Right now, millions of dollars are being bet on sports, elections, and the number of tweets Elon Musk will make in January. Almost every major financial, geopolitical, and cultural event has a prediction market where people can bet on its outcome. Polymarket and Kalshi, two of these platforms, process over $700 million in daily transactions. So how do these markets work and who benefits from them?
How Prediction Markets Work
Prediction markets essentially work like a stock exchange. Polymarket’s team creates markets for events in the future and writes a set of rules for what constitutes as the event happening. Users can then buy shares for either the “Yes” or “No” outcome. When buying, they enter the price they are willing to pay for a share, and the market matches them with someone who is willing to take the opposite position at that price.
For example, when I place an order for 100 “Yes” shares for Trump winning the 2024 election at 60¢, I am matched with other traders who are willing to buy “No” shares at 40¢. When the event’s outcome is resolved, the person who chose the correct outcome is paid $1 per share, so I would receive $100 if Trump won the election.
The Recent Rise of Prediction Markets
Kalshi and Polymarket, the two biggest prediction markets, were founded in 2018 and 2020 respectively. At first, regulators went after them, seeing them as unregulated gambling platforms. Despite legal scrutiny, trading volume was still high, driven by growing public interest and the appeal of real-time probability estimates for major events.
A turning point came in 2024 when Kalshi won a lawsuit enabling political event contracts. This ruling gave prediction markets greater legitimacy and opened the door for wider adoption in the United States. After this, trading volumes surged. After this, trading volume surged. By 2025, Kalshi alone processed about $22.88 billion in trading volume. Mainstream media outlets began citing prediction market odds alongside traditional polls and advertising for Kalshi has been rising steeply, to the point that everyone has heard of them at least once. What had once been a niche product for crypto and finance enthusiasts began to move into the public spotlight.
How Polymarket and Kalshi Make Money
Kalshi makes money by charging users a 2% fee on each trade they make. In 2025, this amounted to around $263.5 million in fee revenue on $22.88 billion in volume. They also charge smaller fees on withdrawals and deposits. No matter the outcome of any event, Kalshi turns a profit.
Polymarket, on the other hand, does not charge any trading fees, meaning they are currently burning through venture capital money. In their upcoming U.S. market, they are planning to charge a 0.01% trading fee, which will be their first revenue source.
Polymarket’s long-term strategy includes providing its data to institutional clients. Studies have shown that prediction markets are better at predicting outcomes than experts or polls, since people have a monetary incentive to be right. The Intercontinental Exchange recently invested $2 billion into Polymarket in a strategic partnership. They are planning to package and sell real-time probabilities data and sentiment indicators from Polymarket to hedge funds and stock exchanges, with more than half of their clients reportedly being interested in accessing this data.
Who Makes Money on Prediction Markets
In a study by DeFi Oasis, they found that 70% of Polymarket traders lost money, while the top 0.04% captured 70% of the profits. Since the markets are a zero-sum game, this shows that sophisticated users can consistently outperform and take money from less experienced traders. Some of these elite users write quantitative algorithms that automatically trade based on real-time data to gain an edge. Some, like Axios, who has a 96% win rate in “mentions” markets, demonstrate deep expertise in a single category.
However, some of the biggest winners are insider traders. Surprisingly to many, insider trading on Polymarket is not illegal. Moreover, it is quietly encouraged by decentralized platforms like Polymarket since it improves the accuracy of the market’s predictions. Anyone who is part of a presidential administration or on the board of directors of a company can use their insider knowledge to make money off regular users.
Do They Benefit Society
Many supporters of prediction markets claim that they are a key instrument for uncovering the truth in our current world. In a society where opinions are increasingly influenced by political ideology, prejudices, and emotions, and where the ideas that gain the most exposure are often the ones that receive the most likes on social media, prediction markets stand as a potential beacon of truth. Since people are confronted with the possibility of losing money if they bet incorrectly, they are forced to rationally evaluate their beliefs, and users whose judgement is clouded by ideology or incorrect assumptions are punished financially. Many also claim that they can be used to detect fake news. If the market moves significantly following a news report, the news is likely credible. If the price remains stable, the news is either unreliable or has little effect on the event.
Critics argue that prediction markets are not forecasting tools, but a disguised form of gambling. They cite the gamified interfaces and resemblance to traditional betting, warning of the risks of gambling addiction. This risk is especially prevalent for teenagers, who can technically trade on Polymarket if they have access to a crypto wallet. There is also the possibility of market manipulation due to low liquidity, potentially allowing people with large amounts of money to skew probabilities in an attempt to influence public opinion.
Conclusion
Prediction market’s forecasting abilities can help us make better decisions as a society, yet risks of gambling addiction and market manipulation remain. They allow sophisticated traders and people knowledgeable in their field to make money from their prediction, but most of their users lose money.
No matter your opinion on prediction markets, their rise in the past few years has been undeniable, one bet at a time.
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