What Are Prediction Markets and Why Are They Growing?
Prediction markets are online platforms where people buy and sell contracts based on the outcome of future events. These events can include sports games, political elections, economic reports, or even entertainment results. The price of each contract shows the crowd’s belief about the chance of a certain outcome. This makes prediction markets a unique mix of betting, trading, and crowd-sourced forecasting. In recent years, prediction markets have gained attention for their ability to gather information and provide real-time sentiment on many topics. The growth of these markets is driven by advances in technology and a rising interest in alternative investments. There is also an ongoing debate about how to regulate online gambling and financial products, which adds to the momentum.
Major Players and Their Strategies in the U.S. Market
The U.S. prediction market scene is changing quickly, with several companies taking different paths to growth and compliance. Underdog, a pick’em app, made headlines by launching prediction contracts in 16 states where online sports betting is still illegal. These contracts, offered through Crypto.com, are regulated by the Commodity Futures Trading Commission (CFTC) instead of state gambling regulators. This move puts Underdog at the front of the “gray market,” targeting states with high demand but no legal sports betting. By avoiding states with legal betting, Underdog sidesteps direct competition with big sportsbooks and reduces regulatory risk.
Meanwhile, Kalshi has become a leading prediction market platform in the U.S., overtaking Polymarket in trading volume. Kalshi’s regulated status under the CFTC gives it a big advantage, especially as it partners with mainstream platforms like Robinhood to offer user-friendly prediction markets. Kalshi focuses on exchange-style pricing and information markets, not just traditional sportsbook betting. This approach appeals to a wider audience interested in trading on real-world events. Kalshi’s recent partnerships with blockchain networks like Solana and Base show a push to reach crypto-native users and expand beyond sports and politics.
Regulatory Challenges and the Gray Market
The fast growth of prediction markets has caught the eye of regulators. Seven states have taken legal action against operators, issuing cease-and-desist orders or filing lawsuits. For example, Massachusetts recently filed an unlicensed gambling case against some prediction market platforms. The main issue is whether these markets are gambling products or regulated financial tools. The CFTC’s involvement gives a federal framework, but state authorities often see things differently. This leads to a patchwork of rules and enforcement.
Underdog’s choice to operate only in states without legal sports betting is a calculated risk. It lets the company tap into unmet demand while avoiding direct scrutiny from state gambling commissions. However, this strategy may face problems if more states legalize online sports betting and try to regulate all forms of wagering. The future of gray market prediction contracts will depend on how quickly states change their laws and whether federal regulators keep supporting these new products.
Venture Capital and Industry Consolidation
The rise of prediction markets has drawn strong interest from venture capital firms and established industry players. Underdog recently raised $70 million at a $1.23 billion valuation, showing investor confidence in its ability to grow under current rules. Similarly, Novig, a peer-to-peer sports betting platform, secured $18 million in Series A funding to expand across 42 states. Novig’s approach as both a prediction market operator and sweepstakes provider lets it work outside CFTC regulation, giving it flexibility as laws change.
Industry experts like Wayne Kimmel of SeventySix Capital believe that companies with large customer bases, such as Underdog and PrizePicks, are attractive targets for big sportsbooks like FanDuel and DraftKings. As legalization spreads and the market matures, consolidation is expected. Established operators will likely buy successful fringe platforms to enter new regulated states quickly.
Celebrity Partnerships and New Market Verticals
Prediction markets are also getting more attention through celebrity partnerships and new types of markets. Daniel Negreanu, a famous poker player and GGPoker ambassador, recently partnered with Kalshi to promote the platform and explore poker-themed prediction markets. Negreanu’s involvement highlights the natural link between prop betting in poker and prediction markets. He has suggested markets based on major poker events, such as whether a tournament will meet its prize guarantee or if a well-known player will reach a final table.
These new market types could attract wider audiences and spark social conversations around big events. However, they also bring unique regulatory challenges. Market questions must be objective, publicly verifiable, and free from manipulation or insider information. Kalshi’s regulator-first approach and focus on broad, clear outcomes aim to address these concerns while growing the platform’s appeal.
Crypto Integration and Decentralized Finance
The meeting point of prediction markets and decentralized finance (DeFi) is another area of fast innovation. Trust Wallet recently announced plans to add perpetual futures markets with up to 100X leverage and prediction markets as part of its advanced trading features. This news caused a surge in the value of its native token, TWT, as users look forward to new benefits like airdrops, higher staking yields, and transaction discounts. Trust Wallet’s goal is to give users strong trading tools in a fully self-custodial environment, bridging the gap between centralized exchanges and decentralized platforms.
Adding prediction markets to DeFi systems allows for more access and flexibility. Users can join markets without relying on traditional financial middlemen. Partnerships with platforms like Ondo Finance expand the range of assets and events available for trading, from real-world stocks and ETFs to on-chain payment solutions.
Competition and the Race for Market Leadership
The rivalry between Kalshi and Polymarket is often compared to the dynamic between Coinbase and Binance in the crypto world. Kalshi, with its U.S.-regulated status, has captured over 60% of the domestic prediction market share. Polymarket, known for its decentralized approach and global ambitions, is working to re-enter the American market under CFTC oversight. Both platforms are taking different but complementary strategies. Kalshi focuses on compliance and mainstream adoption, while Polymarket aims to offer a regulated, KYC-enabled layer for U.S. users.
Recent data shows that Kalshi reported $1.3 billion in trading volume in September, beating Polymarket’s $773 million. Both companies are preparing for new funding rounds, with Polymarket valued at about $9–10 billion and Kalshi nearing a $5 billion valuation. The mix of sports betting, crypto integrations, and political wagers puts prediction markets in a strong position for mainstream financial adoption, possibly rivaling major exchanges in size and influence.
Future Outlook: Legalization, Innovation, and Mainstream Adoption
The future of prediction markets in the U.S. and worldwide will depend on several key factors. The speed of legalization and clear rules will shape the competitive landscape, deciding which companies can operate and how they design their products. As more states look to collect untaxed gambling revenues, the line between prediction markets and traditional sportsbooks may blur. This could lead to more consolidation and the entry of major industry players.
Innovation in product design, such as new market types and DeFi integration, will drive user engagement and broaden the appeal of prediction markets. Celebrity partnerships and media coverage will help legitimize these platforms and attract new users. However, ongoing regulatory challenges and the need for clear, fair market questions will require careful management to ensure compliance and keep public trust.
In summary, prediction markets are entering a new era of growth and change. With major players like Underdog, Kalshi, and Polymarket leading the way, and with support from venture capital and industry partnerships, these platforms are set to become a central part of the future of betting, trading, and information exchange. For more detailed coverage and source material, readers can refer to recent reports from Messari, Sports Business Journal, Pokerfuse, The Defiant, and BeInCrypto.
