From the cryptocurrency world to Wall Street, is "prediction markets" becoming mainstream?

Once regarded as a niche experiment within the cryptocurrency sphere, prediction markets are rapidly moving towards the mainstream financial world at an unprecedented pace.

The latest move comes from the world's largest derivatives exchange. According to Bloomberg, the Chicago Mercantile Exchange (CME Group Inc.) plans to launch financial contracts linked to sports events and economic indicators by the end of this year. This move will put CME in direct competition with emerging prediction market platforms like Polymarket and Kalshi.

This action has triggered a direct market response. Following the news, shares of DraftKings Inc., a competitor of sports prediction company FanDuel that partners with CME, fell by as much as 3.8% in after-hours trading, while CME's stock price rose in response. Previously, the cryptocurrency prediction market platform Polymarket had just secured a $2 billion investment from Intercontinental Exchange Inc., the parent company of the New York Stock Exchange.

From the satire of the subcultural animated series "South Park," to real-time odds displayed on screens in New York streets, and to the strategic layouts of top institutions on Wall Street, prediction markets are rapidly evolving from a marginalized financial tool into an emerging track that integrates culture, finance, and information. Whether it can truly become the first widely adopted decentralized finance (DeFi) application is becoming a focal point of market attention.

"Regular Army" Enters, Traditional Exchanges Layout

The entry of traditional financial giants is the clearest indicator of the mainstreaming of prediction markets.

According to media reports, CME plans to publicly release its new prediction contract products through its futures commission merchants (FCM), including an institution established in collaboration with sports prediction platform FanDuel.

The partnership between CME and FanDuel was announced earlier this year, initially focusing on products linked to economic indicators. However, CME CEO Terry Duffy clearly stated in an August Bloomberg interview that he is open to launching sports-related contracts, saying, "We are ready operationally from day one."

CME's advantage lies in its regulatory status. As an exchange regulated by the U.S. Commodity Futures Trading Commission (CFTC), CME has the authority to "self-certify" new contracts without explicit approval from regulators, which may allow it to quickly advance the launch of new products. This series of actions indicates that traditional exchanges are no longer mere spectators but are preparing to become core players in this emerging market.

Emerging Platforms Rise, Data Highlights Popularity

Before the traditional giants entered the fray, emerging platforms represented by Polymarket and Kalshi had already accumulated a considerable user base and trading volume through their innovative models and market hotspots.

Polymarket is a cryptocurrency-based platform that allows users to bet on the outcomes of real-world events such as elections and sports events using stablecoins. The platform gained prominence during the 2024 U.S. presidential election, with activity and trading volume reaching historic highs Dune data shows that the number of daily active wallets peaked at over 72,600 on January 19, 2025. Although there has been a decline since then, the platform's activity remains strong, with transaction volumes exceeding $1 billion this month and a cumulative total transaction amount surpassing $15.7 billion.

Another platform, Kalshi, has taken a compliance route and is the first event contract exchange in the U.S. regulated by the CFTC.

Recently, Kalshi gained popularity on social media for its real-time screen displaying mayoral election odds in New York City, with related videos on the X platform nearing 13 million views. The platform even appeared in the well-known animated series "South Park," highlighting its cultural influence. These platforms have successfully brought prediction markets into a broader view by capturing public interest in hot events.

Capital Infusion and Regulatory Game

The influx of capital and breakthroughs in regulation have paved the way for the mainstreaming of prediction markets. One of the most notable trades was when the parent company of the New York Stock Exchange, Intercontinental Exchange, announced a $2 billion investment to acquire a 25% stake in the crypto prediction market Polymarket. Although Polymarket is currently not open to U.S. users, it acquired a CFTC-regulated exchange earlier this year and plans to launch operations in the U.S., with a valuation potentially reaching $10 billion.

On the regulatory front, Kalshi won a court case against the CFTC last year, clearing the way for it to offer betting contracts related to the presidential election within the U.S. Subsequently, companies like Kalshi began utilizing their federal financial licenses to provide sports betting-related services nationwide, although this move still faces resistance from some state gaming regulators and legal uncertainties regarding market manipulation.

However, the regulatory environment remains complex. For example, some state gaming regulators have stated that they do not allow the sportsbooks they oversee to simultaneously offer federally regulated event contracts. A spokesperson for FanDuel also cautiously stated that the company is "maintaining active dialogue with various stakeholders, including state regulators," while developing products in collaboration with CME.

"Simplicity" May Be Key to Large-Scale Adoption

Why are prediction markets attracting so much attention at this moment? Mike Rychko, an infrastructure researcher at Azuro, believes the key lies in their unparalleled "simplicity." He points out that prediction markets transform complex probability forecasts into simple, intuitive data points, such as "a certain candidate has an 87% chance of winning," a language that anyone can understand "Most people will never open an account at a derivatives exchange," Rychko wrote, "but they crave a clean, easy-to-understand signal." He believes that this intuitiveness makes prediction markets more likely to achieve mass adoption ahead of other complex DeFi products.

The appeal is evident from the data. According to DefiLlama, although Polymarket's total value locked (TVL) has fallen from nearly $512 million during the U.S. election to about $194 million, it has still grown by 2325% compared to $8 million a year ago. This model, which combines cultural relevance with real-world financial participation, is proving its strong market vitality and may ultimately lead a wave of new financial products