1. Introduction

At the beginning of January Beijing time, a message circulated on overseas social platforms and among several crypto communities: the U.S. government took a tough stance on the situation in Venezuela, which drew significant attention from the international community. Almost simultaneously, a trading record on a decentralized prediction platform was quickly amplified in market discussions.

Data shows that within just four days starting from December 27, 2025, a certain account on the prediction market platform Polymarket accumulated an investment of approximately $32,537, continuously betting on the event that "Venezuelan President Maduro will step down before January 31." Notably, this account established large positions just hours before the related news was widely discussed.

At that time, the overall market pricing for the probability of the event occurring was not high, around 6%. As the situation changed and official statements from the U.S. were released, the price of the positions held by this account rose rapidly, ultimately achieving a paper profit of over $400,000, with a return rate exceeding ten times at one point.

Whether this transaction involved insider information remains to be investigated further by regulators and the platform. However, it has already raised a question—what exactly is this frequently mentioned Polymarket? Why did prediction markets rapidly gain popularity in 2025?

This article will systematically introduce this rapidly expanding Web3 sector through this event.

2. What is a Prediction Market? Why Can It "Aggregate Collective Wisdom"?

A prediction market is essentially a mechanism that aggregates dispersed information through financial incentives.

In a prediction market, participants need to trade with real funds to express their predictions about the outcome of a certain event. As different judgments compete in the market, prices gradually converge to a level that reflects the "collective judgment probability." This mechanism allows prediction markets to be closer to real outcomes than traditional surveys or subjective judgments in certain scenarios.

This advantage was fully demonstrated during the 2024 U.S. presidential election. Prediction market platforms represented by Polymarket significantly outperformed traditional polling agencies in probability judgments regarding election outcomes at several key time points. After the final results were announced, their predictive accuracy was also validated.

With the continuous accumulation of credibility, prediction markets began to be referenced more widely:

• Mainstream financial media (such as Bloomberg) directly quoted their odds data in reports;
• Search engines and AI Q&A products (such as Perplexity) displayed prediction market results as reference information;
• Prediction markets gradually transitioned from being "internal tools of the crypto community" to one of the sources of public information.

From a market size perspective, the industry's growth is also significant. Multiple research institutions predict:

• The total trading volume of prediction markets in 2025 is expected to grow from approximately $900 million in 2024 to $40 billion;
• The user base is expected to grow from about 4 million to 15 million;

On the capital side, prediction markets have also received high recognition. By 2025, Polymarket and Kalshi have attracted a cumulative total of over $3.15 billion in funding, dominating the industry. In October 2025, the parent company of the New York Stock Exchange, Intercontinental Exchange (ICE), announced a strategic investment in Polymarket, raising its valuation to the range of $8-9 billion. Meanwhile, Kalshi also completed multiple rounds of large financing, with investors including several leading global institutions.

Under the influence of multiple factors, prediction markets are widely regarded as one of the most representative Web3 sectors in 2025.

3. Prediction Market ≠ Gambling: The Essential Differences Between the Two Mechanisms

As the popularity of prediction markets rises, a common controversy has emerged: Are prediction markets merely "gambling in a different guise"?

From a fundamental mechanism perspective, there are essential differences between the two.

1. Different Price Formation Mechanisms

Prediction markets use a market-based pricing logic. Prices are formed through the competition between buyers and sellers in a public order book, and all trading data can be audited. The platform itself does not set probabilities or bear the risk of outcomes, only charging transaction fees.

Gambling platforms, on the other hand, set odds internally, with their calculation logic being opaque, and ensure long-term profitability through a "house edge." The goal of adjusting odds is not to discover real probabilities but to control platform risk.

2. Differences in Function and Use

The prices generated by prediction markets are essentially a data product that can be used externally for macro event judgments, policy expectation analysis, enterprise risk management, and more, even potentially influencing media narratives and decision-making references.

Gambling behavior, however, primarily falls under entertainment consumption, with its odds lacking spillover value and not serving an information discovery function.

3. Differences in Participant Structure

The liquidity of prediction markets comes from information-driven participants, including researchers, macro traders, data analysts, and institutional users, whose core goal is to exploit information asymmetries for arbitrage and price discovery.

The liquidity of gambling markets mainly comes from ordinary consumers, who are more easily influenced by emotions and preferences, without a focus on information accuracy.

For this reason, prediction markets are often viewed as a type of "information liquidity market," rather than traditional entertainment gambling.

4. Why Did Prediction Markets Explode in 2025?

Prediction markets are not a new concept; their theoretical foundation can be traced back to the last century. However, the realization of scaled growth is closely tied to the maturation of multiple external conditions in 2025.

First, there was a key breakthrough in regulatory aspects. The U.S. Commodity Futures Trading Commission (CFTC) gradually clarified the compliance positioning of prediction markets, defining them as commodity derivatives rather than gambling activities. This change allowed prediction markets to be distributed through a wider range of channels. After compliance, the coverage of prediction markets in the U.S. even exceeded that of some traditional gambling businesses, reaching all 50 states.

Second, there was a restoration of institutional confidence and capital entry. Once the compliance boundaries were clear, the financing pathways for prediction market platforms quickly expanded, with multiple rounds of large financing supporting product experience, liquidity, and risk control systems.

Third, there was an expansion of event categories. From macro-political events, it gradually extended to economic data, crypto industry events, and even sports events, making the application scenarios of prediction markets more diverse.

Finally, there was technological maturity. On-chain settlement, automated market making, and the application of AI tools in information analysis and trading assistance collectively lowered the barriers to participation and use.

These factors combined made 2025 the year when prediction markets truly "broke out."

5. Risks and Boundaries: A Rational Perspective on Prediction Markets

It is important to emphasize that prediction markets are not without controversy. The "early position building" case mentioned at the beginning of the article reflects that issues such as insider information, manipulation prevention, and compliance execution still need continuous improvement in this field.

It should also be made clear that mainland China has a clear prohibition against related prediction and disguised gambling activities, and ordinary users should not participate in any activities that do not comply with local laws and regulations.

However, from a research and industry observation perspective, prediction markets, as a tool for information aggregation and probability expression, still hold value worth paying attention to and learning from in terms of systems, technology, and product design.

For the Web3 industry, it provides a new direction: not merely revolving around "asset speculation," but building a data infrastructure that can be used in real society around information, decision-making, and real-world events. This may be the true reason why prediction markets were widely discussed in 2025.

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