This report systematically analyzes the evolution of prediction markets, highlighting their rapid transformation from a niche application to a crucial financial infrastructure for information risk pricing. "Prediction Markets: The Next Frontier of Financial Markets," jointly released by leading global market maker Keyrock and on-chain data platform Dune, systematically elevates prediction markets from a niche experiment in the crypto space to a strategic level of next-generation financial infrastructure. Based on real on-chain and centralized platform transaction data (covering major platforms such as Polymarket, Kalshi, and Crypto.com), this report is the first to quantitatively reveal that prediction markets are experiencing exponential growth—from the beginning of 2024 to the present, monthly nominal trading volume has surged from less than $100 million to over $13 billion, a 130-fold increase. Starbase will analyze the core insights from four dimensions to help you grasp this paradigm shift of "information as an asset": Scale Leap: Prediction markets have transcended their "gambling" attributes, becoming liquidity pools comparable to traditional derivatives; Institutional Entry: From hedging IPO risks to predicting macroeconomic turning points, prediction markets are being incorporated into professional risk control toolkits; Superior Accuracy: In complex events such as politics and economics, their price signals significantly outperform polls and expert judgments; Four Driving Forces: Liquidity, user retention, regulatory adaptation, and ecosystem integration will jointly determine the next stage of success. Although prediction markets initially focused on political and sports events, the latest data shows that their use cases are rapidly shifting towards high-value real-world risks. In 2025, trading volume for economic events increased tenfold year-on-year, and for technology and science events, it increased seventeenfold, becoming the two fastest-growing sectors. Simultaneously, open interest in economic events increased sevenfold, and in social and cultural events, it increased sixfold, reflecting that users are not only trading frequently but also have a stronger willingness to hold positions. In terms of platform distribution, structural differences are further highlighted: on Kalshi, the combined open interest in the three major categories of politics, elections, and economics is 2.5 times that of sports; on Polymarket, the trading volume of political events exceeded that of sports by 400% in 2025. More noteworthy is the user's risk appetite: despite the large number of long-tail "black swan" events (accounting for 31% of the total market), they only attract 3% of the trading volume; conversely, high-probability events (probability of occurrence >80%), while only accounting for 14% of the total market, contribute 35% of the trading volume. This indicates that mainstream users are not chasing high-odds speculation, but rather using the prediction market as a risk management tool for low-volatility, high-certainty events. The report verifies the information efficiency of the prediction market through multiple statistical indicators. Data shows that Polymarket's final prediction accuracy for event outcomes remains stable between 90% and 95%, and as the event approaches and liquidity deepens, prices continue to converge, and the error narrows significantly.Both Polymarket and Kalshi maintained low levels on the Brier Score (lower is better), a measure of predictive accuracy. In contrast, the typical Brier Score for US election polls is 0.15–0.20, and experts judge that it often performs worse in complex geopolitical events. Institutional investors: Reports emphasizing the use of "events themselves" as hedging instruments highlight that prediction markets are being viewed by institutions as "new types of options"—the underlying asset is not asset price, but whether an event will occur. For example, private equity funds establish contrarian positions before a tech company's IPO by predicting the "probability of a first-day drop below the IPO price" in the market; crypto projects use the market to test community consensus on their valuation before a token offering (TGE); macro hedge funds directly trade events such as "the Fed raising interest rates by 75 basis points" or "the EU passing a digital bill," avoiding the noise interference of proxy variables. This ability to "hedge against events rather than their proxies" makes prediction markets a complementary tool that traditional derivatives cannot replace. Web3 Protocols and Enterprises: Embedded Governance and Decision Support. DAOs and protocol teams are beginning to use prediction markets for governance simulations and roadmap validation. For example, before officially launching a governance vote, a "probability of proposal approval" market is opened; if the probability is below a threshold, the process is temporarily suspended to avoid wasting governance resources. Some startups even use it for internal KPI prediction, such as product launch timelines or user growth target achievement rates. Retail Users: A High-Retention, Highly Rational Emerging Financial Group. Dune's horizontal comparison of 275 crypto protocols shows that Polymarket's 30-day user retention rate surpasses that of 85% of the projects. This data indicates that prediction markets have formed stable user habits, rather than relying on short-term traffic from trending events. Combined with their trading preferences (concentrated on