Prediction markets are experiencing rapid development in 2025, driven by three major trends: regulatory compliance, capital inflow, and socialization. Since Polymarket’s surge in popularity during the 2024 U.S. elections, this sector has captured the attention of both Web3 and traditional financial institutions, demonstrating more accurate forecasting capabilities than traditional polls.

Key mechanisms include trading models (order book and AMM), contract design (binary, multi-outcome, and scalar contracts), oracle resolution, and user experience optimization (such as underlying chain selection and fee structures).

Analysis of Leading Projects

Polymarket: With a cumulative trading volume of $898 million, it addressed compliance issues by acquiring QCEX and partnered with X (formerly Twitter) to launch a prediction feed service.
Kalshi: The first CFTC-fully regulated platform, operating across all 50 U.S. states, with a valuation of $2 billion and backing from top-tier institutions like Sequoia Capital.
Limitless: Built on Base chain, utilizing a CLOB system, with a cumulative trading volume of $299 million and $4 million in funding.
Myriad Market: Embeds prediction markets into content platforms, with a cumulative trading volume of $11.26 million and support for multiple contract types.
Flipr: Lowers entry barriers via X platform bots, with a total market cap of approximately $17.21 million.

Future Developments
The future will likely see a "dual-track" approach: socialization to reduce participation barriers and compliance to attract traditional capital. However, challenges remain, including liquidity shortages, regulatory hurdles, and capital efficiency issues. If these core pain points are addressed, prediction markets could become critical infrastructure connecting information aggregation and financial innovation.

1. Industry Background
Since the 2024 U.S. elections propelled Polymarket to fame, prediction markets have emerged as a frontier sector attracting both Web3 and traditional financial institutions. During the elections, on-chain markets demonstrated faster and more accurate forecasting capabilities than traditional polls, showcasing the power of "price as probability." By 2025, this momentum has evolved into comprehensive upgrades in capital and products, with nearly ten related projects securing funding since June alone. Backers include top-tier institutions like Coinbase, Paradigm, and Delphi.

The capital influx is driven by the structural advantages of blockchain-based prediction markets: open access significantly lowers participation barriers, all transactions are transparent and immutable, and users can bet with real money without intermediaries, making the final price a quantitative expression of collective intelligence.

Meanwhile, prediction markets are diversifying. On compliance, Kalshi obtained licenses for all 50 U.S. states under CFTC approval, while Polymarket acquired QCEX, a derivatives exchange in Florida, to secure a regulated entity for offering contract trading in the U.S. On product innovation, projects like Myriad and Flipr embed prediction scenarios into social media, allowing users to bet directly via platforms like X. Limitless leverages Base chain’s high-performance CLOB model to reshape liquidity experiences, while Drift explores combining predictions with high-leverage derivatives. Overall, 2025 has seen significant positive changes in compliance, model innovation, and use cases compared to 2024.

2. Mechanism Characteristics of Prediction Market Projects
The key mechanisms ensuring the long-term sustainability of prediction markets include trading models, contract forms, liquidity, oracles, and other features. These can be broadly categorized as follows:

1. Trading Models
Trading mechanisms directly impact market activity and price performance. The two mainstream models are:

• Order Book Model: Used by Polymarket and Kalshi, where market makers or traders place orders actively. Sufficient liquidity ensures faster transactions and lower slippage, but thin liquidity can lead to widened spreads and execution difficulties.

• Automated Market Maker (AMM) Model: Algorithm-driven pricing adjusts automatically, enabling trades without counterparties. However, extreme liquidity conditions can cause significant slippage and pose security risks due to parameter sensitivity.

2. Contract Design and Problem Definition
Clarity in contract design and verifiability of outcomes are crucial. Main contract types include:

• Binary Contracts: The most common form, paying a fixed amount (e.g., $1) if an event occurs, widely used for elections and sports.

• Categorical Contracts: For scenarios with multiple mutually exclusive outcomes, such as predicting "who will become the next CEO."

• Scalar/Index Contracts: For numerical predictions, like a company’s quarterly revenue, where payout varies with the outcome.

