What is A Prediction Market | Ledger 

The success of the human species is in large part due to our ability to measure and mitigate risk. So it shouldn’t be a surprise that we’re obsessed with predicting the future. Prediction markets reflect this desire offering a unique model for rewarding the ability to establish if an event will happen in the future or not.

The roots of prediction markets go back to the early 1900s, when British statistician Francis Galton discovered that the median guess of a crowd at a county fair—on the weight of an ox—was more accurate than any individual expert. This concept of the “wisdom of the crowd” became a foundational idea behind prediction markets.

By the 1990s, companies like Project Xanadu had employees placing informal bets on how the future of cold fusion, a controversial energy tech, would pan out. Around the same time, the Hollywood Stock Exchange—a virtual trading game—let users bet on Oscar outcomes and famously predicted 32 out of 39 major-category winners in 2006

Governments got interested too. In the early 2000s, the U.S. Defense Advanced Research Projects Agency (DARPA) tried launching a prediction market to anticipate terrorist attacks and geopolitical events. But the idea faced heavy backlash and was shut down before it fully launched, showing the fine ethical line these markets sometimes tread.

On modern platforms like Polymarket, users have bet on whether Bitcoin would hit $100,000 or if a specific movie would top the box office. Manifold Markets also hosted bets on whether Elon Musk and Mark Zuckerberg would actually fight in 2023 or if Jesus Christ would return before the next Grand Theft Auto game drops. 

These are small examples of what prediction markets are and what they allow you to do. Today, we’re taking an extensive look at prediction markets, how they function, their types, and much more.

What Is a Prediction Market?

A prediction market is a platform where people can trade on the outcomes of future events. 

It’s like a stock market, but instead of trading company shares, you’re trading the likelihood of things happening — like who wins an election, or if Bitcoin will hit $100,000 by year-end, or who will win the FIFA world cup, or any similar event(s) in due time.

You’re essentially trading a binary outcome: if the event happens, your share pays out at 100%; if it doesn’t, it’s worth 0%. The price of each share reflects the market’s collective belief in the likelihood of that outcome, constantly adjusting as new information enters the system.

What is meant by a prediction market?

In a prediction market, each event is turned into a market where traders buy and sell shares that represent “yes” or “no” outcomes. Prices in this market tend to change based on supply and demand, offering real-time insights to those who participate. 

How Do Prediction Markets Work?

Prediction markets let users trade on the probability of future outcomes—not unlike placing a bet, but with a few important differences. Instead of odds set by a bookmaker, users trade directly against each other, and the price of a “yes” or “no” share reflects the market’s best guess at the event’s likelihood on a 0–100 scale.

If new information comes out—like a political scandal or a surprising jobs report—the market reacts instantly as traders buy or sell based on the updated outlook. There are always two outcomes: if the event happens, “yes” shares pay out $1; if it doesn’t, they go to zero.

Because all participants are incentivized to be right (with real money on the line), and prices shift dynamically with each trade, the market’s odds are often viewed as real-time reflections of collective intelligence—offering fair value, minus the platform’s fee.

Political Forecasting for Elections and Policy Outcomes

Prediction markets have become a go-to tool for understanding political momentum. By allowing traders to bet on election outcomes or major policy decisions, these markets tap into collective wisdom faster than traditional polling. 

For example, markets predicting presidential election results often update in real time based on debates, scandals, or economic news. During the 2024 U.S. election, Polymarket, a crypto-based prediction platform, strongly favored Trump’s victory, even as traditional polls showed a closer race. Massive bets, with reports of around $30 million from a single trader alone, helped push Trump’s odds higher, and in the end, the market’s prediction proved correct.

Governments, analysts, and even media organizations also keep watch for these signals as early indicators of potential shifts in voter behavior.

Business Decisions, Such as Product Launches or Sales Projections

Companies are starting to use internal prediction markets to guide important business choices. Employees can bet anonymously on outcomes like whether a product will launch on time or if quarterly sales targets will be hit. At companies like Google and Microsoft, internal prediction markets have been used to forecast whether key product launches or project deadlines would be met on time.

This often produces more honest and accurate forecasts compared to regular meetings or surveys, where biases can creep in. As a result, businesses can catch red flags earlier and make data-driven adjustments before problems escalate.

