Prediction Markets in 2025: The Rise of Event-Driven Finance

Prediction markets have arrived. What started as academic experiments in the 1980s with the Iowa Electronic Markets has exploded into a multi-billion dollar industry that's fundamentally changing how we think about forecasting and risk.

The 2025 Explosion

The numbers tell the story. According to a Foresight Ventures report, prediction markets are on track to hit $40 billion in trading volume for 2025, representing 400% year-over-year growth. Monthly volumes that sat under $100 million in early 2024 now consistently exceed $1 billion.

The final weeks of 2025 saw record-breaking activity. Weekly volume topped $5.3 billion in the last full week of the year, with both Kalshi and Polymarket posting all-time highs. Sports markets, particularly NFL games, drove much of this surge.

Why Now?

Several factors converged to create this moment.

The 2024 U.S. presidential election was the catalyst. Prediction markets outperformed traditional polling, with platforms like Polymarket and Kalshi correctly pricing Trump's victory probability when pollsters still showed a toss-up. This accuracy attracted mainstream attention and validated the core thesis: markets aggregate information better than experts.

Regulatory clarity helped too. The CFTC dropped its appeal against Kalshi in May 2025, effectively greenlighting event contracts as a legitimate financial product. This opened the door for sports-based contracts and attracted institutional interest.

Then came the distribution deals. Robinhood integrated Kalshi's event contracts directly into its app, exposing 27+ million users to prediction markets. DraftKings and FanDuel launched their own platforms. Suddenly, prediction markets weren't just for crypto natives—they were accessible to anyone with a brokerage account.

The Trillion-Dollar Trajectory

Industry analysts see this as just the beginning. Eilers & Krejcik research projects prediction markets could reach $1 trillion in annual trading volume by the end of the decade. Citizens Financial Group forecasts 5x revenue growth to over $10 billion by 2030.

Sports is expected to fuel much of this expansion, projected to represent 44% of long-run volume. The reasoning is straightforward: sports provide high-frequency, unambiguous outcomes that settle quickly and generate continuous trading interest.

But the opportunity extends far beyond sports. Economics and macro markets are growing fastest, with platforms now offering contracts on Fed rate decisions, inflation prints, and employment data. These markets provide real-time sentiment indicators that institutional investors increasingly incorporate into their models.

What This Means for Traders

The growth of prediction markets creates both opportunity and complexity. More volume means tighter spreads and better execution. But it also means more sophisticated participants and faster price discovery.

The edge is shifting from information to analysis. In the early days, you could profit simply by knowing something the market didn't. Now, with millions of participants and institutional money flowing in, the opportunity lies in understanding when markets misprice historical probabilities—when the crowd overreacts to recent events or misweights base rates.

That's exactly what PriceArb is built to detect.

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All trading involves risk. This is a research tool, not financial advice.