Prediction markets have transitioned from a niche experiment into one of the most dynamic segments of the digital asset economy. Over the last 12 months, combined monthly volumes across Polymarket and Kalshi have grown from roughly $2 billion dollars in April 2025 to a peak close to $25 billion dollars in April 2026, establishing these venues as legitimate price discovery platforms for real world events. The sector has attracted institutional capital, mainstream partnerships and unprecedented regulatory attention, driven by Polymarket’s long awaited return to the United States through its acquisition of the CFTC licensed exchange QCEX, and by Kalshi’s dominant position in federally regulated event contracts.
This report examines the structural drivers of that expansion, the competitive positioning of the leading venues, the role of crypto rails and stablecoins in enabling growth, the recent controversies linked to the U.S-Iran conflict and insider trading allegations, and the divergent regulatory approaches taken by the United States under the Commodity Futures Trading Commission (CFTC) and by the European Union under the Markets in Crypto-Assets (MICA) framework. It closes with a market thesis on where the sector is likely to go over the next 3 to 5 years, alongside a candid assessment of the principal obstacles that stand between the current moment and the establishment of prediction markets as a mainstream financial category.
The prediction market sector grew at a pace in 2025 and early 2026 that few other segments in the financial industry could match. A prediction market is effectively a platform where participants buy and sell binary contracts tied to the outcome of a future event, with prices ranging between $0 and $1. The quoted price implies the collective probability the market assigns to the event. For example, a contract trading at fifty cents implies a 50% probability. Unlike traditional sportsbooks, these platforms are structured as exchanges. Users trade against each other rather than against the house, which produces tighter spreads and allows the market price to operate as a real time forecast.
The relevance of this mechanism was cemented during the 2024 United States presidential cycle, when Polymarket pricing consistently tracked, and at times led, traditional polling. That episode transformed public perception of the category. What was once viewed as a fringe product became, within roughly 18 months, a tool routinely cited by major media outlets, a lobbying target in Washington, and a legitimate destination for institutional capital. By early 2026, Polymarket and Kalshi together had processed more than $37 billion dollars in wagers during the preceding 12 months, and monthly volumes had climbed to levels that rival mid-sized regulated derivatives venues.
Perhaps the most striking measure of this expansion is the trajectory of cumulative volume. In April 2025, combined cumulative volume across Polymarket, Polymarket US, and Kalshi stood at approximately 23 billion dollars. By April 2026, that figure had reached roughly $152 billion dollars, an increase of more than 560% in a single year. In other words, the category added more cumulative volume in the last twelve months than it had generated in its entire prior history combined, a rate of compounding that places prediction markets among the fastest-growing product segments in digital assets and in regulated event contract trading alike.
Monthly Cumulative Volume Trajectory
2. The Competitive Landscape
Kalshi
Kalshi is a federally regulated exchange that has operated since 2020 under a Designated Contract Market license from the Commodity Futures Trading Commission. For most of its history, Kalshi occupied a narrow niche focused on economic indicators and weather contracts. Its trajectory changed materially in late 2024, when it won a court decision against the CFTC that allowed it to list event contracts on United States elections. That victory cleared the path for a rapid expansion into sports event contracts during 2025, which now accounts for the dominant share of its daily volume. According to industry reporting, Kalshi currently holds roughly 90% market share within the United States regulated perimeter.
Polymarket
Polymarket is the world’s largest prediction market by global volume. It operates on a decentralized settlement model built on the Polygon blockchain and uses USDC as its primary settlement asset. Founded in 2020, it reached prominence during the 2024 election cycle, when its markets were widely cited as a real-time barometer of political outcomes. Polymarket was forced offshore in 2022 after settling with the CFTC, and until mid 2025, it served only non-United States users. In the first half of 2025 alone, users placed approximately $6 billion dollars in predictions on the platform.
Emerging Competitors
The competitive set is expanding beyond the two incumbents. CME Group announced a prediction markets partnership with FanDuel during 2025, and DraftKings launched its own event contract platform. The Trump family media company confirmed it would open a prediction market named Truth Predict in partnership with Crypto.com. Major League Baseball signed a commercial deal with Polymarket, and hockey and soccer partnerships have followed. These developments point to a category that is no longer defined by two startups but is increasingly being contested by the largest names in traditional finance, sports betting and media.
