Hey Edge readers,

Prediction markets have quietly become one of the most talked-about corners of crypto this year. From Polymarket’s explosive growth to headlines about insiders influencing markets, this trend is reshaping how people interpret information, speculate on events, and measure sentiment. Today, we break down what these markets are, why they’ve gained momentum, and where things may be heading.

Stay sharp. 🫡

-The Exponential team

Disclaimer: This content should not be taken as financial advice. Always do your own research before making any investment decisions.

Understanding Prediction Markets

Prediction markets aren’t new, but 2025 is the year they became mainstream. At their core, they allow people to trade on the likelihood of future events. Prices move as expectations shift, creating real-time probability signals that often feel more responsive than polls or traditional forecasts.

What sets modern on-chain prediction markets apart is their accessibility and transparency. Instead of relying on experts or models, these platforms aggregate the beliefs of thousands of participants. The crowd, for better or worse, becomes the signal.

Platforms like Polymarket have led the renaissance. With markets on elections, economic indicators, crypto ETF approvals, entertainment events, and even niche cultural milestones, users are treating these platforms as dynamic, living dashboards of collective expectation.

How do Prediction Markets Work?

On-chain prediction markets rely on a simple mechanism: a market price expresses the probability of an outcome. If a market trades at $0.77, the crowd is pricing a 77% chance that the event occurs. As new information flows in, market participants respond, pushing the probability up or down.

Behind the scenes, liquidity providers, traders, and sometimes automated market makers keep the markets functional. The result is a fluid environment where prices adjust in seconds, reflecting sentiment shifts faster than most news cycles.

Let’s grab this market as an example:

This Polymarket contract involves whether the Fed is going to cut rates in the next meeting in January. As you can see, each possible outcome has a probability attached to it. These probabilities react to real-time events, so if new commentary from policymakers surfaces, the market reacts instantly, often well before traditional media processes the update.

Why the hype?

• Speed of information: Prediction markets tend to react faster than polls or analysts, giving users a sense that they’re watching sentiment evolve in real time. In fast-moving political and technological environments, that immediacy is powerful.

• Cultural relevance: 2025 has been packed with major elections, high-stakes tech launches, and unpredictable policy decisions. As uncertainty rises, so does demand for tools that quantify expectations.

• Controversy and complexity: Not all attention has been positive. A recent case involving a Google insider allegedly trading on private product information highlighted the risk of asymmetry. While some argue prediction markets simply expose information gaps that already exist, others see them as amplifying unfair advantages. This tension continues to drive debate around regulation, ethics, and where these markets fit in the broader ecosystem.

• Information edges finally have a marketplace: One reason prediction markets have gained traction is that they reward insight rather than scale. Anyone with deep knowledge in a niche, politics, regulation, sports, technology, or even specific online communities, can express that edge directly through markets. Barriers to entry are low, capital requirements are modest, and outcomes are binary. For many participants, this is the first time specialized knowledge can be converted into opportunity without needing institutional access, large followings, or complex financial infrastructure.

The Two Platforms Driving the Conversation

There have been 2 names that have excelled above others, Polymarket and Kalshi. Both of them with their own propositions, they have made the prediction market space evolve during this past year. Here is a table comparing both.

What’s next for prediction markets?

As liquidity deepens, prediction markets are starting to behave less like novelty products and more like financial infrastructure. Prices increasingly act as live expectations that traders, analysts, and even external observers can reference when uncertainty is high. This shift alone pushes them closer to relevance beyond crypto-native users.

One important dynamic emerging is arbitrage. Because prediction markets often react faster, or slower, than traditional information sources, discrepancies regularly appear between market odds, public data, and real-world developments. For participants willing to deeply research events, timelines, and incentives, these inefficiencies can be systematically exploited. Over time, this attracts more sophisticated capital, which in turn sharpens market accuracy. For example this user on X commented about an account who has been profiting from an arbitrage strategy with the price of BTC in 15-minute timeframes.

This is just one of the many profitable strategies you can find inside these markets, probably, new strategies and trends will emerge during 2026 as Prediction markets become even more mainstream and mature. However, it is always important to remember that the risk of losing capital can be very high, even with a strategy in place, so always remember to be careful with where you put your money.

TL;DR

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In the news 🗞️

• YO Labs Raises $10M to Scale Cross-Chain Crypto Yield Optimization Protocol: YO Labs has raised $10M in a Series A led by Foundation Capital, with Coinbase Ventures and others participating, bringing total funding to $24M. The firm will expand YO Protocol, a cross-chain yield optimizer that reallocates capital across DeFi protocols based on risk-adjusted returns using Exponential.fi risk scoring. YO offers vaults for USD, EUR, BTC, ETH, and gold, and aims to become core yield infrastructure for fintechs, wallets, and developers.

• Stream Finance Founders Sue Business Partner, Allege $93M Used to Cover Personal Losses: Stream Finance’s founders have filed a lawsuit accusing an external manager of misusing $93M in protocol funds to cover personal trading losses after a margin call. The suit alleges deception, lack of transparency, and off-chain misuse of assets, contributing to Stream’s collapse in November and triggering knock-on losses across DeFi protocols including Compound, Euler, and Morpho.

• Coinbase Says It’s ‘Expanding to Solana’ With Native DEX Trading: Coinbase will enable on-chain trading of Solana-based tokens directly inside its app via a built-in DEX, allowing access to assets without formal CEX listings. Announced at Solana Breakpoint, the feature routes trades to on-chain liquidity pools and supports purchases via bank cards or USDC, with broader details expected on Dec. 17. The move follows Coinbase’s acquisition of Solana-based Vector and comes as Solana DEX volumes remain below January’s peak.

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