Pantera Capital: Pricing Uncertainty: The Explosive Logic and Player Landscape of the Crypto Prediction Market

Original title: State of Prediction Markets

Original author: Paul Veradittakit, Partner at Pantera Capital

Original translation by: Saoirse, Foresight News

summary

Prediction markets are not new—and now they've finally become decentralized. Humans have been investing in predictions since ancient times, but cryptography transforms this age-old practice into a permissionless, transparent global market. In these markets, prices reflect real-time collective wisdom, not just public opinion polls.

• Infrastructure and regulation are driving the market forward. The clear regulatory stance of the U.S. Commodity Futures Trading Commission (CFTC), cooperation in the traditional financial (TradFi) sector, and multi-chain scalability have propelled the prediction market from a niche experiment to a track with weekly trading volumes of $3.9 billion. Related platforms are being directly embedded in brokerage firms, media, and consumer applications.

Uncertainty is emerging as a new financial asset class. As prediction markets gradually develop into core hedging, data, and prediction infrastructure, platforms that combine liquidity, credibility, and coverage to "price" real-world outcomes globally will continue to accumulate value.

For millennia, humanity has been exploring ways to use collective wisdom to predict the future. The ancient Greeks received special tokens, which they deposited through a pipe system to cast their votes; juries at the time would choose between solid or perforated stones to express their opinions. And in the ancient taverns of that era, the practice of betting privately must have been quite common.

In 17th-century Amsterdam stock exchanges, merchants would bet on the arrival times of cargo ships; in 19th-century America, political betting dominated during elections until it was banned in the 1940s. Furthermore, commodity futures trading on the Chicago Mercantile Exchange falls into this category. Clearly, humanity has long understood that investing money to predict outcomes can generate highly valuable informational signals.

Today, prediction markets driven by cryptography are a digital rebirth of this ancient practice—but there are key differences: the former is permissionless, transparent, open, and globally accessible.

The Information Market Revolution: What Makes the Crypto Prediction Market Different?

Traditional prediction markets require trusted intermediaries to manage funds, verify results, and distribute prizes. Cryptography, through blockchain, eliminates these intermediaries. When you bet on geopolitical, macroeconomic, or cultural issues on the Polymarket platform—whether it's "Will the Fed cut interest rates in January?" or "Who will win the 2026 Oscar for Best Picture?"—your funds are held in custody by smart contracts, the verification process is transparent, and prizes are automatically distributed via USDC. The entire process requires no bank account, has no geographical restrictions, and involves no intermediaries taking a cut or limiting participant eligibility.

Another industry giant, Kalshi, focuses 90% of its business on sports, covering topics such as "the PGA Farmers Insurance Open champion" and "the result of the Kent State vs. Akron basketball game." Emerging prediction market platform Novig also focuses solely on sports.

The Moment of Fusion: Why Now?

The current 7-day trading volume in the forecasting market has reached $3.9 billion, showing explosive growth. The reasons behind this can be attributed to three points: regulatory maturity, the boost from the integration of traditional finance, and breakthroughs in infrastructure.

Most notably, the CFTC approval has cleared the way for platforms to operate in the US. For example, in July 2025, Polymarket acquired QCX LLC, a CFTC-licensed derivatives trading platform, and QC Clearing LLC, a clearinghouse. This allows traders to confidently participate in prediction market contract trading on the Polymarket platform, with clear and unambiguous rules. Kalshi's $1 billion funding round in December 2025 at a valuation of $11 billion also reflects institutional investors' confidence in the sector. Overall, regulatory clarity is creating more space for institutional funds and retail investors to participate through established brokerage channels.

In addition to investing $2 billion in Polymarket, Intercontinental Exchange (ICE) will also become the global distributor of Polymarket's event-driven data—a move that underscores the growing trend of merging traditional finance with prediction markets.

The partnership further deepens this integration. Polymarket has entered into a multi-year partnership with TKO Group Holdings, becoming the official exclusive partner of the Ultimate Fighting Championship (UFC) and Zuffa Boxing, directly combining predictive market technology with live fan experiences.

In 2026, Kalshi will partner with CNN and CNBC, allowing viewers to view real-time probability predictions in the news feed. Both Polymarket and Kalshi have partnered with Google; Robinhood, Fanatics, Coinbase, and other companies have also entered the field through partnerships or native apps. In November 2025, Robinhood's prediction market saw 3 billion contracts traded, a 20% increase month-over-month, demonstrating significant retail investor participation.

Technological advancements have driven infrastructure breakthroughs, including: multi-chain expansion based on platforms such as Polygon, Solana, Base, and Gnosis Chain; integration of AI oracles for permissionless instant settlement; and the adoption of a hybrid Automated Market Maker (AMM) and order book model to reduce transaction friction and improve liquidity. In contrast, when the early platform Augur was launched, both the technology and regulatory environment were immature, making its development extremely difficult.

Market Dynamics: Leading Players and Challengers

While Polymarket is currently the dominant platform in the industry, its position may still face challenges from competitors offering users more options. In fact, in 2025, 12 institutions either submitted applications for Designated Contract Market (DCM) status or successfully obtained it, a 500% increase from the previous year. Furthermore, some companies are seeking to partner with DCMs to provide prediction market services as "futures commission brokers."