3. The Polymarket United States Relaunch
The most consequential corporate event in the sector during the last 12 months was Polymarket’s return to the United States market. The sequence of events is worth describing in detail because it illustrates how regulatory clarity, rather than regulatory arbitrage, is increasingly what determines who gets to scale.
In July 2025, the Department of Justice and the CFTC formally ended their multi-year investigations into Polymarket without bringing new charges. One week later, on July 21, 2025, Polymarket announced that it had acquired QCEX, a CFTC-licensed derivatives exchange and clearinghouse, for one hundred and twelve million dollars. The transaction gave Polymarket the regulatory permissions it had previously lacked, effectively converting a years-long licensing process into an acquisition. In September 2025, the CFTC granted QCX a no-action letter that relieved the entity from certain disclosure requirements for event contracts. On November 25, 2025, the CFTC granted an Amended Order of Designation that allowed Polymarket to operate an intermediated trading platform through registered brokerages and futures commission merchants.
The transaction was backed by a reported $2 billion dollar strategic investment from Intercontinental Exchange, the parent of the New York Stock Exchange, which gave Polymarket a level of institutional legitimacy no other prediction market had previously enjoyed. The platform relaunched quietly for United States users in late 2025 and rolled out more broadly in the first quarter of 2026. The United States entity uses USDC for settlement, operates under CFTC oversight, and offers API access alongside the consumer-facing product. Polymarket United States volumes, while still small relative to the offshore platform, are visible in the monthly volume chart above as a thin teal band on top of the existing columns from October 2025 onward.
Figure 2. Polymarket daily open interest per market. Source: Dune, April 30th , 2026.
Open Interest and Fee Growth
Open interest is a useful structural indicator because, unlike volume, it captures the capital actually parked inside the platform at any given moment. Polymarket open interest grew from roughly $150 million dollars in mid 2025 to more than $600 million dollars by April 2026, more than a 4x increase in under a year. The acceleration visible from September 2025 onward aligns with the regulatory resolution and the United States relaunch.
Figure 3. Polymarket daily USD fees. Source: The Block, April 30th, 2026.
The fee chart reinforces the same trajectory from a revenue perspective. Daily fees hovered below $200,000 dollars during most of February 2026, rose gradually through March, and then stepped up decisively in early April 2026 to a range of $1 to $1.25 million dollars per day, with a peak near $2 million dollars. This step change in monetization, occurring alongside the open interest expansion, is consistent with a platform that has meaningfully broadened its active user base and deepened its contract offering.
4. The Regulatory Landscape
United States
The United States has moved in 2025 and 2026 toward a framework in which prediction markets are regulated as event contracts under the jurisdiction of the CFTC. Because they are positioned as derivatives rather than gambling products, these platforms are not subject to the state-by-state licensing regime that governs traditional sportsbooks. Critics have described this as a loophole, and a growing number of states and tribal authorities have attempted to block prediction markets inside their territory. The Trump administration has so far pushed back against those efforts. The federal government has filed lawsuits against three states that tried to impose their own restrictions, and the White House has publicly maintained that the CFTC holds sole regulatory authority over the category.
The posture is permissive in comparison to most other jurisdictions, but it is not without friction. Multiple members of Congress have introduced bills seeking tighter restrictions. Senator Jeff Merkley has proposed measures that would limit the scope of event contracts tied to wars, elections and government actions. Senator Chris Murphy has led a bicameral proposal to prohibit government officials from profiting on prediction markets related to those same categories. Industry analysts view the probability of any of these measures passing in the current Congress as low, but the political temperature around the sector has risen sharply following the Iran controversy discussed in the next section.
European Union and the MiCA Framework
The European picture is structurally different. Most prediction market platforms use blockchain technology and stablecoins as settlement rails, which places them inside the perimeter of the Markets in Crypto-Assets regulation. MiCA entered into force in 2023 and has followed a phased rollout. Rules for asset-referenced tokens and e-money tokens became applicable on June 30, 2024. The full framework for crypto-asset service providers took effect on December 30, 2024. The grandfathering transitional period ends on July 1, 2026, which is now the hard deadline for any platform operating in the European Union to secure a Crypto-Asset Service Provider license or exit the market.
According to the European Securities and Markets Authority, MiCA contains strict market abuse provisions that will apply directly to any prediction market that uses crypto assets. These include prohibitions on insider trading, unlawful disclosure of inside information, and market manipulation. European regulators have openly signaled discomfort with the sector. Euronews reported in late 2025 that the commercial logic of prediction markets, in which every real-world event is priced in real time, creates a category that European authorities must now decide whether to embrace or ban outright. Compliance costs under MiCA are estimated at $500,000 to $1,000,000 euros per license, which is expected to consolidate the market around a smaller number of better-capitalized participants.
