Polymarket's valuation has increased tenfold in four months. What is the magic of prediction markets?

Prediction markets are becoming the new darlings of Wall Street.

This month, the parent company of the New York Stock Exchange, Intercontinental Exchange (ICE), invested $2 billion in the decentralized prediction market Polymarket, which is not only one of the largest private financing deals in crypto history but also skyrocketed Polymarket's valuation to $9 billion. Recently, there have been reports that Polymarket is in early discussions with investors and is seeking funding at a valuation between $12 billion and $15 billion.

Interestingly, four months ago, Polymarket's valuation was less than one-tenth of what it is today. If we go back to 2022, Polymarket was even once pursued by regulators.

The soaring valuation of Polymarket is astonishing, and the prediction market is once again in the spotlight.

Mentioning Polymarket, the first association that comes to mind is the prediction market. What is a prediction market? Although the term sounds fancy, the essence of a prediction market is simply probability betting, or more bluntly, a variant of gambling. Of course, this method does not align with pure speculation; the essence of the betting lies in the mastery of information and probability judgment, which can be more aptly termed as “information warfare”. Using prices to buy probabilities clearly embodies the most objective carrier of information trends.

From its origins, the earliest prediction markets can be traced back to the 16th century, when various casinos were set up in Rome, Italy, around the papal elections. By the 18th century, the scope of betting expanded increasingly, gradually evolving from single issues to “anything can be bet on.” After the 19th century, the global political hotspot of U.S. elections ignited the passion for prediction markets, which gradually flourished. However, as the statistical methodology for predictions improved, the “irrational” characteristics of prediction markets caused them to take a back seat. Nevertheless, the spark of prediction markets did not extinguish; the non-profit experimental project, the Iowa Electronic Markets operated by the University of Iowa, successfully demonstrated the potential of prediction markets during the 1988 presidential election, becoming one of the earliest and most famous prediction markets. Subsequently, the Hollywood Stock Exchange, the Policy Analysis Market, Intrade, and PredictIt continued to emerge, and prediction markets evolved from being centralized to decentralized, ultimately shaping the current development landscape of prediction markets.

Polymarket is a representative of decentralized prediction markets. It is worth mentioning that Polymarket is not the earliest decentralized prediction market application; as early as 2018, the decentralized prediction product Augur appeared on Ethereum. However, its development fell into the traditional cryptocurrency trap, not only using platform tokens for betting but also focusing on the completion of smart contracts rather than the user experience, ultimately leading to its failure.

Polymarket, learning from the lessons of predecessors, places great emphasis on user experience both in terms of mechanism and interface. Polymarket was initially built on Ethereum smart contracts and later migrated to the more scalable sidechain Polygon. Users can participate simply through their wallets without the need for identity verification, and the only supported betting currency is USDC, ensuring stable chips.

From an architectural perspective, Polymarket employs the Conditional Token Framework (CTF) developed by Gnosis, allowing users to place bets using tokens to purchase condition tokens that represent specific outcomes, and introduces the concept of bundling to facilitate user purchases. The market direction relies on a central limit order book, which is more commonly used in traditional financial markets for market-making, constructing a hybrid architecture of off-chain matching and on-chain settlement to ensure a smooth user experience.

It sounds quite complicated, but from the user's perspective, it is very simple. You place bets using stablecoins, and the questions correspond to the market, with only binary options of 'yes' and 'no'. If the prediction is correct, you win 1 dollar; if incorrect, you win nothing. In the CTF framework, the price represents the probability of the event occurring. For example, if the bet is 0.69 dollars, it indicates a 69% probability of the event happening.

From infrastructure setup to smart contract execution, it is clear that Polymarket is a purely decentralized application. In this prediction market, the platform is not a counterparty, and there is no need to worry about the house edge, nor is there large-scale opinion manipulation and information bombardment. In fact, no one knows who you are; you only need to place your bets based on your personal will.

With the advantages mentioned above, Polymarket, born in 2020, quickly experienced explosive growth, with trading volume exceeding $1 billion in 2023. In 2024, it gained attention for successfully predicting the U.S. elections, with total trading volume soaring to $8.6 billion that year, becoming a leading application in the prediction market. Just in the first half of this year, Polymarket's trading volume reached $6 billion, and the cumulative total trading volume has exceeded $20 billion to date.

The seemingly smooth development path is not without its difficulties and twists. The mechanism of Polymarket is quite difficult to define in terms of regulation; it can be seen as gambling, but it can also be regarded as binary options swaps. This is because, unlike traditional gambling, contracts on Polymarket can be traded before the event concludes. For example, if a user purchases a contract for “Trump winning the election” at 0.1 dollars, and later the contract rises to 0.4 dollars, the user can sell the contract to realize a profit, even though the event has not yet concluded. The advantages and disadvantages of this mechanism are very obvious. The advantage is that it truly transforms the prediction market from a focus on outcomes to a trading process, allowing bets to be dynamically adjusted based on real-time circumstances, creating opportunities for volatility arbitrage, and making betting more flexible. However, it is inevitable that betting contracts have turned into an investable financial derivative.

In this context, in 2022, Polymarket was accused by the U.S. CFTC of being an unregistered exchange providing illegal trading, ultimately settling with regulators for a fine of $1.4 million and exiting the U.S. market. In 2024, after Trump's betting market predictions emerged prominently during the election, Polymarket faced severe crackdowns from the U.S. authorities. In November, the FBI raided CEO Shayne Coplan's residence, seizing his electronic devices, while investigations by the U.S. Department of Justice and the CFTC arrived as expected, hinting at a political purge in the market.

