Why are crypto VCs betting on prediction markets?
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Why are crypto VCs betting on prediction markets?
Sustained demand, cultural visibility, clear regulation, and mature infrastructure—predicted to make the market the hottest VC investment sector in 2025.
Navigating Web3 tides with focused insightsAuthor: Yogita Khatri
Translated by: TechFlow
Prediction markets are in their golden age.
The Clearing Company, founded by former employees of Polymarket and Kalshi, has just closed a $15 million seed round—an impressive sum for a first-time raise.
Kalshi reached a $2 billion valuation after its $185 million funding round led by Paradigm in June, and has been aggressively expanding—hiring crypto lead John Wang and partnering with Robinhood to launch football markets. Polymarket is reportedly raising over $200 million led by Peter Thiel’s Founders Fund at a $1 billion valuation. Previously, Polymarket had raised over $100 million, including an undisclosed $50 million earlier this year, and reentered the U.S. market, reportedly acquiring derivatives exchange QCEX for $112 million.
In the meantime, Crypto.com and Underdog are launching sports prediction markets across 16 U.S. states; Coinbase is reportedly exploring its own prediction platform; X has designated Polymarket as its official prediction partner; xAI is integrating Grok into Kalshi.
Collectively, these developments signal that prediction markets have moved from the fringes into the spotlight.
The numbers tell the same story. Data provided by my colleague Ivan Wu via The Block Pro’s funding dashboard shows 2025 is shaping up to be the strongest year yet for prediction markets, with 11 deals raising over $216 million. Prior to that, 2024 saw $80 million raised, 2021 nearly $60 million, while previous years saw minimal funding activity.
The reason prediction market platforms are attracting more venture capital this year is that old assumptions have been shattered. After the U.S. election last November, trading volume didn’t decline but instead shifted toward sports, economic, and cultural events. “This sustained interest has restored confidence among many VCs about investing in the space,” said Michael Hua (aka Mikey0x), partner at 1kx. Hoolie Tejwani, head of Coinbase Ventures, went further, calling prediction markets a “killer on-chain application” and noting they’ve demonstrated strong product-market fit.
Regulatory breakthroughs have further strengthened this momentum. In May 2025, the U.S. Commodity Futures Trading Commission (CFTC) withdrew its appeal in the Kalshi case, effectively upholding a federal court ruling allowing election contracts—a turning point that Multicoin Capital managing partner Kyle Samani said pushed prediction markets into “mainstream consciousness” (Multicoin is an investor in Kalshi). Just last week, the CFTC cleared Polymarket to relaunch in the U.S. through its acquisition of QCEX and issued a no-action letter regarding recordkeeping for event contracts. Brandon Potts, partner at Framework Ventures, said the move demonstrates regulators are now open to constructive engagement.
Underpinning all of this is years of infrastructure development. “Prediction markets needed over a decade of infrastructure improvements to truly leap forward in applicability,” said Alexander Pack, co-founder and managing partner at Hack VC. He cited smart contracts, secure oracles, stablecoins, and regulatory support as key enablers.
Overall, persistent demand, cultural visibility, regulatory clarity, and infrastructure maturity—these factors together make prediction markets a far more compelling investment opportunity today.
Why Polymarket and Kalshi Are Leading
If “why now” explains the funding surge in prediction markets, the harder question is why only Polymarket and Kalshi have pulled ahead. Most competitors—whether on-chain experiments or niche platforms—remain marginalized.
Liquidity may be one decisive factor. Kyle Samani, managing partner at Multicoin Capital, described it as a classic chicken-and-egg problem, solvable only with patience and capital. Kalshi spent five years building liquidity before favorable market conditions emerged, giving it what Samani calls a “massive moat.” Polymarket, meanwhile, boosted liquidity by distributing hundreds of thousands of dollars in cash incentives each month, especially during elections—a strategy Michael Hua of 1kx called pivotal. Additionally, Kalshi benefits from its affiliated market-making firm, which helps deepen volume across multiple contracts, Hua added.
Marketing and brand recognition have also given both platforms lasting advantages. Rob Hadick, partner at Dragonfly, said Polymarket “has become synonymous with the concept of prediction markets,” noting it has become a go-to source for journalists, politicians, and business leaders, with its high-profile partnership with X further amplifying its reach. Kalshi, by contrast, has focused on building institutional credibility through partnerships like Robinhood and establishing a reputation as a regulated financial platform. “Other prediction markets are either too early or too niche to have found real product-market fit, and the market size isn’t large enough to sustain more than two scaled players,” Hadick said.
Persistence has also been critical. Alexander Pack of Hack VC noted that both platforms stuck it out despite regulatory pressure and thin trading volumes. First-mover advantage combined with survival capability eventually translated into market dominance, giving them brand power, liquidity, and distribution capabilities rivals can’t easily match.
The Future of Prediction Markets
The next phase of prediction markets may follow a “concentrated top, expanded edges” structure. Rob Hadick of Dragonfly likened it to exchanges: a few dominant players at the top, but room for smaller, niche, or regional competitors below. He believes the sector’s potential is “immense,” limited only by users’ willingness to bet on outcomes. Kyle Samani of Multicoin Capital went further, suggesting prediction markets could rival stock markets in scale by enabling direct trading on events. “There’s no reason this space couldn’t grow larger than equities,” he said.
Institutional adoption could accelerate this trajectory. Colton Conley, partner at Arrington Capital, expects hedge funds and other institutions to use prediction markets as direct hedging tools, boosting both liquidity and accuracy. Prithvir Jhaveri, co-founder and CEO of FactCheck, anticipates major sports platforms like FanDuel and DraftKings will eventually enter—potentially bringing “hundreds of billions” in revenue to the industry. FactCheck aims to build the “Hyperliquid of prediction markets.”
Product design remains crucial. Hoolie Tejwani of Coinbase Ventures said they’ve already made “multiple” investments in the space and believe user-generated markets, on-chain liquidity, and trust-minimized resolution mechanisms will be the biggest breakthroughs. Alexander Pack of Hack VC cautioned that despite progress, prediction markets still represent only a tiny fraction of crypto trading volume, and grander visions—like corporate decision-making and “futarchy”—remain distant. Futarchy, proposed by economist Robin Hanson, refers to a form of governance where elected officials define metrics of national well-being, and prediction markets forecast which policies would most improve those metrics.
Risks and Challenges
Despite their growth, prediction markets face significant challenges ahead. Liquidity remains fragile, especially for smaller platforms. Hadick pointed to outcome resolution as a structural weakness—many events aren’t fully objective and rely on oracles or arbiters, potentially sparking disputes. He warned such designs could lead to “misaligned incentives or problems,” though he believes market makers will gradually adapt to prediction markets, much as they did in sports betting.
Reputational risks are also serious. One anonymous investor noted that “bad actors” might create markets around socially harmful outcomes like war or terrorism, provoking public backlash and regulatory crackdowns. Michael Hua also highlighted integrity concerns such as “toxic liquidity and insider trading,” issues that could deter market makers and harm user experience—especially on KYC-free, crypto-native platforms.
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