Sports Betting and Predictions for Game Outcomes

In sports, prediction markets offer a peer-to-peer alternative to traditional sportsbooks. Instead of odds being set by a bookmaker, users trade directly with each other, similar to betting exchanges like Betfair. Every outcome becomes a market, where prices reflect real-time sentiment based on injuries, performance trends, or breaking news. If a “yes” share for a team winning costs $0.60, the implied probability is 60%—and that price moves with market demand. 

Since you’re trading against other users rather than a centralized house, the odds are shaped by collective expectations, not by a single risk-taking operator. This structure makes prediction markets more dynamic and transparent, allowing fans to speculate—or hedge—on outcomes like the Super Bowl, draft picks, or even viral boxing matches like Logan Paul’s next bout.

Economic Forecasting, Including Inflation and Unemployment Rates

Economists and traders alike use prediction markets to forecast key economic indicators. Instead of relying solely on government reports or institutional surveys, markets let people bet on metrics like future inflation rates, interest rate hikes, or unemployment figures. 

These aggregated predictions can often anticipate economic shifts earlier than official statistics. In 2024, platforms like Polymarket hosted markets predicting the U.S. unemployment rate for upcoming months, allowing participants to bet on whether it would rise above or fall below specific thresholds.

Central banks and investment firms have begun experimenting with them to sharpen their models and scenario planning. In crypto, the nature of decentralized platforms improves transparency and allows for a broader range of participants, aligning with the principles of DeFi.

Public Sentiment Analysis for Governments and Organizations

Public institutions are starting to explore prediction markets as tools to gauge sentiment on critical social issues. Instead of lengthy, often unreliable surveys, these markets capture the actual “betting behavior” of people anticipating trends, protests, or shifts in public mood. 

For example, governments could track sentiment on healthcare reforms or immigration policy through decentralized forecasting markets. It offers a fast, dynamic pulse check that’s much harder to manipulate than traditional polls.

Entertainment and Cultural Trends

Prediction markets are also gaining traction in entertainment, where users bet on outcomes like Oscar winners, album launches, or viral moments. 

Platforms can predict whether a new movie will top the box office or if a celebrity will headline a major event. Studios and marketing agencies now tap into these markets to fine-tune release strategies and campaigns. It’s a fun, gamified way to understand public buzz and capitalize on emerging trends early.

Scientific Discoveries and Research Milestones

Surprisingly, prediction markets have even been used in the world of science and tech innovation. Communities have run markets predicting outcomes like when the next Mars landing will happen, or whether a major breakthrough in AI safety will be achieved by a certain year. 

Between 2020 and 2025, Metaculus, an online prediction platform, hosted markets forecasting scientific breakthroughs like COVID-19 vaccine approvals, AGI advancements, and fusion energy developments. By aggregating expert opinions, it showed how prediction markets can help researchers and policymakers anticipate and guide scientific progress.

This method creates new ways to fund, prioritize, or pressure-test research projects. It helps bridge the gap between optimism and realism when dealing with cutting-edge developments.

Types of Prediction Market

Prediction markets can be structured in a few key ways depending on how prices are set and trades happen. Some operate like traditional financial exchanges, while others use algorithms to automate pricing. You’ll find markets that use real money, ones that use play money for research, and decentralized versions powered by blockchain. Each type offers its own balance between liquidity, ease of use, and accessibility—giving traders and forecasters different ways to bet on the future.

Continuous Double Auction (CDA)

A Continuous Double Auction (CDA) is one of the oldest and most common prediction market designs. In a CDA, traders can submit buy or sell offers at any time, and trades happen whenever a buyer and a seller agree on a price. It works a lot like a traditional stock market. Prices fluctuate dynamically based on supply and demand, meaning odds are constantly updated as new information flows in. CDAs are highly flexible, but they rely heavily on liquidity—if not enough people are trading, it can be hard to get fair prices. Platforms using CDA models are usually more responsive to real-time news events, making them ideal for fast-moving scenarios like elections or sports games.

Automated Market Makers & Market Scoring Rules

Instead of relying on buyers and sellers to find each other, some prediction markets use automated market makers (AMMs). AMMs rely on algorithms that automatically offer prices for both sides of a bet, ensuring there’s always liquidity. 

A common method here is the Logarithmic Market Scoring Rule (LMSR), which adjusts the price based on how much money has been wagered on each outcome. 

Put simply, the more people bet on one side, the more expensive it becomes to keep betting that way. 

