The Golden Age of Prediction Markets: Polymarket Frenzy and Kalshi's Debut

Original Title: "The Golden Age of Prediction Markets: Polymarket Frenzy, Kalshi Debuts"

Original Source: OneKey Chinese

From the 2024 U.S. presidential election to the 2025 AI boom and sports events, prediction markets are booming. Polymarket’s trading volume surged by over 300% during the election period, and the pricing power of on-chain “collective intelligence” is receiving unprecedented attention. According to Polymarket Analytics, the cumulative trading volume of leading on-chain prediction markets has exceeded $1 billion, with nearly 30,000 markets established, covering topics such as politics, technology, sports, and crypto.

Why now? On-chain prediction markets are more transparent, secure, and censorship-resistant than traditional platforms; coupled with gradually loosening U.S. regulations, players like Coinbase and Kalshi are entering the field. These markets are attracting more and more users and capital. They are no longer just for entertainment betting, but have become a new tool for information verification: when users bet with real money, the price itself reflects the probability judgment of collective wisdom.

This feature is especially prominent in major events. For example, in the 2024 U.S. presidential election, Polymarket priced Trump’s probability of winning at as high as 97% earlier than mainstream media; even when polls still showed a “50-50” split, the market had already given a tilt of over 60%. Bets with real money make probabilities more than just empty talk—they become a signal worth referencing.

So, how exactly do these markets operate? How do on-chain prediction mechanisms differ from the traditional models we’re familiar with?

“Basic Mechanisms of On-Chain Prediction Markets”

To understand on-chain prediction markets, let’s first review how users place a “bet” in a traditional prediction market.

Suppose there is now a market for the event “Will the Federal Reserve cut interest rates in September?” with only two outcomes: “Yes” and “No.”

Bob believes the economy is weakening and thinks a rate cut is likely, so he bets $60 on “Yes”; Alice and James bet $20 and $12 respectively on “No.” In this way, there is a total of $92 bet in the market, with $60 on “Yes” and $32 on “No.” On traditional platforms, users don’t see “probabilities” per se, but odds. For example, the platform might offer odds of 1.53x for “Yes” and 2.88x for “No.”

Behind the odds is actually the probability derived from the distribution of funds:
>“Yes” ≈ 60 ÷ 92 ≈ 65%
>“No” ≈ 32 ÷ 92 ≈ 35%

The side with more bets gets lower odds and less return if they win; the side with fewer bets gets higher odds and a bigger payout if they win. For example, if a rate cut does happen, the $60 bet can split $92, with odds of about 1.53x; if not, the $32 bet can split $92, with odds of about 2.88x.

This is the operational logic of traditional prediction markets: users’ bets drive changes in odds, and the odds implicitly reflect the market’s expected probability of the event outcome.

“How Polymarket Brings Betting On-Chain”

Another core feature of traditional betting is its static and one-way nature. Once a bettor places a bet, their funds are locked until the event concludes and settles. This process is irreversible. Bettors cannot adjust their positions during the event based on new information or changing circumstances. There is no secondary market for bettors to “sell” their bets to lock in profits or reduce losses early. To break this limitation, prediction markets introduced core mechanisms from financial markets, enabling a paradigm shift from “betting” to “trading.” Let’s continue with the “Will the Federal Reserve cut rates in September 2025?” market to analyze the full flow of funds.

Stage One: Market Creation

On Polymarket, anyone can permissionlessly create a prediction market. When the market is created, a smart contract automatically generates tradable shares corresponding to the event outcomes, such as “Yes” and “No.” The total number of these shares is fixed, and the total value of each “Yes” and “No” share is 1 USDC. The market creator provides initial liquidity and receives corresponding shares, thus determining the initial price.

Stage Two: Opening a Position

Suppose at the beginning, the market thinks the probability of a rate cut is 40%: the price of a “Yes” share is 0.40. Alice believes the probability is underestimated and buys 100 “Yes” shares at 0.40, spending $40 USDC. Alice’s counterparty is Bob, who sells 100 “Yes” shares (or buys 100 “No” shares). Alice’s $40 and Bob’s $60 are locked in the smart contract as collateral. Alice gets 100 “Yes” shares, Bob gets 100 “No” shares.

Stage Three: Market Fluctuations

Suppose an inflation report shows the economy is cooling more than expected. The likelihood of a rate cut increases, and the price of a “Yes” share rises to 0.75. The value of Alice’s shares rises from $40 to $75, with an unrealized profit of $35.

