volume as of Oct 2025. The sector – led by startups Kalshi and Polymarket – has been boosted by loosened regulations, election furor, and growing interest from brokerages (e.g. Robinhood, Webull, Interactive Brokers), exchanges (e.g. NYSE owner Intercontinental Exchange, CME Group), crypto players (e.g. Coinbase, Crypto.com, MetaMask, Paradigm), sports- and gaming-related firms (e.g. NHL, DraftKings, Allwyn), and consumer tech firms (e.g. Google Finance, Truth Social).

The topics of the wagers available on prediction markets run the gamut from AI models to football games to whether Ukrainian president Volodymyr Zelenskyy will wear a suit. A typical bet or contract is priced in cents from near 0 to near 100, reflecting the odds of a yes/no question. A 40-cent contract with a 40% chance of winning will pay $1 if the bettor wins, and zero if the bettor loses. Bettors are often allowed to cash out before the final outcome, locking in their gains as the contract price goes up.

Prediction markets saw an inflection point in Sep 2024, when a US District Court Judge ruled against the Commodity Futures Trading Commission (CFTC) – the prediction-markets regulator in the US. The ruling allowed Kalshi’s election wagers and effectively legalized election-betting at the federal level. The CFTC later dropped its appeal in May 2025.

The ruling opened the door to the return of crypto-based prediction market Polymarket, which left the US market in 2022 after a $1.4M settlement with the CFTC for operating without a license. Following the Jul 2025 closure of the CFTC and Justice Dept (DOJ) investigations into Polymarket, Polymarket acquired CFTC-registered US exchange QCX for $112M, with plans to return to the US by end of Nov 2025.

Regulation is likely to stay friendly at the federal level. Trump recently nominated chief counsel to the SEC’s crypto task force Mike Selig as CFTC chair, another pro-crypto pick after pulling his prior nomination of a16z crypto policy head Brian Quintenz. Donald Trump Jr. is both a Kalshi adviser (Jan 2025) and a Polymarket investor and board member (Aug 2025).

Prediction markets are still waging battles at the state level, where regulators may bar election-betting or have their own rules for sports-betting. Kalshi has been particularly aggressive, asserting that its prediction markets are legal in every state and its CFTC license lets it offer sports-related contracts everywhere. States, on the other hand, believe prediction markets are dodging state gambling regulations and taxes. State regulators are also facing heavy lobbying from tribal groups and traditional bookmakers.

Sports is generally the leading category on prediction markets, with Kalshi’s sports-contract volumes recently reaching $1B+ per week. US sports betting in general has seen a surge over the past few years, reaching $10B+ in monthly volume and with legalization now in 39 states (30 states for online betting), DC, and Puerto Rico. For traditional sportsbooks like FanDuel (Flutter Entertainment) and DraftKings, prediction markets may be an avenue to get into states where sports betting is not yet legal, assuming state regulators allow. Derivatives-exchange operator CME Group is partnering with FanDuel on a joint venture to offer event contracts through FanDuel’s app, and also gearing up to offer sports contracts to other platforms. In the same vein, Interactive Brokers’ ForecastEx recently self-certified with the CFTC to offer sports-event contracts.

Founded in 2018 by MIT math grads, Kalshi is one of the two startups leading the prediction-market boom and the first CFTC-regulated prediction market. In Jan 2025, Kalshi announced it would begin integrating with brokerages, and has since partnered with brokerages Robinhood and Webull on a nonexclusive basis, and is working on integrations for more than a dozen others. (Robinhood is already seeing $100M in annualized revenue, and reached 4B+ event contracts all-time, as of Sep 2025.) Kalshi has vendor partners in xAI (for news summaries) and World (for biometric authentication), and a co-marketing agreement with the NHL (which has one with Polymarket as well). In Sep 2025, Kalshi overtook Polymarket in trading volume with an estimated global market share of 60%+, although the two have generally been neck-and-neck. As of Oct 2025, Kalshi had reached $50B in trading volume on an annualized basis – up from $300M the prior year. Its valuation has skyrocketed this year from $2B in Jun 2025 to $5B in Oct 2025, and it is continuing to fundraise with a $10B+ valuation target.