AMMs make prediction markets easier to use, especially for smaller or newer platforms that might not have millions of active traders. They’re also widely used in blockchain-based prediction platforms like Augur and Polymarket. In DeFi, AI-driven AMMs are being explored for token swaps and yield farming, and these innovations could eventually trickle into prediction platforms. For now, the trend is nascent but growing, with research and development accelerating in the crypto community.

Real Money vs. Play Money

Prediction markets can either use real money—where bets have true financial stakes—or play money, where participants wager points or tokens with no cash value. Real money markets are typically sharper because people have skin in the game, making their forecasts more serious and considered. However, they also face tighter regulations, especially when it comes to election betting. 

Play money markets, on the other hand, are often used for academic research, internal company forecasting, or educational purposes. Even without financial rewards, play money prediction markets have shown surprisingly strong accuracy in some cases. The tradeoff usually comes down to regulation, risk tolerance, and what kind of insights the platform aims to gather.

Blockchain-Based Prediction Markets

Blockchain-based prediction markets, like Polymarket, bring decentralization to forecasting. Instead of needing a central authority to verify results or hold funds, everything is handled by smart contracts—self-executing code on the blockchain. This approach improves transparency, reduces costs, and lets anyone with crypto access global prediction markets without permission. 

Settlement is automatic: when an outcome is verified (often through oracles), winnings are instantly distributed. Crypto-based platforms usually operate with stablecoins like USDC to reduce volatility risk. However, blockchain markets sometimes face regulatory challenges, especially when offering real-money bets on sensitive topics like elections. Still, they represent the cutting edge of how prediction markets are evolving in Web3 and DeFi.

Other Crowdsourced Forecasting Methods

Not all forecasting has to involve money changing hands. Crowdsourced forecasting platforms like Metaculus collect user predictions on major scientific, political, and technological events—but without financial stakes. Instead, participants earn reputation points based on how accurate they are over time. 

These platforms tap into the “wisdom of the crowd,” aggregating many small opinions into powerful collective forecasts. Some also run tournaments, rewarding top predictors with prizes or recognition. While they lack the hard incentives of real-money markets, crowdsourced methods still produce highly valuable insights, especially in academic research, public policy, and tech innovation spaces. They’re a powerful tool for understanding complex future outcomes without the friction of gambling laws.

List of Top Prediction Markets

Polymarket

Polymarket is the leading blockchain-based prediction market, offering real-money trading on political events, sports outcomes, financial forecasts, and pop culture trends. Built on Polygon, it delivers fast, low-cost transactions and full transparency through smart contracts. Traders buy and sell “yes” or “no” shares on event outcomes, with odds constantly updating based on real market sentiment. Polymarket rose to prominence during the 2024 U.S. election, often outpacing traditional pollsters in accuracy. It’s accessible globally (with some U.S. restrictions), and has become the go-to platform for decentralized, crowd-sourced forecasting in the crypto space.

PredictIt

PredictIt is a long-running, research-focused prediction market that specializes in U.S. political events. Operated under a regulatory no-action letter from the CFTC, it allows users to invest real money (up to $850 per market) on election outcomes, policy decisions, and political developments. PredictIt has been widely used by academics, media, and forecasters to understand political sentiment ahead of major events. While it faces more regulatory hurdles compared to decentralized markets, PredictIt’s simple structure and rich data history make it a trusted resource for election forecasting and political betting enthusiasts.

Kalshi

Kalshi is a federally regulated prediction market platform, officially approved by the CFTC to offer real-money event contracts. It focuses on serious, real-world questions—like whether the Fed will raise interest rates, or if unemployment will hit certain levels. Kalshi positions itself as a “financial exchange for everyday events,” giving traders a legal way to hedge against real-world risks. It’s structured more like a traditional exchange than a casino-style betting site, emphasizing regulatory compliance and professional-grade liquidity. Kalshi bridges the gap between traditional finance and prediction markets, opening a new frontier for event-driven trading.

Myriad Market

Myriad Market is an emerging decentralized prediction platform designed to be open, censorship-resistant, and community-driven. Built using smart contracts, it allows anyone to create, trade, and resolve markets on almost any topic without centralized oversight. Myriad emphasizes flexibility—users can craft niche markets, whether about crypto prices, esports tournaments, or geopolitical events. Its open architecture taps into DeFi principles, using crypto wallets for seamless participation. While newer compared to giants like Polymarket, Myriad is part of the growing wave of Web3-native prediction tools redefining how we bet on, hedge, and understand future outcomes.