The Iran Controversy
The single most politically charged episode in the recent history of prediction markets emerged from the Iran conflict. Reports that emerged in March and April 2026 described a pattern of unusually well-timed bets placed on Polymarket in the hours preceding major geopolitical announcements. According to public blockchain analysis cited in press coverage, roughly $550,000 dollars in trades were placed in the hours before the United States strike on Iran, effectively wagering that strikes would take place and that Ayatollah Ali Khamenei would be removed from office. A separate pattern of trades, reportedly worth approximately $950 million dollars in correlated oil futures positions, was placed in the hours before President Trump announced a two-week ceasefire.
The episode prompted letters from Senators Elizabeth Warren and Sheldon Whitehouse demanding that the CFTC open formal investigations. Representative Ritchie Torres sent a separate letter to the CFTC calling for an inquiry. The White House circulated an internal memo on March 24, 2026 warning staff against placing Iran-related bets on prediction markets. A Harvard University working paper released during the same period estimated that approximately $143 million dollars in profits had been extracted from Polymarket by accounts that plausibly had access to non-public information across events ranging from the Nobel Peace Prize announcement to Taylor Swift’s engagement. Whether the ultimate regulatory response takes the form of new rules, enforcement actions, or simply enhanced surveillance by the platforms themselves remains uncertain, but the controversy has unambiguously increased the level of political attention on the category.
5. Prediction Markets and Digital Assets
The link between prediction markets and the broader digital asset ecosystem is structural rather than incidental. Polymarket is built on the Polygon blockchain and settles all trades in USDC. Kalshi, while fiat native in its traditional product, uses USDC inside its Polymarket United States competitor offering and across its API integrations. Every contract traded on these platforms consumes stablecoin liquidity, generates on-chain activity, and indirectly contributes to the demand for the underlying blockchain infrastructure.
Figure 4. Kalshi daily volume per category market share. Source: The Block, April 30th, 2026.
Crypto Exposure Inside the Category
The category composition on Kalshi tells an interesting story. Sports dominate by a wide margin and account for the majority of daily volume, which reflects the significant expansion of sports event contracts over the last year. Politics, which drove the original 2024 surge, has receded to a smaller slice. The notable development is the visible blue band labeled Crypto, which has expanded consistently from late 2025 into early 2026 and now represents approximately 18% of daily market share. These are event contracts tied to cryptocurrency outcomes, which can include spot price levels, regulatory decisions, exchange approvals, protocol events, and, increasingly, contracts tied to digital asset corporate actions. 18% is not yet comparable to the sports market share of 67%, but the pace of growth puts the segment on a credible trajectory to become the second largest vertical on the platform within the next 12 to 18 months.
From a market structure perspective, this matters for two reasons. First, it establishes prediction markets as a genuine price discovery layer for crypto events that previously had no dedicated venue. Contracts on whether a given spot exchange-traded product will be approved, whether a specific protocol upgrade will execute on schedule, or whether a given token will list on a major exchange, now trade actively and in size. Second, it creates a new demand channel for stablecoins. The Coinbase Institutional 2026 outlook notes that prediction markets are expected to broaden in 2026 and that aggregator platforms may consolidate billions of dollars in weekly volume, feeding directly into stablecoin turnover.
Implications for the Broader Digital Asset Market
If the current growth rate holds, prediction markets could become one of the more visible and economically meaningful applications of public blockchain infrastructure, alongside stablecoin payments and tokenized real-world assets. Research from The Block projects that prediction markets will be among the fastest-growing crypto applications in 2026, with open interest reaching half a billion dollars and total volumes approaching three percent of centralized exchange volumes. Multiple sources have also flagged the possibility that Polymarket and similar platforms will eventually launch governance tokens, which would introduce a new class of crypto assets directly tied to prediction market cash flows.
6. Market Thesis
The case for prediction markets as a durable category rests on three observations. First, the demand for real-time probability pricing on future events is structural and unmet. Traditional polling, traditional sports betting, and traditional macro forecasting each address pieces of that demand, but none combine real-time price discovery, open participation, and institutional-grade settlement in a single venue. Second, the category has now cleared its most critical regulatory obstacles in the United States, which is the largest addressable market, and it has done so with explicit federal support. Third, the distribution infrastructure is beginning to consolidate. Partnerships between Polymarket and Intercontinental Exchange, between Kalshi and major sports leagues, and between CME Group and FanDuel all point to a category that is being pulled into mainstream financial plumbing.
