Author: Jake Nyquist, Founder of Hook Protocol
Translation: Blockchain Knight
By 2026, major institutions will launch entirely new prediction markets.
From the past five years of competition between NFT and perpetual contract exchanges, we have already understood: differentiated products can quickly capture market share.
Although leading platforms currently hold advantages in liquidity and regulation, they carry heavy product and technical debt, making it difficult to respond flexibly to new entrants.
So how should new players compete? In my view, the differentiation in prediction markets revolves around seven key dimensions:
1. Product Quality
Founding teams can create differentiation through front-end user experience, API stability, development documentation, market structure, fee mechanisms, and more.
Most established platforms currently have obvious shortcomings: unreasonable tier settings, opaque fee rules, slow and unstable APIs, and single order types.
A high-quality user experience, especially services tailored for API algorithmic traders, is a lasting core advantage that can help even against channel-strong competitors to establish a foothold.
2. Asset Types and Market Selection
Currently, trading volume in prediction markets is mainly concentrated in sports betting and native crypto markets.
New exchanges can launch exclusive markets unavailable on other platforms. When combined with vertical strategy (point 7), this advantage can be further amplified.
3. Capital Efficiency
Capital efficiency determines how effectively traders can utilize collateral. There are two main approaches:
First, interest-earning collateral: not letting idle funds earn only government bond yields, but providing higher returns—similar to Lighter supporting LP deposits as collateral, and HyENA’s USDE margin perpetual contracts.
Second, margin mechanisms. Due to gap risk, the leverage value of prediction markets is generally underestimated. However, platforms can offer limited leverage for continuous markets or implement portfolio margining for hedging positions.
Exchanges can also subsidize lending pools or act as market-making counterparts to internalize gap risks, rather than passing losses onto users.
4. Oracles and Market Settlement
The reliability of oracles remains a systemic weakness in the industry. Settlement delays and incorrect results can significantly amplify trading risks.
Beyond improving stability, platforms can implement innovative oracle mechanisms: hybrid human-machine systems, zero-knowledge proof-based solutions, AI-driven context-aware oracles, unlocking new markets that traditional oracles cannot support.
5. Liquidity Provision
The survival of an exchange depends on liquidity. Viable paths include: paying for professional market makers, incentivizing regular users with tokens to provide liquidity, and adopting Hyperliquid’s HLP aggregated liquidity model.
Some platforms may also fully internalize liquidity, emulating FTX’s model of relying on Alameda as an internal trading team.
6. Regulatory Compliance
Kalshi, with its US regulatory approval, has achieved embedded distribution with Robinhood and Coinbase, capturing retail traffic that Polymarket cannot reach.
There are still many jurisdictions and regulatory frameworks to explore. Compliant prediction markets can unlock similar channels, such as adapting to US state gambling regulations.
7. Vertical vs. Horizontal Strategies
Horizontal Strategy: Similar to Hyperliquid in perpetual contracts, focusing on building top-tier underlying trading infrastructure, inviting third parties to develop front-ends and vertical scenarios, and encouraging ecosystem builders to add markets and develop revenue-generating front-ends (like Phantom).
Vertical Strategy: Represented by Lighter, which autonomously controls the front-end, launches mobile apps, and creates a seamless user experience, emphasizing integrated experience and direct user connection.
Polymarket’s resistance to deep embedded cooperation versus Kalshi’s open approach exemplifies the trade-offs between these two strategies.
Disclaimer: The information on this page may come from third parties and does not represent the views or opinions of Gate. The content displayed on this page is for reference only and does not constitute any financial, investment, or legal advice. Gate does not guarantee the accuracy or completeness of the information and shall not be liable for any losses arising from the use of this information. Virtual asset investments carry high risks and are subject to significant price volatility. You may lose all of your invested principal. Please fully understand the relevant risks and make prudent decisions based on your own financial situation and risk tolerance. For details, please refer to
Disclaimer.
Related Articles
Tether’s USDT Stablecoin Gears Up To Flip Ethereum In Market Cap
An ongoing event contract on Polymarket indicates Ethereum could lose its spot as the second-largest crypto by market cap this year.
Analysts expect Tether’s USDT stablecoin to overtake ETH’s overall valuation within the same period.
An ongoing event contract in Polymarket predicts Ethereum (ETH)
Blockzeit9m ago
UFC event misjudged the outcome, Polymarket traders profited a hundredfold by exploiting the time difference.
Recently, a reporting error during a UFC event caused volatility on Polymarket, and traders took advantage of the information time lag to buy contracts at low prices, achieving profits of hundreds of times. Investors suggest introducing a circuit breaker mechanism to reduce similar risks.
ChainNewsAbmedia1h ago
Ethereum may lose its second place! The rise of stablecoins impacts the global cryptocurrency market capitalization ranking.
Ethereum faces market pressure and is expected to lose its second-place spot in 2026, with the probability rising to 59%. The rapid expansion of stablecoins has brought their market value significantly closer to Ethereum. Analysis says Ethereum needs to maintain network usage and price to meet the competition, and to focus on whether it can preserve its core position.
GateNews1h ago
Polymarket has accumulated over $15.18 million in fee revenue, which has essentially offset the LP subsidy expenses.
Gate News report, on March 30, according to data compiled by Gate Research on Dune, since the implementation of trading fees on certain markets starting January 6, Polymarket has accumulated over $15.18 million in fee revenue. Meanwhile, the total amount of subsidies distributed to liquidity providers (LP) by Polymarket is $15.36 million, and the platform’s fee earnings have largely offset the total liquidity subsidy expenditure.
GateNews2h ago
Predict a breakout in market growth! March trading volume is nearing $24 billion, with users doubling
In March 2026, the number of transactions in the prediction market is expected to exceed 192 million, with monthly active addresses rising to 865,411 and transaction volume reaching $23.89 billion, indicating rapid industry growth. Sports, crypto assets, and political events are the main sources of traffic, with users trending towards retail participation; however, regulatory pressure is increasing, and future development needs to focus on compliance frameworks.
GateNews3h ago
UFC commentator misreports champion! Polymarket traders profit a hundredfold.
In the UFC event on March 29, the host incorrectly announced the winner, creating a 50-second arbitrage opportunity. Trader LlamaEnjoyer took advantage of this by buying a winning contract at a 1-cent low payout rate, ultimately achieving nearly a 100x return and settling $67,608. The incident highlights the pricing fragility of prediction markets and their potential arbitrage opportunities, showing rapid market growth—monthly trading volume has already reached $10.4 billion in 2026.
MarketWhisper3h ago