DexWin

DexWin is a decentralized, on-chain prediction market that merges the speed of crypto trading with the crowd wisdom of event forecasting. Running natively on blockchains like Ethereum and BNB Chain, DexWin offers markets on price movements, sports, elections, and more. It uses automated market makers (AMMs) to ensure liquidity and fast settlements without needing a traditional order book. DexWin also emphasizes user control—letting participants create their own markets and earn rewards as liquidity providers. As crypto prediction markets gain traction, DexWin is carving out a niche by offering full DeFi integration with minimal fees and friction.

Robinhood (coming soon)

Robinhood, the popular trading app, is stepping into prediction markets with a brand-new hub focused on sports, politics, and economics. Partnering with Kalshi and ForecastEx, Robinhood will allow users to trade event contracts directly within its app—blending traditional investing with event-driven forecasting. Although still rolling out, the platform is expected to offer regulated, real-money markets tied to major happenings like Fed decisions or election outcomes. Robinhood’s entry could bring prediction markets mainstream by tapping into its massive user base. With lower barriers to entry and a mobile-first experience, it’s shaping up to be a major new player in 2025.

What is Polymarket?

Polymarket is a decentralized, non-custodial prediction market platform built on the Polygon blockchain. It allows users to trade on the outcomes of future events by buying and selling binary outcome tokens—essentially “yes” or “no” shares—using USDC, a stablecoin. Prices of these outcome tokens fluctuate dynamically based on trading activity, representing the market’s collective probability estimate of the event occurring.

Who owns Polymarket?

Polymarket was founded by Shayne Coplan, a New York entrepreneur, in 2020. Coplan, who previously attended NYU, began the company modestly and has grown it into a top platform. It has raised about $70 million from investors like Peter Thiel’s Founders Fund and Ethereum’s Vitalik Buterin. Despite a $1.4 million fine from the CFTC in 2022, Polymarket continues to thrive in the crypto prediction market, with Coplan still leading the company.

How Do Blockchain-Based Prediction Markets And Polymarket Work?

Unlike centralized betting platforms, Polymarket uses a smart contract system combined with an Automated Market Maker (AMM) model, specifically a variant of the Constant Product Market Maker (CPMM), to ensure continuous liquidity without needing a traditional order book. This design enables users to instantly trade at algorithmically adjusted prices without relying on counterparty matching.

Event resolution on Polymarket is handled via external oracles that report final outcomes to the blockchain, triggering automatic settlement. Winning shares are redeemable for $1 each, while losing shares expire worthless. Importantly, users retain full custody of their funds through crypto wallets, and there is no centralized entity controlling trades or balances.

By leveraging blockchain infrastructure, decentralized liquidity, and permissionless market creation, Polymarket offers a transparent, censorship-resistant way for individuals worldwide to speculate, hedge, or aggregate collective intelligence about future events—without traditional financial gatekeepers.

How to Use Polymarket

Set Up a Crypto Wallet

First, you’ll need a crypto wallet that supports Polygon, like MetaMask or Coinbase Wallet. This wallet will hold your funds and connect you to Polymarket. You can also access your Polygon (POL) account on your Ledger device via Metamask.

Add the Polygon Network

Inside your wallet settings, manually add the Polygon network if it isn’t already configured. This ensures your transactions stay fast and cheap compared to Ethereum mainnet fees.

Get USDC on the Polygon Network

Buy USDC (USD Coin) either directly on a crypto exchange that supports Polygon or bridge USDC from Ethereum to Polygon using a trusted bridge tool.

Connect Your Crypto Wallet to Polymarket

Visit Polymarket, click “Connect Wallet,” and authorize the connection inside your wallet app. This gives Polymarket permission to display your wallet balance and interact with the platform.

Deposit Funds to Polymarket

Transfer USDC from your wallet into Polymarket’s smart contract system. There are no deposit fees, and funds remain non-custodial—controlled by you.

Explore and Choose a Market

Browse active markets—political, financial, sports, and more. Markets show current “yes” or “no” share prices reflecting the implied probability of each outcome.

Place Your Bet

Buy “yes” or “no” shares based on what you think will happen. You can adjust or sell your position anytime before the market closes.