Polymarket (founded 2020) is a crypto-based prediction market that uses stablecoin USDC as its base currency. Sports. Polymarket has its own slate of partnerships – it’s the official prediction-markets partner for X (formerly Twitter) and xAI; serves as the clearinghouse for sportsbook operator DraftKings; has an integration with crypto wallet MetaMask; and partners with Perplexity for news summaries. Polymarket has limited revenue right now from transaction fees and was not profitable as of Jul 2025, although it has potential avenues to generate revenue (e.g. market-making spread, interest on USDC, its own Polymarket token). Polymarket’s valuation has shot up from $350M in 2024 to $1.2B in Jun 2025 to $8B (pre-market) in Oct 2025, with Intercontinental Exchange (ICE) recently putting in an up-to-$2B investment. Polymarket is reportedly continuing to fundraise and aiming for a $12B-$15B valuation.

Registering a Designated Contract Market (DCM) – essentially an CFTC-regulated exchange – can be a technically demanding, resource-intensive process, with CFTC reviews taking up to 180 days. The CFTC currently lists 23 DCMs as regulated prediction markets, including Kalshi, Coinbase Derivatives (formerly LMX Labs), DraftKings-owned Railbird, Interactive Brokers-owned ForecastEx, Polymarket-owned QCX, PredictIt-affiliated Aristotle, Kraken-owned Small Exchange, Crypto.com-owned Nadex, and DCMs affiliated with exchange operators ICE, CME Group, Cboe, and MIAX. Another 7 DCM applications are pending, including one from crypto exchange Gemini.

In addition, there are 63 Futures Commission Merchants (FCM), which are essentially CFTC-regulated brokers, and 21 Derivative Clearing Organizations (DCO), which provide clearing and settlement services. Many of these are similar entities to the DCMs.

The competitive intensity is heating up. Although Polymarket’s return to the US is probably the biggest development, there’s quite a bit of activity going on. DraftKings recently announced its acquisition of CFTC-licensed trading venue Railbird. PredictIt is launching a new full exchange after being granted DCM/DCO status. Crypto player Kraken last month acquired CFTC-regulated Small Exchange for $100M. Crypto exchange Crypto.com is rapidly signing deals to offer event contracts through partners, including Hollywood.com (movies and awards), Truth Social (elections and sports). and Underdog Sports (sports). Lottery operator Allwyn International recently acquired a 62% stake in fantasy sports and prediction markets company PrizePicks at a $2.5B valuation.

One perennial question is how prediction markets differ from direct wagers. While some bettors believe there is essentially no difference, prediction markets claim their contracts are tradeable financial products that are substantively different from gambling bets. Kalshi CEO Tarek Mansour believes prediction markets are more akin to derivatives exchanges in surfacing information and helping price assets/events, rather than enabling purely speculative bets based on artificial randomness (e.g. roll of a dice).

Robinhood CEO Vlad Tenev agrees and views prediction markets as “the news faster,” helping the market become more efficient. (Google Finance is integrating prediction markets like Kalshi and Polymarket into its interface to let users ask questions about the future.) Contracts can serve as hedges for users against certain kinds of risk. Prediction markets like Kalshi make their money on transaction fees rather than taking bets against users; because there’s no “house,” it can result in tighter spreads and a more efficient market.

Fraud remains the looming specter, despite the regulated nature of prediction markets in the US. (Sports betting has certainly been beset by scandal of late.) Presumed insider trading lifted the odds of Nobel Peace Prize winner María Corina Machado from 5% to 70%, earning the anonymous bettor $50K+. One study estimates that 25% of Polymarket’s volume (5-60%, depending on the period and category) is wash trading – i.e. users buying and selling the same contract, which can be a form of market manipulation. About 14% of wallets on Polymarket are believed to be engaging in wash trading. (Kalshi’s trading volume is less transparent since it doesn’t operate on a blockchain.) Coinbase CEO highlighted how easy market manipulation can be by trolling prediction markets’ bets on whether certain words would be said on an earnings call, reeling off the remaining words at the end of the call. It’s also not always easy to adjudicate a contract, as in the case of whether Zelenskyy was wearing a suit, leaving room for human manipulation.

Prediction markets are likely to continue their fast-paced growth, given their position at the convergence of multiple trends. Interactive Brokers founder believes, for instance, that they could be bigger than the stock market in 15 years. Mansour is even more optimistic, believing prediction markets could eventually be a trillion-dollar asset class.

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