The prediction market has taken ten years to develop its skills. Who will be the next “master” in th

The evolution of prediction markets in the crypto world is quite interesting. It was once considered a “falsifiable” concept, and it took ten years for it to achieve PMF (Product-Market Fit). Its development exceeded market expectations. Sometimes, it’s not appropriate to make conclusions too early in the crypto industry.

The concept of prediction markets isn’t new at all. They existed in the crypto world long ago. In 2015, Gnosis launched its project; in 2018, Augur went live as a decentralized prediction market platform based on Ethereum. Users could create predictions about future events and use cryptocurrency to settle those predictions.

In 2020, Polymarket (based on Polygon) also emerged, but it remained marginal for a long time. Due to regulatory concerns, its performance was poor. At the beginning, Polymarket’s monthly trading volume was only a few million dollars. After the 2020 elections, Augur’s TVL plummeted by nearly 80%, dropping from a peak to just a few million dollars. The overall industry’s TVL peaked at around $7 million, with monthly trading volumes falling below $100 million. Regulatory pressures (such as the CFTC viewing it as a form of “gambling”) and the imperfect nature of Oracle further hindered growth.

It wasn’t until 2024 that prediction markets truly began to take off. Especially after the 2024 US elections, which became a turning point. The trading volume of election-related predictions on Polymarket exceeded $2.7 billion. The platform’s monthly trading volume increased dramatically, from $62 million in May to $2.1 billion in October—an increase of over 30 times. Annual nominal trading volume reached $16.3 billion, far exceeding previous totals.

Why did it take ten years to achieve PMF?

Firstly, there were technical and user experience barriers in the early days of the cryptocurrency industry. The concept of prediction markets was indeed promising . It seemed like there was a large demand for such technologies. However, in reality, most users were excluded from using these tools. For example, Augur was built on top of Ethereum’s L1 infrastructure, resulting in extremely high transaction costs. At that time, GAS fees were incredibly high, and confirmation times were also very slow. For ordinary users, they had to learn how to use wallets and complex interfaces, which posed significant learning challenges. These high barriers to entry led to insufficient liquidity and concerns among users about manipulation.

Secondly, regulatory pressures have always existed. The US CFTC classified prediction markets as “gambling” or derivatives, and has increased its oversight since 2018. During this period, Augur was fined for engaging in risky betting activities. Polymarket faced a fine of $1.4 million in 2022 and had to withdraw from the US market. Even its founder, Shayne Coplan (born in 1998), had his apartment raided by the FBI in New York, with electronic devices confiscated (he was not arrested). The lack of clear regulations made it difficult for institutional investors to participate in the market. Regulatory constraints continued to hinder the increase in liquidity.

Thirdly, there have been changes in how people perceive prediction markets. From 2016 to 2018, most users focused more on speculative activities rather than practical applications. Between 2020 and 2023, the boom in DeFi and NFTs distracted people from focusing on prediction markets. As a result, the TVL of prediction markets was only around $7 million. Without mainstream events to drive interest, it became difficult to accumulate liquidity.

Fourthly, prediction markets are still immature and vulnerable to manipulation.

2024 marks a turning point. As mentioned earlier, the US elections in 2024 could serve as a catalyst. But that’s not all.

2024 – Now, the prediction market industry has truly taken off. In addition to Polymarket, there’s also the centralized prediction platform Kalshi that has emerged. By 2025, the volume of transactions in the prediction market will reach $27.9 billion, a year-on-year increase of 210%. The weekly peak will be $2.3 billion. The total TVL of Polymarket and Kalshi combined will exceed $20 billion. Both platforms are valued at over a billion dollars each. The prediction market has suddenly become very popular in the market.

So, what are the factors driving this growth?

Contrary to the obstacles that existed between 2015 and 2024, these obstacles have been gradually eliminated, resulting in significant improvements in terms of user experience and other aspects.

1. Technological advancements and changes in user experience. Polygon and Base L2 networks have reduced gas fees to mere cents, while transaction speeds have increased by ten times. Platforms like Polymarket have optimized their user interfaces, allowing users to invest in stablecoins with just one click. This has attracted users who aren’t from the crypto community. Additionally, DeFi has also seen significant development, providing deeper liquidity. For users, participating in the prediction market now becomes much easier. Kalshi is a centralized prediction platform that integrates with platforms like Robinhood, making it even more convenient for users to participate.

2. Regulatory changes. After the 2024 U.S. elections, regulators have started to promote crypto-friendly policies. In 2025, the CFTC will approve regulated platforms like Kalshi. The SEC/CFTC has clarified that “physical commodities in crypto form” are legal, and legislation regarding stablecoins has been passed by Congress. Even in countries like Switzerland, where there are blacklists, the overall environment has shifted from hostile to supportive. Institutional funds are flowing into the industry (for example, ICE invested $2 billion).

3. Changes in market narratives. During this period, there wasn’t any particularly compelling narrative. Instead, practical applications became the focus of market attention. With the predicted elections in 2024 serving as a catalyst, Polymarket expanded its offerings to include sports, economics, technology, and other fields. Additionally, media coverage from sources like CNN and Bloomberg played a key role in promoting the prediction market. Social networks also contributed to the popularity of prediction markets.

4. Both institutions and communities are actively promoting this trend. a16z is also involved, creating the concept of “event-driven financial infrastructure” through various narratives. Community users also participate actively, contributing to the increase in TVL.

5. Prediction markets have gradually evolved from being seen as a form of “gambling” into a new type of signal, similar to providing real-time probability estimates.

Looking at the ten-year evolution of prediction markets, one interesting conclusion is that not all predictions that are proven incorrect necessarily mean that the corresponding market has no potential for growth. Sometimes, it simply means that the conditions aren’t yet ripe for success. In the crypto industry, this phenomenon is particularly evident. Due to the incomplete infrastructure in the crypto sector over the past decade (slow speed, poor user experience, etc.), many attempts failed to reach ordinary users. Perhaps in the future, sectors like Crypto Games, social networking, AI agents, decentralized finance, and digital identities may have reached their limits. However, some markets still have the opportunity to re-emerge.