Stage Four: Closing a Position

Alice decides to sell her shares to lock in the $35 profit. Trader James believes a rate cut is a sure thing and is willing to buy at 0.75. Alice’s sell order matches James’s buy order. James pays $75 USDC directly to Alice. Alice’s “Yes” shares are transferred to James.

Alice’s $35 profit comes from James paying a higher price. At this stage, there is no principal loss yet. So before settlement, traders’ profits come from other traders. The money you earn is paid by those who buy your shares at a higher price; the money you lose is the difference you pay when selling your shares at a lower price.

Stage Five: Event Settlement

Suppose Alice and Bob hold their shares until the Fed meeting ends. Result confirmation and fund distribution logic: the oracle confirms the final result. If “Yes” happens, the “Yes” share is worth $1.00, and the “No” share becomes worthless. Winners exchange their shares for the funds locked in the smart contract. Losers lose their principal.

For example, if the Fed announces a rate cut and the “Yes” outcome occurs, Alice exchanges her 100 “Yes” shares for $100 USDC. Alice’s profit is $60, and Bob loses his entire $60. The $60 Alice earns is exactly the $60 Bob loses.

As you can see, on-chain prediction markets like Polymarket are peer-to-peer, with no “house” as in traditional betting platforms. Funds flow entirely between participants, managed automatically and transparently by smart contracts. Trading profits come from real-time changes in other traders’ probability judgments, while settlement profits come directly from the principal invested by traders holding the opposite final view. The whole process achieves decentralized, trustless fund flows, providing crypto users with a more open “betting” world.

More importantly, when you predict the future, you’re not just “talking big”: you’re betting with real money. This feature can play a significant role in major events. Intuitively, the larger the total amount bet, the more the probability reflects a meaningful and realistic outcome.

So when you want to judge whether a piece of news is real, changes in prediction market probabilities can help you a lot. The most classic case is last year’s U.S. presidential election. DragonFly partner Haseeb pointed out in a tweet analysis: the world’s largest prediction market, Polymarket, made a decision before mainstream news media, announcing Trump’s probability of winning as 97% before midnight Eastern Time. Not only that, even when poll models showed Trump and Harris had a 50-50 chance, Polymarket had already given its answer—Trump’s probability of winning was over 60%.

On-chain prediction markets are far more than just gambling platforms: through blockchain technology and financial tools, they are poised to become a new generation of information dissemination and verification channels.

“On-Chain vs. Compliance: Why Kalshi Is Criticized”

Compared to Polymarket, another prediction market, Kalshi, has recently sparked heated discussion for appointing 23-year-old crypto influencer John Wang as head of crypto business, a move that took place around August 25, 2025, aimed at expanding its digital asset sector. Once the news was released, Kalshi’s investors, including members from Paradigm and Multicoin Capital, responded very positively to the appointment.

Kalshi is another major leader in on-chain prediction markets. In the past few months, they completed a $100 million financing round at a $1 billion valuation, partnered with xAI to bring Grok into prediction markets, and had members of the Trump family serve as strategic advisors... At the same time, Kalshi is also the first event contract market in the U.S. to be fully regulated by the CFTC (Commodity Futures Trading Commission).

However, there are some dissenting voices about Kalshi in the native crypto community: Delphi Digital member Jordan pointed out that Kalshi’s centralized structure is not suitable for being promoted as a crypto project; Uniswap team member Niko also stated that Kalshi previously damaged Polymarket’s reputation and operations by spreading negative information during the election and should not be respected.

Although there is some controversy in the community regarding Kalshi, from the data perspective, it has already become one of Polymarket’s main competitors, and its future development cannot be ignored.

“End”

On-chain prediction markets not only break the static limitations of traditional betting by introducing financial trading mechanisms and enabling a paradigm shift from “betting” to “trading,” but also demonstrate strong vitality with their transparency and decentralization.

As their mechanisms mature and platforms like Polymarket and Kalshi continue to develop, on-chain prediction markets are becoming an unstoppable force, playing an increasingly important role in future information pricing and risk hedging.

Disclaimer: The content of this article is for knowledge and educational purposes only and does not constitute any investment or financial advice; DeFi protocols carry high market and technical risks, and digital asset prices and yields are highly volatile. Participating in digital asset investment and DeFi protocols may result in the loss of your entire investment; please make sure to understand and comply with local laws and regulations, conduct risk assessments and due diligence, and make prudent decisions before participating in any DeFi protocol.

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