Prediction markets: Polymarket, Kalshi & Co.

If you’ve ever wanted to bet on politics, the weather, or whether aliens will land by Friday—congrats, you’re in prediction market territory.

This guide covers how prediction markets came to be, how they work in crypto, what’s holding them back, and who's leading the charge—think Polymarket, Kalshi, BET by Drift, Triad, and Hedgehog.

History of prediction markets

Prediction markets are not a new concept.

They date back to centuries-old financial betting systems that allowed individuals to wager on the outcomes of events, from elections to wars. These early markets were relatively small and limited to local participants, but they showcased the core concept of using collective knowledge to forecast future outcomes.

One of the first modern examples of prediction markets came in the form of the Iowa Electronic Markets in the late 1980s. These markets allowed participants to bet on the outcomes of US elections, with the market prices representing the likelihood of a particular candidate winning. This proved to be an effective model for aggregating public sentiment and generating more accurate predictions than traditional polling methods.

As the internet developed, online platforms such as the Hollywood Stock Exchange and Intrade took prediction markets further, enabling global participants to bet on events such as the box office performance of movies or major political decisions. However, these platforms often faced regulatory challenges, leading to shutdowns or limitations on their operations.

Enter Kalshi.

Kalshi's strategic approach, including its rigorous compliance with U.S. financial regulations and its ability to navigate legal complexities, has enabled the prediction market to offer a wide range of event contracts, from political outcomes to economic indicators. This regulatory foresight and adaptability have positioned Kalshi as a resilient player in the prediction market sector, distinguishing it from earlier ventures that struggled to achieve long-term viability.

What are prediction markets in crypto?

The advent of smart contract blockchains changed the landscape of prediction markets once again.

Crypto prediction markets such as Polymarket are decentralized platforms built on blockchain networks, allowing users to bet on the outcome of real-world events. Users bet on events by purchasing shares or tokens representing specific outcomes. The price of these tokens fluctuates based on the likelihood of each outcome, as determined by market participants.

The decentralized nature of Polymarket and the like is key to their appeal. Traditional prediction markets are often constrained by regulations and legal restrictions, but blockchain-based platforms operate without intermediaries and rely on smart contracts to automate the entire process.

This allows for global participation, low fees, a higher level of transparency, and resistance to censorship. Additionally, the immutable and transparent nature of blockchain technology ensures that the results cannot be tampered with or manipulated.

The role of oracles in crypto prediction markets

Blockchain oracles play a crucial role in prediction markets by connecting smart contracts to real-world data. Since blockchain networks themselves cannot access off-chain data (like the outcome of an election or sports game), oracles serve as a bridge between the blockchain and the external world.

For crypto prediction markets, oracles are essential for determining the outcome of bets. Once an event concludes, the oracle feeds the final result into the prediction market platform, enabling its smart contract to settle the market and distribute the rewards.

While oracles bring valuable real-world information to blockchain networks, they also introduce risks. If an oracle provides inaccurate or delayed information, it could disrupt the market and lead to incorrect settlements. Ensuring the integrity and reliability of oracles is therefore critical for the smooth functioning of crypto prediction markets.

Further challenges of crypto prediction markets

Despite their promise, blockchain-based prediction markets face several challenges:

• Regulatory uncertainty: Different countries have varying regulations on betting and gambling, and many crypto prediction markets operate in legal gray areas. This can limit their accessibility or lead to potential legal consequences for participants.
• Scalability issues: Ethereum-based prediction markets often suffer from high gas fees and slow transaction times, making it costly and inefficient for users to participate, especially for smaller bets. This problem has led many platforms to explore alternative blockchains, such as Solana.
• Thin liquidity: Smaller prediction markets often lack sufficient liquidity, which can distort pricing and make it difficult for users to enter or exit positions. This is especially problematic in niche markets that attract fewer participants.
• User experience: Many crypto prediction markets are not user-friendly, especially for those unfamiliar with blockchain technology. Complex interfaces and the need for technical knowledge can deter potential users from participating.

Crypto prediction markets on Solana

Kalshi and Polymarket are currently the largest and most dominant prediction markets.

However, Solana has emerged as a viable alternative for crypto prediction markets, mainly due to its high throughput speed and low fees. There are four prediction market projects on Solana that have been gaining momentum: Drift's BET product, Triad, Hedgehog, and MetaDAO.

