Prediction Markets: The Future of Information Finance

The industry finds itself at a fascinating crossroads.

Good morning. This is Blockfolio.

Bitcoin’s see-saw game, prediction markets’ regulatory troubles, and a lot more in today’s crypto dose.

Something else also happened beyond cryptocurrencies in the crypto space. Polymarket got banned in yet another country.

Last week, Singapore joined France and Taiwan in banning the top prediction platform and called it an "illegal gambling site". Meanwhile, Donald Trump Jr - the President-elect’s son - joined Kalshi, another betting platform.

That’s not all, there’s more.

Well, hang in there, in today’s crypto dose we unwrap for you how far the prediction markets have come and where are they headed amid the regulatory troubles.

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State of Prediction Markets

The industry finds itself at a fascinating crossroads.

In fact, as we write this, Thailand’s Technology Crime Suppression Division (TCSD) also announced that it plans to propose closing Polymarket.

Reason given? Same as Singapore - “illegal gambling”.

A ban in both the Asian nations is not the only setback the platform is tackling.

On January 8, the US Commodity Futures Trading Commission (CFTC) served Coinbase with a subpoena seeking general customer information of its users in relation with the Polymarket case.

These events make predicting the future of Polymarket more interesting. Why does it matter, though?

Polymarket started 2024 with insignificant numbers. It stayed low under the radar until June, when it sprang into action.

In October and November, Polymarket witnessed a total trade volume worth almost $5 billion, that’s 3x the total volume seen in January through September that year.

On November 6, these prediction platforms had just proven their worth by accurately forecasting Trump's return to the White House.

The Number Game

$8.5 billion: Polymarket’s total trading volume in 2024

314,500: Active traders in December 2024

$2.6 billion: Highest monthly volume (November 2024)

$510 million: Peak open interest during US elections

66.5%: Average monthly growth rate in 2024

Yet they're facing their biggest regulatory challenge yet.

Singapore and Thailand labelling the platform as "illegal gambling"

CFTC subpoenaing Coinbase for Polymarket user data

FBI raid on Polymarket CEO's home

France and Taiwan restricting access

Meanwhile, US-based Kalshi, which sees much smaller volumes being traded on its platform when compared with Polymarket, just got a shot in the arm. Donald Trump Jr joined them earlier this week to advise the trading platform on partnerships and go-to-market strategy.

“Don Jr.’s bold vision and deep expertise perfectly align with our mission to reshape how America engages with information,” Kalshi said in a post on X.

Where does this leave the future of prediction markets?

Beyond Elections: The Future

Prediction markets have managed to keep their platforms active post the elections.

The open interest on Polymarket, which peaked to north of $500 million during the elections, is down to averaging $100 million in December and January. That’s still level with the open interest the platform saw in the run up to the elections in August and September.

Even the daily active traders on the platform have been gradually on the rise after the post-election drop.

The average has shot up to more than 40K daily active traders in December and January from less than 30K in November post election.

While people are fixated on prediction markets’ election success, Ethereum co-founder Vitalik Buterin sees something bigger emerging out of prediction markets - “Info finance”.

"Predicting the election is just the first app. The broader concept is that you can use finance as a way to align incentives in order to provide viewers with valuable information."

Meaning? He thinks of this concept as a “three-sided” market, where bettors make predictions, readers consume these forecasts, and the system generates public predictions.

That’s not all. Read on…

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Three shifts could shape prediction markets moving forward.

The Micro-Markets Revolution

"The most interesting applications of info finance are on 'micro' questions," says Buterin.

Imagine millions of tiny markets, each seemingly inconsequential on its own