Of course, after Trump took office, the overall environment changed drastically, and almost all of Biden's enemies were treated with courtesy by Trump. In July of this year, the U.S. Department of Justice and CFTC stopped the investigation into Polymarket. Shortly thereafter, Polymarket announced it had spent $112 million to acquire QCX LLC and its subsidiary clearing house QC Clearing LLC, which is a small derivatives exchange licensed by the CFTC. Polymarket's strategy is clear, intending to re-enter the U.S. market through acquisitions. In September of this year, QCX received a no-action letter from the CFTC, officially clearing the major obstacles for Polymarket's return to the U.S. market.

After solving the compliance puzzle, investors flocked in. In January, Polymarket completed a $150 million financing round led by Founders Fund and Dragonfly, with a valuation of $1.2 billion. In October, Polymarket secured a $2 billion financing from ICE, a subsidiary of the New York Stock Exchange, with a valuation of $9 billion. Recently, rumors have circulated that Polymarket will conduct its next round of financing with a valuation of $12 billion. Interestingly, the venture capital fund 1789 Capital, owned by Donald Trump, also appears on its shareholder list, indirectly validating Polymarket's legitimacy.

Today, Polymarket has risen to become a major player in the crypto market, with trading volumes reaching an astonishing $1 billion in the past week. When it comes to prediction markets, Polymarket is undoubtedly a topic that cannot be avoided. For users, the platform's operations are less important; personal profit is the core concern. It is worth noting that Polymarket's CEO has hinted at launching a token, which has led to high expectations in the market. However, based on the investments brought in so far, going public may align better with its market positioning.

On the other hand, although the future looks bright, Polymarket also has its inherent issues. First, there are vulnerabilities in the technical mechanisms. Polymarket uses the UMA protocol as a decentralized oracle solution, which is responsible for reliably writing the outcomes of real-world events to the blockchain, relying on the UMA oracle to determine the results. However, decentralized oracles do not always provide the correct answer. The general process for oracle determination is that after an event occurs, if there are no objections, the result is published directly; if there are objections, it enters a dispute voting period, during which users holding UMA tokens can vote on the dispute, with the final result being authoritative. This seemingly fair solution has a fatal flaw: in such situations, large holders of UMA tokens wield considerable influence and can even “fabricate the truth.” In March of this year, regarding the event “Will Ukraine reach a rare earth trading agreement with Trump before April?” the actual outcome was no, but the oracle ultimately determined it to be “yes,” because large holders manipulated the oracle to change the result. Furthermore, even excluding oracle issues, the subjectivity of decentralized voting can affect actual judgments, and in the face of ambiguous answers, the lack of fair judgment can lead to disputes.

Second, there is still uncertainty in regulation. Although the current U.S. government has largely loosened regulation of the crypto market, gambling regulation has not been fully lifted, and the issues of market manipulation and insider trading that exist within Polymarket remain unresolved, leading to ambiguity in regulatory aspects.

After the questions, market challenges also followed. In the prediction market, Polymarket and Kalshi present a competitive standoff. In terms of differentiation, the former's gameplay is more inherently decentralized, emphasizing decentralization, and covering a wider range of prediction fields, including politics, economics, sports, and entertainment. In contrast, the latter relies on compliance as its competitive edge, being a compliant exchange approved by the US CFTC, which is more attractive to institutional users and outsiders. Although Polymarket currently leads with an absolute advantage in trading volume and brand presence, the latter shows a clear momentum for catching up. Kalshi's market share, calculated by weekly nominal trading volume via the Dune platform, rose from 8% in January 2025 to 66% in September 2025, and although it has since dropped to 46.6%, the growth momentum remains strong. Even in recent financing, Kalshi is not falling behind, with news that it is receiving financing offers from venture capital firms, with a valuation range of $10 billion to $12 billion.

Competition is becoming increasingly fierce, but from the heavy investments of capital, it can be seen that prediction markets are rapidly rising with a sweeping momentum. Both Polymarket and Kalshi are merely one of the betting targets within this broader context. As for why prediction markets are so important, the key lies in the information pricing behind them. Probability is a reflection of information, and information is manifested through price. This pricing decision-making method pushes decision-making from “timely response” to “information forecasting.”

Here, traditional media can be used for comparison. The reason why media is highly valued in the financial sector is due to its information transmission nature and the potential market feedback it can bring. However, as media aligns itself with financial and political groups, it has gradually moved away from its original fairness and independence, beginning to convey certain biases and even being controlled by a minority of elites. At this moment, the emergence of prediction markets has become a good complement. Betting with prices reflects internal emotions and signals more accurately and distinctly, and the feedback of price fluctuations is more real-time. In other words, prediction markets are becoming a new type of information medium. This medium releases the originally elite-controlled information pricing power to the public, achieving timely feedback of event-driven data amidst volatility. This not only represents simple betting predictions but also signifies a paradigm shift in the deeper price discovery system, and the value contained within is self-evident.

For example, events that some media do not consider important and have not noticed may be highly valued in the prediction market, and this attention is precisely the source of the price. For listed companies, this is more valuable than annual financial reports and marketing advertisements. This may also be one of the reasons why the NYSE invested in Polymarket, supplementing the pricing of expectations and attention into the traditional asset pricing system, which is a reflection of conforming to objective trends. It is reported that ICE has obtained global distribution rights for Polymarket's event-driven data through this investment and plans to apply it to the next generation of tokenized projects.

While the prospects are good, there are also ethical issues. The ability to bet on everything also means the financialization of everything, and in a certain sense, everything can be turned into entertainment. However, there are always events that cannot be entertained. When these two collisions occur, what future will the prediction market face?

Of course, it is still too early to discuss this, and before that, the prediction market has a long way to go.