3. Oracles
Credible event resolution is core to prediction markets’ credibility. Traditional platforms rely on operators or third-party arbitration, while crypto-native markets use oracles to ensure reliable real-world data on-chain. For example, Polymarket uses UMA Protocol to write event outcomes on-chain for automatic settlement. A robust resolution system reduces disputes and manipulation risks, building user trust and enhancing market activity.

4. Other Key Elements
User experience is also influenced by underlying chain selection, gas costs, platform UI/UX, and fee structures (e.g., market creation fees, transaction costs). These factors collectively determine a platform’s competitiveness and user retention.

3. Analysis of Leading Projects

Polymarket
During the 2024 U.S. elections and other global events, Polymarket demonstrated faster and more accurate predictions than traditional polls, becoming a key information source for media and investors. Built on Polygon L2, it uses low fees and high throughput to support binary outcome markets where users bet on politics, economics, sports, and social trends by buying "YES/NO" shares.

With a cumulative trading volume of $898 million, Polymarket leads globally. However, Kalshi has surpassed it in user numbers and open interest, primarily due to earlier compliance restrictions that barred U.S. users. This changed in 2025 when the U.S. Department of Justice concluded its investigation, allowing Polymarket’s return to the U.S. market. Its $112 million acquisition of CFTC-licensed QCEX further resolved compliance concerns. In June, Polymarket partnered with X to integrate its prediction data with xAI’s Grok, launching a real-time prediction feed service to enhance its influence in public opinion and market data.

Polymarket’s main competitor is Kalshi, which leverages high compliance and endorsements from figures like Donald Trump Jr. to challenge its leadership. Polymarket’s strengths include its on-chain operation, potential token issuance, and recent compliance breakthroughs, positioning it for future growth.

Kalshi
Kalshi is the first CFTC-fully regulated prediction market platform, licensed in all 50 U.S. states. This legitimacy has built trust among traditional investors and institutions, expanding its user base. Unlike most on-chain prediction markets, Kalshi allows users to directly trade on real-world outcomes rather than indirectly betting on asset prices. Its contracts are primarily binary "yes/no"形式, covering macroeconomics, politics, sports, and even crypto prices.

Kalshi’s competitive edge lies in compliance, capital backing, and political resources. It has raised over $260 million from Sequoia Capital, Paradigm, and Y Combinator, with a latest valuation of $2 billion. Former CFTC chairman candidate Brian Quintenz served on its board, and Donald Trump Jr. acts as an advisor, enhancing its public influence and compliance outreach.

Other Leading Projects

• Limitless: A Base chain-based platform using a CLOB system, supporting limit/market orders and multi-outcome contracts. It uses Pyth Network oracles for instant settlement and has a cumulative trading volume of $299 million. In July 2025, it raised $4 million from Coinbase Ventures and others.

• Myriad Market: A decentralized protocol embedding predictions into digital content via Chrome extensions. It uses AMM for liquidity and supports binary, categorical, and scalar contracts. Cumulative trading volume is $11.26 million.

• Flipr: A front-end tool embedding prediction markets into X via Fliprbot. Users can bet on crypto prices, sports, and macro events using natural language commands. Its market cap is ~$17.21 million, and it lowers barriers by integrating predictions into social interactions.

4. Future Developments
Prediction markets will likely develop along two parallel paths: socialization to expand user bases (e.g., Flipr integrating trades into social conversations) and compliance to attract traditional capital (e.g., Kalshi’s regulatory licenses). This dual-track approach could make prediction markets both a public entertainment tool and a financial infrastructure for professional risk management and market pricing.

However, three major challenges remain:

1. Liquidity shortages limiting market depth and causing wide spreads.

2. Compliance issues, as prediction markets blend gambling and derivatives, often facing regulatory gray areas. Balancing decentralization with legal frameworks is key to attracting institutional capital.

3. Capital efficiency, with limited yield scenarios compared to traditional financial tools, hindering long-term capital retention.

If these challenges are overcome, prediction markets could scale into critical infrastructure for information aggregation, risk management, and financial innovation. Otherwise, growth may rely on speculation and short-term trends.

Risk Disclosure
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