What Are Prediction Markets? One of Biggest Narrative

Prediction markets are emerging as a new and promising trend, confirming their role as a tool for measuring the probability of events based on collective belief, where the knowledge and conviction of the community are transformed into real value.

1. What are prediction markets?

Prediction markets are platforms where people can bet on the outcomes of future events such as sports matches, political elections or other entertainment related events. By buying and selling outcome shares in the form of Yes and No, participants collectively estimate the likelihood of an event occurring and earn profits if they predict correctly or lose money if they predict wrong. In this system, the profit of participants depends directly on the accuracy of their predictions. This is the financial incentive for them to provide honest information and deeper analysis in order to maximize their profit. Thanks to that, prediction markets not only reflect the opinion of the majority but also become a real time probability measurement tool for future events, where data and belief converge into real value. The operating mechanism of prediction markets works as follows:

• Event creation: A future event is created with full information including the question, rules, settlement date, outcome, information sources for publishing results and more.
• Trading: Depending on each platform, the trading mechanism can differ but generally consists of a set of Yes and No choices in which the purchase price reflects the probability currently being predicted for that event. The higher the probability, the lower the profit and vice versa.
• Settlement and completion: On the settlement date, the result is announced by the designated information source. Those who predicted correctly receive the corresponding profit, while those who predicted incorrectly do not receive payment.

Example: The Polymarket platform is leaning strongly toward the scenario of the Fed cutting 25 bps in December with an 83 percent probability, reflecting strong belief that the Fed will begin easing. The scenario of keeping rates unchanged accounts for 17 percent while cutting 50 bps or raising rates is almost not valued by the market. The Yes and No prices for each option show the level of confidence: buying Yes at 83 cents for the 25 bps cut scenario offers low but safe profit, while buying No at 18 cents offers higher profit if the Fed does not cut as expected.

Note: The price of each choice will fluctuate depending on market conditions. If more data supports the event happening, the Yes price will rise and vice versa.

2. Current limitations of prediction markets

Although rapidly growing, prediction markets still face many limitations such as:

• Legal barriers: This is the biggest challenge because prediction markets are easily classified as gambling in many countries, leading to bans or strict regulations. Platforms often must choose between decentralization or legal compliance and cannot achieve both.
• Limited growth: Prediction markets are often strong in a few narrow sectors such as politics, crypto or sports but lack traction in many other sectors.
• Manipulation risk: Platforms can be manipulated by creating events and influencing outcomes. For example, MetaDAO x Solomon was accused of manipulating results on Polymarket by pumping commitments near the close, causing oversubscription and major losses for traders.
• Data and oracle issues: The reliability of the oracle determines the quality of a prediction market. If the oracle is manipulated or delayed, outcomes can be disputed and damage trust.
• Scalability challenges: If a prediction market expands into too many areas, liquidity becomes thin. If it focuses only on one niche, the community size is limited.
• Security and smart contract risks: Like other DeFi applications, prediction markets must deal with risks of hacks, smart contract bugs or system failures.

Crypto community denounces manipulation in Metadao case

3. Are prediction markets legal?

The legality of prediction markets varies globally and depends on local regulations. Some places classify them as financial products requiring registration and oversight, while others treat them as gambling and ban or restrict them.

In the United States, the CFTC is becoming more open to event contracts but within a strict framework. Platforms serving US users must operate under a regulated structure with clearing systems, reporting and AML or KYC compliance. Kalshi is a prime example, having obtained the necessary legal approvals to operate under CFTC oversight.

Polymarket illustrates this regulatory shift. The platform was fined 1.4 million USD by the CFTC and forced to exit the US in 2022 for offering unregistered contracts. Afterwards Polymarket rebuilt its legal structure, acquired a derivatives venue with legal clearing and recently received approval from the CFTC to return under an intermediated access model, meaning US users can access it through approved brokers with mandatory KYC or AML. However being approved does not mean instantly restoring all previous functions. There are still product limits, broker based access requirements and strict supervision.

Users also need to note two important issues. First, in many countries prediction markets and gambling are still seen as similar, so depending on local laws the product may be considered legal or banned. Second, many decentralized platforms have chosen to operate offshore to avoid regulations but this carries risks such as being blocked, fined or forced to shut down.

4. Notable prediction market projects

Polymarket

Considered the largest prediction market platform in the world at the moment. In 2025 Polymarket has achieved important progress in both regulation and growth after receiving the green light from the CFTC for legal operation in the United States while making headlines as Intercontinental Exchange (ICE) invested 2 billion USD, raising its valuation to 9 billion USD. The platform is known for high liquidity, flexible Yes or No trading and diverse prediction markets from politics and economics to sports. Polymarket has also experimented with prediction contracts on election outcomes and major sports events, helping bring prediction markets into more real world sectors.

Kalshi

Kalshi is the first prediction market to be fully licensed by the CFTC in the US and is considered a heavyweight in the industry with trading volume reaching billions of USD. In 2025 Kalshi successfully raised multiple rounds of funding. In June 2025 they raised 185 million USD at a 2 billion USD valuation. A few months later in October 2025 they raised an additional 300 million USD, increasing their valuation to about 5 billion USD and expanding to more than 140 countries. Kalshi stands out thanks to its compliant structure with legal clearing and investor protection. It also expands its catalog of event contracts not just politics or economics but also sports, weather and finance to attract diverse users. With scale and global reach, Kalshi is considered one of the fastest growing prediction market platforms.

Limitless

Limitless is the largest prediction market on the Base ecosystem, known for its split and merge share feature that allows users to flexibly swap between Yes and No to capture price differences, optimize capital and reduce liquidity fragmentation. The platform also offers incentives for market makers to improve liquidity and trading experience on Base.

Opinion

Opinion is a decentralized prediction market on BNB Chain backed by YZi Labs. Users can create and trade ideas, predictions or analyses about many real life events such as finance, economics and society. The platform uses a Central Limit Order Book mechanism to enable more professional trading, reduce slippage and better handle large orders.

Myriad

Myriad is a decentralized prediction market on the Abstract layer 2 chain, positioning itself as the next generation media tool. The platform turns everyday content such as articles, social media posts and news headlines into potential prediction opportunities, helping users interact and react quickly to new information. Myriad also experiments with tokenized prediction products to expand investment options and create liquidity for the community.

5. Conclusion

Prediction markets are shaping a new way to quantify belief, transform information into value and capture real time sentiment across politics, sports, finance and crypto. As regulation becomes clearer and platforms like Polymarket and Kalshi scale globally, the market is moving from a niche experiment to a credible financial instrument. Challenges still exist such as legal uncertainty, oracle reliability and security risks, but innovation on Base, BNB Chain and emerging layer 2 ecosystems is pushing the sector forward. With more liquidity, better user experience and stronger compliance, prediction markets are positioned to become a core part of the crypto landscape. Disclaimer: This content does not constitute investment, tax, legal, financial, or accounting advice. MEXC provides this information for educational purposes only. Always do your own research, understand the risks, and invest responsibly.