high-probability events), it can be judged that this group possesses strong financial literacy and risk management awareness. The reporting system identifies four core variables that determine whether prediction markets can achieve sustainable expansion: First, liquidity deepening. The current $13 billion monthly trading volume is highly concentrated on top events, and insufficient depth in the long-tail market leads to high slippage. In the future, it's necessary to introduce professional market makers (such as Keyrock itself), automated liquidity protocols, and cross-platform order aggregation mechanisms. Secondly, user retention mechanisms are crucial. While current retention performance is excellent, it largely relies on cyclical events such as elections and policy announcements. To achieve daily use, deep integration with wallets (such as MetaMask), news platforms (such as Flipside), and DeFi protocols is needed, embedding these into user workflows. Thirdly, regulatory compliance is essential. Kalshi has received approval from the US CFTC, and Polymarket is accelerating the development of its KYC and AML frameworks.The report points out that the ability to access compliant stablecoin settlements (such as USDC and PYUSD) will be a key hurdle for platforms to enter mainstream financial channels. Fourth, the depth of ecosystem integration. Currently, prediction markets have not yet entered mainstream financial data terminals. If they can become native data sources for Bloomberg, TradingView, or CoinGecko, their influence will expand from the crypto community to global institutional decision-making levels. In summary, this report conveys a clear judgment: prediction markets have transcended the early experimental stage and are systematically evolving into a native financial layer for pricing information risk. Its core value lies not in reconstructing payment or settlement processes, but in transforming real-world uncertainties into measurable, composable, and hedging state variables on-chain. By encoding event outcomes into standardized contracts, prediction markets achieve an explicit expression of the "implicit risk exposure" in traditional finance—this not only fills the gap in the existing derivatives system's coverage of discontinuous and non-linear events, but also constructs a new consensus-driven price discovery mechanism. For Web3 ecosystem participants, this evolution means that future protocol designs need to embed "event awareness capabilities," asset management needs to incorporate "belief risk exposure," and infrastructure construction should support the paradigm shift from asset pricing to state pricing. Prediction markets will no longer be merely end-user applications, but will become a key semantic layer connecting off-chain reality with on-chain financial logic. [Starbase Accelerator]
Prediction Markets: The Evolution from Speculation to Financial Infrastructure
The recent Keyrock × Dune report on prediction markets marks a watershed moment for the crypto ecosystem. Far from being a niche gambling application, prediction markets are rapidly evolving into a sophisticated financial infrastructure capable of pricing real-world information risk with remarkable accuracy. The report’s quantitative data reveals exponential growth—from less than $100 million to over $13 billion in monthly trading volume in just months—suggesting we’re witnessing the birth of a new asset class.
Market Transformation: From Gambling to Derivatives
The most striking revelation is prediction markets’ transition from speculative gambling to legitimate financial instruments. This isn’t merely a rebranding exercise but a fundamental paradigm shift. The report demonstrates that prediction markets are now liquidity pools comparable to traditional derivatives, with sophisticated participants using them as risk management tools rather than gambling devices.
Notably, 35% of trading volume comes from high-probability events (>80% likelihood), while “black swan” events with long odds attract only 3% of volume. This pattern contradicts traditional gambling behavior and indicates that mainstream users—particularly sophisticated ones—are employing prediction markets for hedging rather than speculation.
The accuracy metrics are equally impressive. Polymarket maintains 90-95% prediction accuracy for event outcomes, with price signals that converge and narrow as events approach. This outperforms traditional polls and expert judgments, as evidenced by lower Brier Scores. For institutions, this creates a powerful new data source—one that can price non-linear, discontinuous events more efficiently than traditional derivatives.
Institutional Adoption: The Next Catalyst
The report’s most bullish implication is the accelerating institutional adoption. Prediction markets are being viewed by professional investors as “new types of options” where the underlying asset isn’t a price but an event occurrence itself. This represents a paradigm shift in risk management:
- Private equity funds hedge IPO risks by predicting “probability of first-day drop below IPO price”
- Crypto projects test community consensus on valuations before token generation events
- Macro hedge funds directly trade events like “Fed raising rates by 75 basis points” without proxy variables
This ability to hedge against events rather than their proxies fills a critical gap in traditional derivatives. As institutions recognize this value, we can expect significant capital inflows and the development of more sophisticated trading strategies.
