The Funding: Why crypto VCs are betting on prediction markets now

The numbers tell the same story. Data from my colleague Ivan Wu, via The Block Pro’s Funding dashboard, shows 2025 as the strongest year yet for prediction markets, with more than $216 million raised across 11 deals. That surge follows $80 million in 2024, nearly $60 million in 2021, and only a trickle of activity in the years before.

The reason prediction market platforms are pulling in more venture capital this year is that the old assumptions have been broken. Volumes didn’t fade after the U.S. election last November, but instead shifted toward sports, economics, and cultural events. “This sustained interest has given newfound confidence to many VCs about investing in the market,” said Michael Hua (aka Mikey0x), associate at 1kx. Coinbase Ventures head Hoolie Tejwani went further, calling prediction markets a “killer onchain use case” that has proven durable product-market fit.

Regulatory breakthroughs have reinforced the momentum. In May 2025, the CFTC dropped its appeal in the Kalshi case, effectively locking in a federal court ruling that permits election contracts — a turning point that Multicoin Capital’s managing partner Kyle Samani said pushed prediction markets into “mainstream consciousness” (Multicoin is an investor in Kalshi). Just last week, the CFTC also cleared Polymarket’s re-entry into the U.S. through its acquisition of QCEX, paired with a no-action letter on record-keeping for event contracts — a move Framework Ventures’ partner Brandon Potts described as evidence regulators are now willing to engage constructively.

Underlying all this are years of infrastructure work. “Prediction markets required a decade+ of infrastructural improvements before they could really inflect in terms of usage,” said Hack VC’s co-founder and managing partner Alexander Pack, citing everything from smart contracts and secure oracles to stablecoins and regulatory support.

Overall, durable demand, cultural visibility, regulatory clarity, and infrastructure maturity — together, these are what make prediction markets more investable now.

Polymarket and Kalshi’s edge

If ‘why now’ explains the funding surge, the harder question is why only Polymarket and Kalshi have broken through. Most rivals — from onchain experiments to niche platforms — remain marginal.

Liquidity may be one decisive factor. Samani called it a “chicken-and-egg problem,” impossible to solve without patience and capital. Kalshi spent half a decade building liquidity before conditions turned favorable, giving it what Samani described as a “massive moat.” Whereas Polymarket can hand out hundreds of thousands in cash incentives per month to incentivize liquidity, which it did during the election months, Hua said. Kalshi also benefits from its affiliated market-making arm, which helps deepen volumes across contracts, Hua added.

Marketing and mindshare have also given both platforms staying power. Dragonfly’s general partner, Rob Hadick, said Polymarket “has become synonymous with the concept of a prediction market,” citing its role as a go-to information source for journalists, politicians, and business leaders, and its high-profile recent partnership with X. Kalshi leaned into institutional credibility, striking deals with firms like Robinhood and building a reputation as a regulated financial platform. “The other prediction markets, so far, are either just too early or too niche to have found much product market fit yet, and the market is not yet big enough to support more than two scale players,” Hadick said.

Persistence mattered too. In the face of regulatory pressure and thin volumes, both platforms didn’t quit, noted Pack. First-mover advantage plus survival turned into dominance, leaving both platforms with brand power, liquidity, and distribution that rivals can’t yet match.

What lies ahead for prediction markets

The next phase is likely concentrated at the top but broader at the edges. Hadick compared the structure to exchanges, where a few players dominate but smaller, niche, or regional competitors survive. He believes the upside is “tremendously large,” constrained only by the appetite to put money on outcomes. Samani argued the category could rival equities by letting people trade directly on events, saying “there is no reason this sector cannot be bigger than the stock market.”

Institutional adoption could accelerate that trajectory. Arrington Capital’s partner Colton Conley expects hedge funds and other institutions to use prediction markets as direct hedging tools, deepening liquidity and improving accuracy. FactCheck’s co-founder and CEO Prithvir Jhaveri expects fantasy sports platforms like FanDuel and DraftKings to eventually join in — a shift he believes could generate “hundreds of billions of dollars” in revenue from the sector. FactCheck aims to build “Hyperliquid for prediction markets.”

Product design will also be critical. Tejwani said Coinbase Ventures has made “multiple” investments in the space and sees the biggest unlocks coming from user-generated markets, onchain liquidity, and trust-minimized resolution. Pack warned that despite infrastructure progress, prediction markets are still a fraction of crypto trading, and the bigger visions — from corporate decision-making to “futarchy” — remain distant. Futarchy, proposed by economist Robin Hanson, is a form of government where elected officials define measures of national wellbeing, and prediction markets are used to forecast which policies will improve them most.

Risks and challenges

Momentum doesn’t erase the obstacles. Liquidity remains fragile, especially for smaller platforms, and resolution is a structural weakness — many events aren’t perfectly objective, requiring oracles or arbitrators with potential for disputes, Hadick noted, warning of “misaligned incentives or issues” in this design. However, he said that over time, the market makers will get more comfortable with prediction markets, the same as what has happened for sports gambling.

Reputation is also on the line. One investor who wishes to remain anonymous pointed to the danger of “bad actors” creating markets around socially harmful outcomes such as war or terrorism, which could trigger backlash and regulatory clampdowns. Hua flagged integrity issues too, including “toxic flow and insider trading,” which can deter market makers and degrade user experience, especially on KYC-free crypto-native platforms.

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