Source: the block

Translation: Zhou, ChainCatcher

Prediction markets are experiencing a moment in the spotlight. The Clearing Company, founded by former members of Polymarket and Kalshi, has just completed a $15 million seed funding round—an impressive amount for a first-time raise. Kalshi reached a valuation of $2 billion after completing a $185 million funding round led by Paradigm in June and has been actively expanding: from hiring crypto business head John Wang to partnering with Robinhood to launch a football market. Reports indicate that Polymarket is raising over $200 million at a $1 billion valuation, led by Peter Thiel’s Founders Fund; it has raised over $100 million to date, including an undisclosed $50 million round earlier this year, and is making a return to the U.S. by acquiring the derivatives exchange QCEX for $112 million.

Meanwhile, Crypto.com and Underdog are launching sports prediction markets in 16 states across the U.S.; reports suggest Coinbase is also exploring its own prediction platform; X has designated Polymarket as its official prediction partner; and xAI is integrating Grok into Kalshi. Taken together, these recent developments indicate that prediction markets have moved from the margins to the center stage.

Data tells a similar story. According to The Block Pro's funding dashboard, 2025 is set to be the strongest year for prediction markets to date: 11 transactions have raised over $216 million in total. This surge follows $80 million in 2024 and nearly $60 million in 2021, while earlier years saw only sporadic activity.

This year, prediction market platforms are attracting more venture capital due to the breaking of old assumptions. After the U.S. elections in November last year, trading volume did not decline but instead shifted towards sports, economic, and cultural events. “This sustained interest has restored many VCs' confidence in investing in this market,” said Michael Hua, partner at 1kx (also known as Mikey0x). Hoolie Tejwani, head of Coinbase Ventures, went further, stating that prediction markets are a “killer on-chain use case” that has proven a lasting product-market fit.

Regulatory breakthroughs have also solidified this momentum. In May 2025, the CFTC withdrew its appeal in the Kalshi case, effectively locking in a federal court ruling that allows election contracts—Kyle Samani, managing partner at Multicoin Capital, called this turning point a push for prediction markets into mainstream awareness (Multicoin is an investor in Kalshi). Just last week, the CFTC also approved Polymarket's arrangement to return to the U.S. through the acquisition of QCEX and issued a no-action letter regarding record-keeping for event contracts—Brandon Potts, partner at Framework Ventures, described this as evidence that regulators are now willing to engage constructively.

Behind all this is years of infrastructure development. “Prediction markets needed over a decade of infrastructure improvements before real usage could hit a turning point,” said Alexander Pack, co-founder and managing partner at Hack VC, who cited everything from smart contracts and secure oracles to stablecoins and regulatory support.

Overall, persistent demand, cultural visibility, regulatory clarity, and mature infrastructure—these factors combined make prediction markets more investable now.

Advantages of Polymarket and Kalshi

If “why now” explains the surge in funding, the harder question is: why have only Polymarket and Kalshi broken through? Most competitors—from on-chain experiments to niche platforms—remain on the margins.

Liquidity may be a decisive factor. Samani referred to it as a chicken-and-egg problem that cannot be solved without patience and capital. Kalshi spent half a decade building liquidity before conditions improved, creating a significant moat for itself. Hua noted that Polymarket can offer hundreds of thousands of dollars in cash incentives each month to encourage liquidity—this is what they did during election months. Hua also added that Kalshi benefits from its associated market-making team, which helps deepen the trading of various contracts.

Marketing and mindshare also provide both platforms with durability. Rob Hadick, general partner at Dragonfly, stated that Polymarket has almost become synonymous with the concept of prediction markets; it is the go-to information source for journalists, politicians, and business leaders, and has secured a high-profile recent partnership with X. Kalshi, on the other hand, focuses on institutional credibility, partnering with companies like Robinhood to build a reputation as a regulated financial platform. Hadick said, “Other prediction markets so far have either been too early or too niche, failing to find sufficient product-market fit, and the market size has not been enough to support more than two scaled players.”

Persistence is equally important. Pack pointed out that both platforms have not given up in the face of regulatory pressure and thin trading. The combination of first-mover advantage and survival has ultimately translated into dominance, giving them brand power, liquidity, and distribution capabilities that competitors currently cannot match.

The Future of Prediction Markets

The next phase is likely to be top-heavy concentration with marginal diffusion. Hadick compared its structure to exchanges: a few players dominate, but smaller, niche, or regional competitors will also survive. He believes the upside potential is enormous, with the only constraint being people's appetite to bet on outcomes. Samani believes this category can rival the stock market because it allows people to trade directly on events; he said, “There’s no reason this space can’t be bigger than the stock market.”

Institutional adoption may accelerate this path. Colton Conley, partner at Arrington Capital, expects hedge funds and other institutions to use prediction markets as direct hedging tools, thereby deepening liquidity and enhancing accuracy. Prithvir Jhaveri, co-founder and CEO of FactCheck, anticipates that fantasy sports platforms like FanDuel and DraftKings will eventually join in—he believes this could bring hundreds of billions of dollars in revenue to the industry. FactCheck aims to create a prediction market version of Hyperliquid.

Product design will also be crucial. Tejwani stated that Coinbase Ventures has made several investments in this space, and the biggest breakthroughs will come from user-generated markets, on-chain liquidity, and minimal-trust adjudication. Pack warned that despite progress in infrastructure, prediction markets still represent only a small fraction of crypto trading, and grander visions, such as corporate decision-making and futarchy (governance through prediction markets), remain distant. Futarchy, proposed by economist Robin Hanson, is a form of government where elected officials define metrics for national well-being and then use prediction markets to forecast which policies will best improve those metrics.

Risks and Challenges

Momentum does not eliminate obstacles. Liquidity remains fragile, especially for smaller platforms; adjudication/settlement is also a structural weakness—many events are not entirely objective and rely on oracles or arbitrators, which can lead to disputes. Hadick warned that there may be incentive misalignments or other issues in such designs. However, he noted that over time, market makers will become increasingly familiar with prediction markets, similar to what has happened in the sports betting space.

Reputation is also at risk. An anonymous investor pointed out that bad actors could create markets around socially harmful outcomes like war or terrorism, which could trigger public backlash and regulatory crackdowns. Hua also mentioned integrity issues, including toxic traffic and insider trading, which could hinder market maker participation and worsen user experience, especially on crypto-native platforms that do not require KYC.

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