Base Case
A plausible base case is that combined annualized volume across regulated prediction markets reaches $300 to 400 billion dollars by the end of 2027, driven primarily by sports and, to a lesser extent, by political, economic, and crypto contracts. Polymarket United States approaches parity with the global Polymarket platform within 18 months, aided by the ICE partnership and the USDC rails inherited from its pre-launch architecture. Kalshi retains its domestic sports leadership but sees its share compressed as Polymarket, DraftKings, and CME Group expand. Prediction market volume tied to crypto-specific outcomes crosses 25% of Kalshi category volume and becomes a meaningful demand channel for USDC in particular.
Upside Case
In an upside-down scenario, regulatory clarity arrives not only in the United States but also in the United Kingdom and in selected European jurisdictions that opt to license prediction markets under MiCA rather than prohibit them. Institutional adoption accelerates, with brokerages and asset managers offering event contract exposure alongside traditional derivatives. Polymarket launches a governance token that trades among the top cryptocurrencies by fully diluted value, validating the category as a crypto native vertical. Combined volumes will exceed $1 trillion dollars on an annualized basis by 2028. Prediction markets become a standard component of macro and political research workflows inside hedge funds and investment banks.
Downside Case
The downside case runs through insider trading and political backlash. If one or more of the current investigations into the Iran-related trades produce evidence of government officials trading on non-public information, Congress may find the political will to impose restrictions that have so far failed to pass. State-level litigation could also intensify. Were the CFTC to lose its sole authority argument in court, the sector would be forced into a patchwork of state licensing regimes that resembles the traditional sports betting industry, which would compress margins and slow growth meaningfully. In Europe, a restrictive interpretation of MiCA could effectively close the region to prediction markets entirely.
Principal Challenges
Four challenges stand out as the most important to monitor. The first is insider trading and market integrity more broadly. The Iran episode has demonstrated that the combination of open access, on-chain transparency, and low latency creates conditions in which informed traders can extract significant value before information becomes public. Without credible surveillance and enforcement, the legitimacy of the sector is vulnerable. The second is regulatory fragmentation. The current United States posture is permissive, but it is also concentrated in executive branch support that could shift with future administrations. The third is the tension between event contract framing and gambling framing. The category benefits from being treated as derivatives at the federal level, but from a user behavior perspective, it competes directly with sportsbooks, and state regulators have strong political incentives to push back. The fourth is the concentration of settlement on a handful of stablecoins and blockchains. A disruption at the USDC level or at the Polygon level would have an outsized impact on the sector relative to its fundamentals, which is a form of infrastructure risk that mainstream participants will eventually need to address.
7. Conclusion
Prediction markets have progressed further in the last 12 months than in the previous decade combined. Volumes have scaled more than tenfold. The leading venue has resolved its regulatory overhang, re-entered the United States, and absorbed institutional capital from the parent of the New York Stock Exchange. A second venue has built a dominant position in federally regulated event contracts. The category has generated genuine political controversy, which is itself evidence of relevance. And a non-trivial share of activity now involves crypto-specific outcomes, creating a meaningful bridge between prediction markets and the broader digital asset ecosystem.
The next 18 to 24 months will determine whether the category consolidates into mainstream financial infrastructure or whether it remains a specialized field adjacent to sports betting and crypto speculation. The three conditions that would support the former outcome are credible market surveillance, a durable federal regulatory framework, and the continued development of institutional-grade distribution. The balance of evidence currently points toward consolidation, but the path is not linear, and the sector will remain sensitive to political developments, insider trading episodes, and the interpretation of MiCA in Europe. For an investor or operator with exposure to digital assets, prediction markets are now too large to ignore and too early to consider settling. Close monitoring through the end of 2026 is warranted.
Sources:
The Block, Dune Analytics, CoinDesk, Reuters, CNBC, NPR, PBS NewsHour, The Washington Post, Euronews, Grayscale Research 2026 Digital Asset Outlook, Coinbase Institutional 2026 Crypto Market Outlook, European Securities and Markets Authority, Commodity Futures Trading Commission, Polymarket and Kalshi corporate communications.
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