What is a prediction market?

Prediction markets are platforms that allow users to trade on the outcomes of real-world events. Participants buy and sell shares representing the potential outcomes of the event, with the implied probability of these outcomes shifting along with the price action of the shares.

Prediction platforms Polymarket and Kalshi rose to prominence in 2024 when billions of dollars were staked on the outcome of the US presidential election. In the wake of their explosive growth, many newer platforms are now seeking to claim a piece of the market share, with centralized exchanges and onchain applications both emerging as contenders.

Prediction markets are now one of the fastest-growing sectors in Web3, accounting for billions of dollars in volume each day. Here we’ll look at the structure, utility and risks of this new class of financial derivative.

How do prediction markets work?

Prediction markets are platforms where users trade event contracts: a novel class of financial derivative. These contracts allow participants to buy and sell shares tied to specific outcomes, essentially staking money on their predictions for the future.

Types of event contract

PolyExamples e1771992365911 — An example of some trending sports and politics markets on Polymarket.

Binary markets are the most common, wherein a question is posed and users must make a simple A/B, yes/no choice. For example:

“Who will win Super Bowl LX?” — Seattle Seahawks/New England Patriots
“ Will Bitcoin close above $100k on February 15 2025?” — Yes/No

Other events have a wider range of potential outcomes, allowing traders to buy shares in three or more options. For example:

“Who will win Best Actor at the 2026 Academy Awards?” — Five options
“Which team will win the English Premier League?” — 20 options

How are odds calculated?

The price of shares can be anything from $0.01 to $0.99. This directly correlates to their % likelihood of occurring. The combined prices of all outcomes will always therefore sum to $1 (100%).

To return to a prior example, if we were to ask “Who will win Super Bowl LX?” the options may look like this:

Seattle Seahawks: $0.80
New England Patriots: $0.20

The market has determined that the Seahawks have an 80% chance of victory, while the Patriots have a 20% chance. These odds are determined by trading activity: an aggregate of all of the predictions made by every market participant thus far

Prediction market odds are fluid, and will shift as users enter and exit positions. Just like the price of a crypto token, if market participants start offloading Seahawks shares en masse, then the price of those shares will drop sharply.

What happens when the event finishes?

Once the event is over and the result is known, the winning side’s shares resolve to $1. This means the users who held those shares at market close will receive a dollar for each share in their possession. Meanwhile, the losing side’s shares drop to $0.

Users don’t need to wait for market settlement to close their trades, however. They can enter and exit their positions freely, meaning it’s possible to make profits on shifting odds even without holding the shares until market resolution.

What events can users trade shares on?

Although the majority of trading volume is concentrated around sports and politics, prediction market coverage is extremely broad. It’s now possible to trade event contracts on a broad range of event types, from headline news to niche weather markets.

Here are some of the most popular categories, ranked according to their daily volume on Polymarket:

Sports: The most straightforward prediction markets track the outcomes of sporting events, not unlike traditional gambling sites.
Politics: US election results draw some of the highest interest, alongside markets tracking the timing and/or outcomes of major legislative decisions.
Crypto: These markets typically track whether tokens will pass price milestones by certain times/dates
Economics: Macroeconomic indicators and central bank policy decisions draw a large amount of volume.
Business: These markets track outcomes such as quarterly earnings reports from publicly traded firms.
Entertainment: Users can speculate on the winners of major awards across film, television and more.
Climate: This category tracks metrics such as rainfall and monthly temperature highs/lows.
Mention markets: These niche but popular markets track which words or phrases public figures use during speeches, as well as the frequency with which they’re used.

Markets tracking geopolitical outcomes are also increasingly popular, though sometimes controversial. These include contracts tracking US military interventions and overseas conflicts.

How are outcome disputes handled?

In some cases, the result of an event can be ambiguous (or its settlement based on false information). For such cases, prediction market platforms implement dispute mechanisms whereby users can appeal for a change in the outcome.

Centralized platforms such as Kalshi rely on internal compliance teams, who settle markets according to the criteria outlined in their terms. If a user wishes to launch a complaint over the settlement, they can do so within a set time window to trigger a secondary review of the result.

More decentralized platforms such as Polymarket instead rely on onchain oracles for market settlement. These are protocols which provide data feeds to dApps by building an incentive system for the verification of information. Well-known examples include Chainlink and UMA, the latter of which is used by Polymarket.

Disputes on decentralized platforms will typically be passed over to the oracle protocol’s stakeholders for review. These are individuals who hold or stake the oracle protocol’s native token, giving them voting power in arbitration proceedings. The user who initiates this process will often have to post a token bond to prevent arbitrary abuse of the system.

What are the biggest prediction market platforms?

Polymarket is historically the largest prediction market platform by volume and user base.
Its cumulative volume is over $50 billion.
Its highest-volume market drew over $4 billion in volume: ““Will Donald Trump win the 2024 US Presidential election?”

Centralized platform Kalshi is the other half of the prediction market duopoly.
Its cumulative volume is over $40 billion.

These two platforms account for the majority of prediction market trading activity, although many alternatives exist. Recently, some major CEXs such as Crypto.com and Gemini have launched their own prediction markets.

For a rundown of the top prediction platforms, plus our honest review of each, take a look at our best prediction markets page.

Are prediction markets regulated?

Prediction markets previously operated in something of a legal gray area, facing scrutiny at both the federal and state level in the United States. Nowadays, platforms operating in the US are required to be CFTC licensed, which is the case for Polymarket, Kalshi and other major players.

Although these platforms do have explicit regulatory approval, some legal ambiguities remain. For example, after the January 2026 US military intervention in Venezuela, suspicious trading activity was identified on some related prediction markets. Lawmakers have since moved to subject prediction markets to the same insider trading restrictions applied to traditional financial instruments.

Outside the US, regulatory treatment varies widely. In some countries, prediction markets may be classified as financial instruments, betting products, or remain largely unregulated. Most onchain decentralized platforms still operate in a legal gray area, often limiting access to users from certain jurisdictions.

What are the use cases of prediction markets?

The utility of prediction markets extends far beyond simple speculation. High-volume markets can be a rich source of intel, of growing interest to pollsters, corporate management teams, financial analysts and others. Some examples of their broader use cases include:

Forecasting: Studies have shown that market-based prediction models actually tend to outperform traditional opinion polls in predicting future events, such as election results.
Risk management: Businesses and individuals can use prediction markets to hedge against unfavorable outcomes. For example, a company could purchase shares predicting a regulatory ban, offsetting losses if the policy is enacted.
Public sentiment tracking: Real-time pricing can provide insight into shifting public beliefs and expectations.

What are the risks associated with prediction markets?

Prediction markets share some of the same risks as other forms of trading, but also feature their own unique set of concerns. The main risks for everyday users include:

Loss of capital: If a user makes an incorrect prediction and holds their shares until settlement, their position will go to zero.
Manipulation: Since anyone can participate in prediction markets, often anonymously, an individual with direct control over an event could buy shares in the contract then force their chosen outcome to occur.
Insider trading: Likewise, individuals with privileged knowledge of event outcomes could use this to profit from prediction markets, putting everyday users at a disadvantage.
Regulatory issues: Due to their comparatively novel nature, prediction markets face an uncertain regulatory environment in some jurisdictions. Some platforms may face future bans in certain countries.