Below is a brief comparison of the Polymarket and Opinion platforms (data period: 30 days as of December 3, 2025):

Polymarket key data: Open interest $247.1 million; notional trading volume $4.39 billion; 82% market share of total value locked (TVL); historically zero-fee model drives user growth.

Opinion Key Data: TVL surged 110% in 30 days (from $30 million to $63 million); estimated monthly transaction volume of $4 billion, posing a potential impact on existing market share; achieving product-market fit on emerging Layer 2 infrastructure.

Network effects and a "winner-takes-all" market structure are attracting significant growth capital—these platforms offer scalable diversification options for traditional derivatives and betting products. Profit models have also moved beyond a single fee-based model, including: licensing real-time probability data to news media and financial terminals; API integration with social platforms and applications; and some companies (such as Robinhood) using this to cross-sell core financial services.

User behavior changes

Traders are increasingly turning to prediction markets—markets with more sophisticated speculative structures that serve as both hedging tools and sources of alpha (excess returns) for decentralized finance (DeFi) portfolios. This migration is likely to extend to more related event contracts, given that real-time probability predictions are more accurate than traditional polls in the political and economic spheres.

Although Polymarket initially gained media attention for its political predictions, it is not limited to this area. Its markets with the largest open interest include:

• Non-electoral politics: $55 million

• Cryptocurrency sector: $52 million

• Business sector: $36 million

• Election-related funds: $22 million

Popular culture: $20 million

• Sports sector: $20 million

Total: US$242 million

New entrants continue to emerge: Crypto.com partnered with Hollywood.com to launch an entertainment-focused prediction market covering topics such as movies, television, theater, actors, musicians, and award winners; Limitless focuses on short-term prediction markets for cryptocurrencies and stock prices. This platform originated from the X (formerly Twitter) project and has received investment support from Coinbase and 1confirmation.

Controversy, Challenges and Emerging Solutions

Prediction markets still face several challenges, including centralization risks, manipulation issues under traditional oracle models, and settlement delays caused by manual reporting systems.

Regulatory gray areas persist, including disputes over the classification of sports betting. For example, in November 2025, a Nevada judge ruled that Kalshi was a betting platform and not exempt from the state's betting regulations. Kalshi, however, argued that its platform was a federally regulated financial trading platform offering legitimate derivatives contracts (event-based contract swaps), not betting. Following the ruling, Kalshi initiated appeals, and similar disputes have arisen in Massachusetts.

Regardless of the outcome of the case, several issues remain to be addressed, including age restrictions and concerns related to responsible gaming. Cross-border regulatory arbitrage could also hinder the industry's development.

Market manipulation risks also need to be managed, such as the impact of large investors on low-liquidity markets, wash trading and price manipulation in decentralized environments, and the dilemma of balancing "permissionless trading" and "market credibility".

The current market landscape is constantly evolving, including the introduction of perpetual prediction markets targeting "persistent outcomes," combinatorial markets handling complex, multivariate events, and binding curve mechanisms to enhance dynamic liquidity. Furthermore, multiple opportunities exist: using prediction market probabilities as oracle inputs for DeFi protocols; enabling secondary trading and leverage through tokenized positions; and combining prediction markets with yield strategies and portfolio hedging.

Emerging solutions focus on three main directions: providing AI-driven instant settlement for permissionless markets; integrating trading platform oracles to reduce front-running; and developing application chains with embedded consensus mechanisms to ensure the credibility of oracles.

Future Outlook

From the current perspective, three major factors will drive the wider adoption of prediction markets in the short term: CFTC-approved U.S. platforms going live through established brokers; integration with social media platforms (such as embedding prediction APIs in tweets); and emerging banks embedding prediction markets to achieve a fusion of financial and speculative functions.

Furthermore, as prediction markets gradually evolve into an independent category of financial markets, vertical prediction markets targeting specific sectors (such as sports and business) may emerge. For example, Novig, a prediction market centered on sports, focuses on creating a highly customized market and user experience for sports betting users. As prediction markets become a more prevalent consumer activity, these vertical platforms may offer a superior user experience compared to a one-size-fits-all general platform.

In the next 1-3 years, prediction markets focused on privacy protection may adopt zero-knowledge proof technology; governance applications such as predictive governance (Futarchy) and outcome-based decision-making may also gradually develop.

(Note: "Futarchy" is a new governance concept proposed by economist Robin Hanson around 2000. Its core is to guide decision-making with "predictions of future outcomes," rather than relying on traditional voting, expert judgment, or power hierarchies. Its name is a combination of "future" and "archy," and can be directly translated as "predictive governance" or "future-oriented governance.")

However, the industry may still face obstacles, including: tighter regulatory controls that restrict global access or product scope; user fatigue if the market cannot improve the accuracy of predictions; and more intense competition as traditional platforms adopt blockchain technology.

As integration deepens, prediction markets will bring about several positive social impacts: providing collective wisdom support for resource allocation and policy decision-making; developing decentralized prediction into a public infrastructure; and driving the transformation of media and governance from a "polling model" to a "participatory probability market model".

The question now is no longer "can prediction markets scale," but rather "how many prediction markets will emerge in the future," and "which models can seize this trillion-dollar opportunity—that is, pricing real-world uncertainty on-chain." These predictions will become an important supplement to human wisdom and predictive capabilities.