HYPE

Prediction markets are making a comeback, attracting big exchanges, brokerages, and crypto-native startups. Yet, questions remain about whether these platforms can grow into reliable, lasting sources of insight.

Summary

• Prediction markets are back, drawing attention from exchanges, brokerages, and crypto startups.
• Politics, finance, and sports are all on the table as platforms like Polymarket, Kalshi, Robinhood, and a Coinbase-backed team expand offerings.
• Still, doubts linger over whether these markets can scale beyond hype, with new entrants aiming to combine decentralization and regulatory compliance.

It’s quite hard to miss the noise. Prediction markets are back in the headlines, and this time the players include established exchanges, mainstream brokerages, and a fresh wave of crypto-native startups.

Politics, finance, and sports are all on the menu. Polymarket and Kalshi are expanding their product sets, brokerage giant Robinhood is layering prediction contracts into its app, and a Coinbase-backed team just raised a high-profile seed round to build a regulated, on-chain alternative.

Still, the same doubts that trailed earlier attempts haven’t evaporated. Can these markets scale into useful, durable sources of information, or are they mostly a venture cycle of hype, liquidity, and caution?

Blockchain bets and regulations

This summer, a new entrant called The Clearing Company announced a $15 million seed round led by Union Square Ventures and joined by Haun Ventures, Variant, and Coinbase Ventures as it seeks to build “the first on-chain, permissionless and regulated prediction market.” The startup, founded by a former Polymarket executive, pitches itself as a way to marry decentralization with the compliance that institutional and regulatory partners demand.

At the same time, Polymarket — which has been the most visible crypto-native prediction platform — signaled a renewed push into the U.S. market after a strategic investment from 1789 Capital and the addition of Donald Trump Jr. to its advisory board.

Retail channels are piling in too. Robinhood added prediction markets to its app — starting with pro and college football — and treats them like tradable products, not betting slips. Users get live prices, can change or close positions during a game, and use the same onboarding and payment flows they already know from stock trading.

The growth has attracted attention beyond investors and founders. Regulators are upgrading their toolkits as the CFTC is deploying Nasdaq’s Market Surveillance platform to get a more granular view of trading behavior across derivatives, crypto, and event markets. That move is aimed squarely at detecting manipulation, wash trading, and other abuses that could undermine public confidence if prediction markets go mainstream.
CFTC.

Leagues and leagues’ partners are watching too. For instance, the NFL publicly warned that open markets on game outcomes could create integrity risks if they lack the monitoring and information-sharing frameworks that legalized sportsbooks use.

Structural limits

Even with money and users flowing in, a lot of designers and economists say the real problems are baked into how these markets work, not just the rules around them. Works in Progress, the Stripe-backed magazine focused on economics and market design, published a May 2024 essay arguing that “without savers or gamblers to add volume to the market, the market cannot attract enough sharps to create the liquidity to drive prices toward accuracy.”

Basically, without steady money or a flood of gamblers, these markets stay niche, the article reads.

That critique maps onto today’s data. Where prediction markets do meaningful volume — elections, a handful of macro hedges — they tend to concentrate in the weeks before resolution, and most contracts never reach sizes that make professional market-making profitable.

Without that liquidity, prices can be noisy. Without savers, there seems to be no persistent pool of capital to anchor markets, and without gamblers, there’s little retail churn to widen participation. The result is small pools, wide spreads, and limited incentive for the whales whose research would tighten prices.

Beginning of something bigger

Scott Duke Kominers, a research partner at a16z crypto, wrote in a firm blog post that he doesn’t think “it’s prediction markets per se that will be transformative in 2025.”

“Rather, prediction markets set the stage for more distributed technology-based information aggregation mechanisms — which can be used in applications ranging from community governance and sensor networks to finance and much more.”

Scott Duke Kominers

He adds that markets alone are not always the best aggregation tool. For some questions, they’re unreliable, and for many micro-questions, pools are simply too small to signal reliably. Still, Kominers argues, the design toolset — from data-pricing to peer-prediction schemes — and blockchains’ auditability could let builders invent richer ways to capture and surface collective knowledge.

What’s emerging, though, is a hybrid thesis. Venture capital and incumbents are funding experiments that combine on-chain transparency with regulated plumbing. They’re betting that better UI, compliant rails, and institutional market makers can fix liquidity and trust problems.

Skeptics counter that those fixes don’t address the underlying demand equation. If savers, gamblers, and hedgers don’t find these contracts compelling relative to stocks, options, or sportsbooks, the markets will remain small and episodic.

Source link