Monitor Your Positions

Track your markets inside your Polymarket dashboard. Market sentiment, odds, and your potential payout update in real-time.

Withdraw Your Earnings

Once a market resolves, redeem winning shares for USDC. Withdraw your funds back to your wallet without any platform withdrawal fees.

How Accurate Is Polymarket? 

Polymarket has proven to be one of the most accurate forecasting platforms in the world. According to independent research, its prediction markets have achieved around 90% accuracy when measured one month before event resolution—and over 94% accuracy within the final four hours before an event closes. 

Unlike traditional polls, Polymarket’s odds update continuously based on real money at stake, capturing real-time public sentiment. 

While biases like herd mentality can occasionally skew markets, Polymarket’s track record across elections, economic outcomes, and cultural events shows that decentralized prediction markets can aggregate collective intelligence with impressive precision.

Benefits of Prediction Markets

Prediction markets are powerful platforms where people bet on future events, turning financial incentives into sharp forecasts. They harness the collective intelligence of diverse participants, often outpacing expert opinions or traditional polls when the crowd brings varied insights. Prices shift swiftly as new information—breaking news, economic data, or sentiment changes—hits, with traders racing to profit by keeping odds current.

Because participants stake their own money, they’re driven to reveal true expectations, cutting through wishful thinking with financial accountability. Their versatility spans elections, sports, inflation forecasts, even product launches, offering predictive signals across industries. For organizations and individuals, these markets deliver transparent, decentralized insights, guiding smarter decisions before events unfold.

Challenges and Risks of Prediction Markets

Prediction markets sound like a dream—crowds of people trading on elections, market moves, or even rare events like natural disasters, each adding their perspective into a living, breathing forecast. It’s a powerful system when it works right. But let’s be real: prediction markets aren’t perfect, and without the right checks, they can spin out fast.

A clear recent example was the 2025 Papal election market on Polymarket, where bettors lost millions due to inaccurate forecasts. Since the Conclave’s proceedings are sealed from public view, the market couldn’t reflect any new information—proving that prediction markets are only as good as the data available to them. Bettors heavily favored candidates such as Cardinal Pietro Parolin. However, the election of Cardinal Robert Prevost, who had only a 1% chance according to these markets, resulted in substantial losses for many bettors. 

Prediction markets should reflect the wisdom of the crowd, but not if users are skewed toward certain socio-economic groups, or information isn’t available to all. Without timely, diverse, or verifiable inputs, the collective ‘wisdom of the crowd’ can falter.”Another major risk is price manipulation. It only takes a deep-pocketed player to drop a huge bet and tilt the odds in their favor, creating a false sense of consensus and misleading smaller traders. Without strong liquidity and diverse participation, the wisdom of the crowd can get hijacked.

Regulation is another wild card. Many platforms still operate in legal gray zones, and when rules are fuzzy, you get shady moves like insider trading—where someone with privileged info cashes in while everyone else is flying blind.

Groupthink is real too. When excitement builds around a popular outcome, people can pile in blindly, inflating bubbles that crash hard when reality doesn’t match the hype. We’ve seen it before in traditional finance—and prediction markets are no different.

And we can’t ignore the ethical lines. Betting on tragedies or human suffering feels uncomfortable, raising tough questions about where to draw limits.

Conclusion

FAQs about Prediction Markets

How good are prediction markets?

Prediction markets often outperform traditional polls and expert forecasts, especially when there’s strong liquidity and diverse participation. They turn financial incentives into smarter, faster predictions by forcing traders to back their opinions with real stakes.

Are the prediction markets safe?

Prediction markets on decentralized platforms are generally secure thanks to smart contracts, but risks like manipulation, low liquidity, and unclear regulations still exist. It’s important to use trusted platforms and never bet more than you can afford to lose.

Are prediction markets legal?

Legality depends heavily on where you live—some countries regulate real-money event markets strictly, while others have looser frameworks. In the U.S., platforms like Kalshi have federal approval, but others like Polymarket operate with restrictions.

How to use Polymarket in US?

U.S. users can browse and track Polymarket predictions, but real-money trading is geofenced and not officially available. Some users instead access legal alternatives like ForecastEx markets through brokerages or wait for regulatory updates.

How are prediction market winnings taxed?

Prediction market profits are usually taxed as ordinary income and reported via 1099-MISC forms in the U.S. Even if categorized differently in the future (like short-term gains), taxes apply as soon as profits are realized.