In early 2024, prediction markets processed less than $100 million per month. By the end of 2025, that number exceeded $13 billion. That's not a trend — that's a 130x explosion in under two years. And it's just the beginning.
But here's the thing most people get wrong: prediction markets aren't a betting product that got lucky. They're a new financial primitive — a fundamental building block of finance, like options, futures, or swaps. And once you understand why, you'll never look at them the same way again.
What Makes Something a Financial Primitive?
A financial primitive is a foundational instrument from which more complex financial products can be built. Think about the history:
- Equities (1600s) — ownership claims on future cash flows
- Bonds (1690s) — fixed-income instruments for time-value pricing
- Options (1973, Black-Scholes) — the right to buy/sell at a given price
- Futures/Swaps (1970s-80s) — standardized derivatives for hedging exposure
- Prediction Markets (now) — binary contracts that price the probability of any event
Each primitive unlocked an entirely new class of financial activity. Equities created stock markets. Options enabled hedging. Futures allowed commodities to be traded without physical delivery. Each one seemed niche or exotic at first, then became indispensable infrastructure.
Prediction markets are the next entry on this list. The core innovation: for the first time in history, you can directly trade the probability of any verifiable event. Not a proxy. Not a correlated asset. The probability itself, expressed as a price between $0 and $1.
The Theoretical Foundation: Hayek Was Right
In 1945, Friedrich Hayek wrote his Nobel Prize-winning paper "The Use of Knowledge in Society," arguing that the price system is fundamentally an information aggregation mechanism — not merely a coordinator of supply and demand. Hayek envisioned markets as distributed computing systems where millions of individuals, each with limited local knowledge, collectively produce prices that no single planner could ever calculate.
Professor Robin Hanson formalized this into prediction markets in the 1990s with his concept of futarchy — the idea that betting markets could be used as decision-making tools because they aggregate dispersed knowledge more efficiently than polls, committees, or expert panels.
The math backs this up. Academic research consistently shows prediction markets outperform polls, pundits, and expert forecasts. As Polymarket CEO Shayne Coplan put it on CBS's 60 Minutes: "It's the most accurate thing we have as mankind right now, until someone else creates some sort of super crystal ball."
Why? Because markets have a built-in truth serum: money. When you have to risk capital on your belief, you think harder. You research more. You're honest. The result: a price that reflects the weighted average of all available information, updated in real time. No survey bias. No pundit narratives. Just signal.
The Numbers Don't Lie
Let's look at where this industry stands right now:
Growth trajectory:
- Monthly trading volume grew 130x from early 2024 to late 2025
- Revenue forecast: $2B today to $10B+ by 2030 (Citizens Financial Group)
- Trading volume forecast: $1 trillion annual by 2030 (Eilers and Krejcik)
Capital flowing in:
- Kalshi raised $1 billion at an $11 billion valuation — making its CEO Tarek Mansour's vision to "financialize everything and create a tradeable asset out of any difference in opinion" very well-funded
- In the last 3 months alone, prediction market companies raised $3B+ from VCs — representing roughly 70% of all venture capital deployed in the crypto space during that period
- Polymarket has received $2.3B in total investment
User adoption:
- Polymarket: 1.9M wallets
- Kalshi, Robinhood, Crypto.com, and Fanatics combined: ~$10B monthly volume
These aren't speculative bets on a maybe-market. These are institutional-scale numbers with institutional-scale capital behind them.
TradFi Is Going All In
Perhaps the most telling signal is who's entering the space. This isn't just crypto-native platforms anymore:
- Robinhood launched Yes/No prediction markets
- Coinbase partnered with Kalshi, with CEO Brian Armstrong listing prediction markets as a top priority for 2026 alongside crypto, equities, and commodities in his vision for the "Everything Exchange"
- Gemini announced its own prediction market for U.S. users
- DraftKings acquired CFTC-licensed exchange Railbird Technologies for $250 million and reported $120M+ trading volume in its first month
- FanDuel launched in all 50 U.S. states through a partnership with CME Group — yes, the same CME that powers the world's largest derivatives exchange
- Fanatics launched prediction markets in 24 states
Here's the critical regulatory detail: because event contracts are structured as CFTC-regulated derivatives (not state-level gaming bets), platforms like DraftKings and FanDuel can now offer sports-themed contracts in states where traditional sports betting is still illegal — including California and Texas. This regulatory arbitrage alone could reshape the entire sports betting industry.
Kalshi CEO Tarek Mansour projected that within 18 months, most mainstream financial brokerages — including those offering 401(k)s — will have access to prediction markets in their apps.
Beyond Betting: The Real Use Cases
The "this is just gambling" framing is the biggest misconception holding people back. Here's what prediction markets actually enable:
1. Hedging Real-World Risk
Vitalik Buterin, an early Polymarket investor, recently proposed repositioning prediction markets as generalized hedging tools. His example: if one political party is known to benefit a particular industry, investors can use prediction markets to offset their political exposure — buying shares against their own financial interest as insurance.
2. Replacing Traditional Polling and Forecasting
Polymarket "single-handedly called the election before anything else," as Coplan stated. When financial stakes are involved, crowd wisdom consistently beats expert opinion. Governments, corporations, and media organizations are beginning to use prediction market prices as real-time indicators.
3. Price Discovery for Any Event
Traditional finance can only price assets with cash flows — stocks, bonds, commodities. Prediction markets extend price discovery to anything verifiable: geopolitical outcomes, regulatory decisions, scientific milestones, cultural events. Mansour's vision of "financializing everything" isn't hyperbole — it's the logical endpoint.
4. Composable Financial Infrastructure
This is where the "primitive" part gets real. Because prediction market shares are tokenized (on platforms like Polymarket), they become composable — you can build on top of them. Lending against prediction market positions. Automated market-making. Structured products combining multiple event outcomes. The same DeFi composability that turned simple token swaps into a multi-billion dollar ecosystem is beginning to happen with probability contracts.
5. AI-Powered Personalized Hedging
Buterin's most ambitious proposal: using LLMs to analyze personal spending habits and construct customized "baskets" of prediction market shares that mirror an individual's cost of living — potentially replacing stablecoins and fiat currency as the unit of account for personal finance.
The Comparison That Matters
| Attribute | Traditional Betting | Prediction Markets |
|---|
| Counterparty | You vs. the house | You vs. other traders |
| Edge | House always wins | Informed traders win |
| Regulation | State gaming boards | CFTC (financial derivatives) |
| Information value | None (entertainment) | Real-time probability pricing |
| Composability | Zero | Full (tokenized shares) |
| Global access | Restricted | Permissionless (onchain) |
| Price discovery | Odds set by bookmaker | Emergent from market |
This isn't a better version of sports betting. It's a different category entirely.
Where We Are in the Cycle
Prediction markets today are where DeFi was in 2020, or where options were in the 1970s after Black-Scholes. The theoretical framework exists. The infrastructure is being built. The institutional capital is arriving. The regulatory clarity is emerging.
The industry grew 130x in under two years with essentially zero mainstream awareness. Now Robinhood, Coinbase, DraftKings, FanDuel, Fanatics, and Gemini are all racing to onboard the next hundred million users.
Analysts at Citizens Financial Group project 5x revenue growth by 2030. Eilers and Krejcik forecasts $1 trillion in annual trading volume by the end of the decade. These aren't crypto-twitter hopium — these are Wall Street research desks publishing these numbers.
The question isn't whether prediction markets will become a core financial primitive. The question is whether you'll be positioned when they do.
This is not financial advice. Prediction markets carry risk, including total loss of capital. Always do your own research and never trade with money you can't afford to lose.
