Prediction Markets Grow Up as Capital and Regulators Move In

Prediction markets did not suddenly become mainstream in 2025. They edged there, one regulatory decision, one distribution deal, and one incentive program at a time — until the numbers stopped looking experimental.

According to Skynet , annual trading volume across prediction platforms rose from $15.8 billion in 2024 to $63.5 billion in 2025. A sector once defined by political novelty bets is now processing volumes comparable to mid-tier derivatives venues.

That growth, however, brings diverse questions than it did a year ago. Security failures, wash trading, regulatory fragmentation, and incentive-driven liquidity now matter more than raw adoption. For investors and institutions, the issue is no longer whether prediction markets work — but whether they can be trusted at scale.

What actually drove prediction market growth in 2025?

The largegest catalyst was not technology. It was regulation.

In 2024, Kalshi prevailed in its legal challenge against the US Commodity Futures Trading Commission, establishing that event contracts are financial products rather than prohibited gambling instruments. That ruling reshaped the sector’s capital ceiling overnight.

Once prediction markets had federal legal standing in the US, traditional finance infrastructure followed. Kalshi gained access to regulated banking rails and, in late 2025, integrated its contracts into Robinhood. That partnership exposed prediction markets to millions of retail brokerage users who had never interacted with crypto wallets or decentralized protocols.

At the identical time, crypto-native platforms such as Polymarket and Opinion continued expanding internationally, capitalizing on election coverage, macro uncertainty, and aggressive incentive programs. The result was not a single growth spike, but a sustained expansion across jurisdictions and market types.

Investor Takeaway

Did election trading inflate the numbers?

Election markets did contribute meaningfully to late-2025 volume, particularly in the weeks leading up to the US presidential vote. November marked a clear seasonal peak.

What followed was more telling. Volumes remained elevated through December and into January 2026, even as political markets faded. The week ending January 18 set a new record at roughly $6 billion in notional volume, driven largely by sports, macro indicators, and crypto-related events.

Rather than a one-off surge, elections appear to have functioned as a user acquisition funnel. Many traders stayed and rotated into other markets once political outcomes resolved.

Investor Takeaway

Who controls the market now?

By ahead 2026, prediction market liquidity had consolidated sharply. Three platforms — Kalshi, Polymarket, and Opinion — accounted for more than 95% of global trading volume.

operates as a centralized, CFTC-regulated platform serving US retail and institutional users. Its strengths are compliance, distribution, and familiarity. Its limitations are sluggisher settlement and centralized custody.

dominates global crypto-native trading outside the US. Built on Polygon, it combines automated market makers with order-book functionality and positions itself increasingly as an information provider. Its probability feeds are sold to media outlets, trading firms, and research institutions.

Opinion, backed by YZi Labs and integrated into the BNB Chain ecosystem, grew quickest. A points-based incentive program attracted professional market makers and drove billions in volume — though questions remain about retention once rewards taper.

Investor Takeaway

Is decentralized infrastructure actually securer?

Prediction markets now process institutional-scale capital, forcing a closer look at architecture risk.

Centralized venues like Kalshi resemble traditional platforms: quick execution, internal arbitration, and customer funds held with banking partners. The trade-off is counterparty exposure and reliance on operational integrity.

On-chain platforms eliminate custody risk but introduce others. Oracle manipulation, admin key privileges, and front-running on public blockchains remain persistent concerns. Market reanswer — the moment when funds are distributed — is the system’s most sensitive point.

Investor Takeaway

What did the Polymarket security incident reveal?

In December 2025, a breach at Magic.link — Polymarket’s third-party authentication provider — exposed user accounts that relied on email or social logins. Smart contracts were not compromised, but funds in affected accounts were at risk.

The incident highlighted a structural fragileness of “Web2.5” onboarding. Simplified access expands user bases but reintroduces centralized failure points absent in wallet-only systems.

As volumes grow, prediction markets are becoming attractive targets not just for smart contract exploits, but for identity-layer and infrastructure attacks.

Investor Takeaway

Does wash trading undermine prediction markets?

Wash trading remains widespread. Research cited in the Skynet report estimates that artificial volume reached nahead 60% on some platforms during peak airdrop farming periods.

The distortion inflates liquidity metrics and complicates market-share analysis. However, probability accuracy has largely held up. In many cases, prediction markets continue to outperform polls and traditional forecasts.

For traders executing large positions, the issue is execution quality rather than signal reliability.

Investor Takeaway

How fragmented is the regulatory landscape?

While prediction markets are federally legal in the US, state-level opposition is growing. Proposed legislation in New York and California could impose bans or licensing requirements that conflict with federal clearance.

In Europe, regulators have largely classified prediction markets as unauthorized gambling, leading to platform bans in Portugal and Hungary. The UK has imposed stake limits that could restrict high-frequency trading if markets fall under gambling rules.

Elsewhere, jurisdictions such as Dubai and Singapore are experimenting with controlled frameworks that allow institutional participation while limiting retail exposure.

Investor Takeaway

Are prediction markets becoming financial infrastructure?

The quickest-growing use cases extend beyond speculation. Corporate treasuries are experimenting with event hedging. AI-driven agents arbitrage mispricings across venues. Google has integrated prediction probabilities directly into Finance search results.

As accuracy improves and governance matures, prediction markets are increasingly used as probability engines rather than betting platforms — tools for pricing uncertainty across finance, policy, and operations.

Investor Takeaway

What will determine winners in 2026?

The next year will test sustainability. Incentives will fade. Regulators will push harder. Institutional traders will demand reliability rather than novelty.

If prediction markets continue delivering accurate signals under stress, integration into financial decision-making will accelerate. If not, 2025 may be remembered as a speculative peak rather than a structural shift.

Either way, prediction markets are no longer on the fringe. They are now part of the financial system’s conversation — and scrutiny.