Vertical-Specific Explosions: Economic and Tech Events
The data reveals a dramatic shift in focus from political and sports events to economic and technology/science verticals. Economic events grew tenfold year-over-year in 2025, while tech and science events grew seventeenfold. This shift indicates that prediction markets are moving beyond headline-grabbing political contests to address substantive real-world risks.
The implications for specific crypto tokens and protocols are significant. Projects with economic relevance—stablecoins, DeFi protocols, and infrastructure providers—may benefit from this vertical shift. Moreover, platforms that can capture this high-growth vertical will likely outperform competitors focused on political or sports markets.
Web3 Integration: Beyond Betting Platforms
Perhaps most interesting is the report’s documentation of prediction markets’ integration into Web3’s core infrastructure:
- DAOs using prediction markets for governance simulations and roadmap validation
- Protocol teams testing proposal approval probabilities before formal votes
- Startups predicting internal KPIs like launch timelines or growth targets
This represents a deeper integration than mere betting platforms. As prediction markets become embedded in governance workflows and decision processes, protocols that natively incorporate these capabilities will gain a competitive advantage.
Four Pillars for Sustainable Growth
The report identifies four critical success factors that will determine whether prediction markets achieve mainstream adoption:
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Liquidity Deepening: Current volume is highly concentrated on top events, creating slippage issues in long-tail markets. Professional market makers, automated liquidity protocols, and cross-platform aggregation will be essential.
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User Retention: Despite strong retention metrics (surpassing 85% of crypto protocols), prediction markets must move beyond election cycles to become daily-use tools. Integration with wallets, news platforms, and DeFi protocols will be key.
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Regulatory Compliance: With Kalshi securing CFTC approval and Polymarket developing KYC/AML frameworks, regulatory clarity will determine access to mainstream financial channels. Settlement in compliant stablecoins (USDC, PYUSD) will be particularly important.
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Ecosystem Integration: The holy grail would be prediction markets becoming native data sources for Bloomberg, TradingView, or CoinGecko. This would expand their influence from crypto communities to global institutional decision-making.
Investment Implications
For experienced crypto investors, this report presents several strategic opportunities:
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Direct Platform Exposure: Polymarket and Kalshi appear to be leading platforms with structural advantages in specific verticals. Their tokens (if/when launched) could represent pure plays on this growth story.
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Infrastructure Plays: Market makers like Keyrock, oracle providers, and settlement infrastructure stand to benefit from increased liquidity and institutional adoption.
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Vertical-Specific Protocols: Projects with direct exposure to economic or tech/science prediction markets may capture disproportionate value.
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Stablecoin Demand: Increased settlement volume for compliant stablecoins like USDC and PYUSD could drive demand and utility.
The risks remain significant, however. Regulatory uncertainty could stifle growth, particularly in key markets like the US. Market manipulation through coordinated trading remains a concern, and liquidity concentration in major events could create inefficiencies. Additionally, if prediction markets fail to achieve mainstream adoption beyond crypto enthusiasts, current valuations may be overstated.
Conclusion
The Keyrock × Dune report confirms that prediction markets have transcended their experimental stage and are systematically evolving into a native financial layer for pricing information risk. Their core value lies in transforming real-world uncertainties into measurable, composable, and hedging state variables on-chain—a capability that traditional derivatives cannot match.
For the crypto ecosystem, this evolution means that future protocol designs will need “event awareness capabilities,” asset management will incorporate “belief risk exposure,” and infrastructure will support the shift from asset pricing to state pricing. Prediction markets are no longer merely end-user applications but are becoming a critical semantic layer connecting off-chain reality with on-chain financial logic.
Investors should view this as a maturation of crypto’s value proposition—from purely speculative assets to infrastructure capable of pricing real-world risk. Those who recognize this shift early and position accordingly may capture significant value as prediction markets move from the periphery to the mainstream of financial infrastructure.