Crypto Biz: Exchanges Place Their Bets on Prediction Markets
Prediction markets are rapidly evolving from a niche corner of the cryptocurrency world to a mainstream attraction, capturing the attention of major exchanges, venture capitalists, and even traditional financial institutions. These platforms, where users can trade on the outcomes of future events, are becoming a new battleground for crypto exchanges seeking to expand their offerings and engage a wider audience.
Several major players are making strategic moves into this space. Kraken, for instance, has announced plans to launch its own prediction market by 2026, signaling the exchange's ambition to evolve beyond a simple trading platform. Mark Greenberg, Kraken's Head of Global Consumer, views this as a way to tap into a powerful mechanism for aggregating knowledge and hedging real-world risk. This follows similar announcements from Coinbase and Gemini, indicating a clear trend within the industry.
Prediction markets allow users to buy and sell shares based on the predicted outcome of future events. The price of a share reflects the market's collective probability of that event occurring. This functionality allows users to trade on questions like "Will Team A win the championship?" or "Will a specific policy pass by year's end?".
Crypto.com is also making a significant move by building an internal market-making desk for its prediction markets. This move aims to address liquidity issues and ensure smooth trading on their platform. The exchange is seeking a "quant trader" to trade financial contracts based on the outcomes of events like sports games. However, this approach has raised concerns about potential conflicts of interest, as internal market makers could have access to proprietary data. A Crypto.com spokesperson stated that the internal market maker would not have access to proprietary data or customer order flow before other participants.
The rise of prediction markets has also led to increased trading volumes in crypto derivatives, surging to $85.7 trillion annually. Prediction markets like Polymarket and Kalshi generated $28 billion in trading volume in the first ten months of 2025. This growth is spurred by institutional adoption and regulatory clarity in regions like the U.S. and EU, although fragmented frameworks and enforcement gaps persist globally.
However, operational risks remain, particularly concerning volatility, liquidity, and leverage. Some niche prediction markets, especially those focused on tech and science, struggle with liquidity due to the absence of underlying assets. Platforms like Polymarket have attempted to mitigate this through liquidity provider rewards, but structural inefficiencies remain.
A growing trend involves platforms adopting internal market makers to trade directly against their customers. While this aims to boost liquidity and profitability, it sparks controversy over fairness, regulatory compliance, and potential conflicts of interest. Critics argue it undermines the peer-to-peer ethos of prediction markets, potentially turning them into "house vs. player" setups.
Despite the concerns, the potential of prediction markets in the crypto space is undeniable. They offer a unique way to engage with the market, hedge risks, and gain insights from the wisdom of the crowd. As the market matures, it is crucial to address the regulatory and operational challenges to ensure fairness, transparency, and continued growth.