By leveraging Solana’s near-instant transaction finality, BET by Drift in particular solves many of the scalability issues faced by Ethereum-based prediction markets. Additionally, the low transaction fees on Solana make it feasible for users to place smaller bets, expanding accessibility to a wider audience.

Consequently, BET by Drift could represent the next step in the evolution of crypto prediction markets, offering a more efficient and user-friendly experience for crypto enthusiasts and newcomers alike.

How to get started with Phantom and BET by Drift

Prediction markets are poised to become an increasingly important part of crypto. And as they evolve, they will continue to bridge the gap between crypto and real-world events, offering new opportunities for participation and speculation.

Ready to get started?

Here's how:

• Head over to app.drift.trade/bet
• At the top right of your screen, click on "Connect".
• If you're new to Drift, acknowledge the terms and click on "Agree And Continue".
• Next, you'll be presented with multiple connecting options—select Phantom and then deposit some funds. Setting up a new Drift account might cost you some SOL, so please bear that in mind.
• As soon as you've set up and funded your Drift account, you can select a prediction market you're interested in.
• The order form on the right side of your screen will give you the option of purchasing a market or limit order—with the latter being the default.
• Complete the order form and submit your bet, done!
• You'll see all your bet positions, orders, and history in the widget just under the market's price chart.

If you don't have a Phantom wallet just yet, read the next chapter.

How to set up a Phantom wallet?

We offer browser extensions for Firefox, Chrome, Brave, and Edge, as well as apps for iOS and Android.

To get started, download the Phantom browser extension or mobile app.

How to set up Phantom on mobile

• Follow the installation steps of the Phantom app on your device
• Open the app—you’ll be greeted by the Phantom onboarding screen
• Select “Create New Wallet”
• Enable biometric security and click “Next”. This secures your wallet using fingerprint or facial recognition to ensure you are the only one that can access it. We strongly recommend turning this feature on!
• You will be presented with your “Secret Recovery Phrase” (seed phrase)
• Be sure to store your Secret Recovery Phrase in a safe and secure location!
• Your Secret Recovery Phrase is the MOST important part of your new wallet:
  • Whoever has access to your Secret Recovery Phrase will have access to the wallet’s funds
  • If you lose your Secret Recovery Phrase, you will lose access to your wallet and its funds
  • We at Phantom never have access to your Secret Recovery Phrase
  • Phantom team members will never ask you for your Secret Recovery Phrase
  • The Secret Recovery Phrase is the only way to recover your wallet
• After saving your wallet password and securing your Secret Recovery Phrase, select “Continue” to proceed
• You can enable notifications to get instant updates about your wallet activity. These can also be customized in the Phantom app via Settings > Notifications
• To fund your wallet, make sure to check out our Apple Pay and Google Pay guide

How to set up Phantom on desktop

• Follow the steps in your respective extension store to add Phantom to your browser
• Open the Phantom browser extension and select “Create New Wallet”
• Key in a secure password and select “Continue”
• You will be presented with your “Secret Recovery Phrase” (seed phrase)
• Be sure to store your Secret Recovery Phrase in a safe and secure location!
• Your Secret Recovery Phrase is the MOST important part of your new wallet:
  • Whoever has access to your Secret Recovery Phrase will have access to the wallet’s funds
  • If you lose your Secret Recovery Phrase, you will lose access to your wallet and its funds
  • We at Phantom never have access to your Secret Recovery Phrase
  • Phantom team members will never ask you for your Secret Recovery Phrase
  • The Secret Recovery Phrase is the only way to recover your wallet
• After saving your wallet password and securing your Secret Recovery Phrase, select “Continue” to proceed
• After successfully setting up your Phantom wallet, you can access it on the top right-hand side of your browser's toolbar
• Don’t see Phantom? Click the icon that looks like a puzzle piece to access a list of your browser’s extensions, where you will find Phantom
• Click on the pin icon next to Phantom to make the wallet visible in your browser's toolbar and easier to find in the future
• To fund your wallet, make sure to check out our Apple Pay and Google Pay guide

How to bridge tokens to Solana with Phantom?

If you’d like to bridge funds to Solana, use our very own Crosschain Swapper! With our Crosschain Swapper, you can bridge tokens across Solana, Ethereum, Base, and Sui right in your Phantom wallet.

FAQs

Disclaimer: This guide is strictly for educational purposes only and doesn’t constitute financial or legal advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.