How Prediction Markets Overcame Regulation to Reach $2B Weekly Volume
Prediction markets achieved a milestone of approximately $2 billion in weekly trading volume in 2025, a significant increase enabled largely by easing regulatory barriers in key jurisdictions. This development highlights a growing alignment between emerging financial technologies and regulatory frameworks, raising important questions about the future role of prediction markets in mainstream finance.
What happened
Throughout 2025, prediction markets expanded rapidly, reaching around $2 billion in weekly volume, a scale unprecedented in prior years. This growth coincided with a notable shift in regulatory environments, particularly in the United States and parts of Europe. Regulatory agencies such as the U.S. Commodity Futures Trading Commission (CFTC) and the UK Financial Conduct Authority (FCA) introduced new frameworks and guidance that clarified the legal status of prediction market products.
Specifically, the CFTC issued no-action letters that provided conditional exemptions to certain prediction market operators, reducing legal uncertainty. Meanwhile, the FCA’s sandbox programs allowed platforms to test compliant products under regulatory supervision. These developments lowered barriers for operators to launch and expand their offerings legally.
As a result, major prediction market platforms, including Polymarket and Augur, reported exponential user growth and increased liquidity. These platforms attributed part of their success to the clearer regulatory landscape and their efforts to maintain compliance. The regulatory easing also attracted institutional participants: filings in the U.S. Securities and Exchange Commission (SEC) EDGAR database reveal that some ETF issuers began incorporating prediction-market-linked derivatives into their products, signaling institutional engagement.
Industry analysts and reports from Decrypt interpret the volume surge as a direct consequence of regulatory clarity, which reduced legal risks and broadened market participation beyond retail users to include institutional capital. The CFTC’s innovation office and FCA innovation hub have publicly emphasized the importance of regulatory clarity as a driver for mainstream adoption of emerging financial technologies.
However, alternative views, such as from Bloomberg Markets, caution that some of the volume growth may be fueled by speculative interest in crypto-based prediction platforms rather than fundamental market utility or widespread institutional adoption. The Financial Times has also noted that prediction markets appear to be transitioning from niche speculative tools toward instruments with potential applications in risk management and hedging, though this transition remains a subject of ongoing debate.
Why this matters
The rapid scaling of prediction markets to multi-billion-dollar weekly volumes underlines a significant shift in how emerging financial technologies interact with regulatory systems. Regulatory easing, in this context, acts as a catalyst that transforms experimental, often legally ambiguous platforms into compliant, scalable markets capable of attracting institutional participation.
This dynamic illustrates a broader structural trend where innovation in financial technology increasingly aligns with regulatory frameworks rather than circumventing them. The clearer regulatory pathways provided by agencies like the CFTC and FCA enable operators to innovate within defined legal boundaries, potentially enhancing market integrity and investor confidence.
Moreover, the involvement of institutional investors and ETF issuers suggests that prediction markets could evolve beyond speculative venues into recognized financial instruments with applications in risk management and hedging. This evolution could influence how markets price event risks and integrate alternative data signals.
At the same time, the growth of prediction markets raises important policy considerations. The balance between fostering innovation and ensuring consumer protection, market integrity, and transparency remains delicate. Regulatory frameworks that have enabled growth so far may require further refinement to address emerging risks as these markets scale.
What remains unclear
Despite the confirmed growth and regulatory developments, several critical questions remain unanswered. The precise composition of trading volume—specifically, the relative contributions of retail versus institutional participants—is not publicly available, limiting understanding of who is driving demand.
Additionally, the long-term sustainability of the volume growth is uncertain. It is unclear whether the current levels reflect stable market adoption or are subject to volatility driven by speculative cycles, especially given the involvement of crypto-based platforms.
The international regulatory landscape also remains fragmented. How different jurisdictions will harmonize or diverge in their treatment of prediction markets is not yet determined, which could affect the global scalability and cross-border integration of these markets.
Further, the impact of regulatory easing on consumer protection and market integrity has not been comprehensively analyzed. Potential risks, abuses, or unintended consequences associated with rapid growth and increased institutional participation have not been documented in detail.
Finally, available data does not clearly differentiate the roles of decentralized versus centralized prediction market platforms in driving volume growth, nor does it provide comprehensive insight into how prediction markets integrate with traditional financial products beyond anecdotal ETF involvement.
What to watch next
- Regulatory updates and further guidance from the CFTC and FCA regarding prediction market operations and compliance requirements.
- Disclosure of more granular participant data from prediction market platforms to clarify the retail versus institutional trading mix.
- Academic or regulatory impact studies assessing the effects of regulatory easing on market integrity, consumer protection, and sustainability of volume growth.
- Developments in ETF filings or other institutional products linked to prediction market outcomes, indicating deeper integration with traditional finance.
- International regulatory coordination or divergence concerning prediction markets that may influence global market access and scalability.
The recent surge in prediction market activity illustrates a pivotal moment in the maturation of emerging financial technologies under evolving regulatory frameworks. While the easing of legal barriers has clearly facilitated rapid growth and broader participation, substantial uncertainties remain regarding the composition, sustainability, and regulatory implications of this expansion. Ongoing transparency and regulatory scrutiny will be essential to understanding how prediction markets fit into the broader financial ecosystem over time.
Source: https://decrypt.co/353137/year-in-prediction-markets-2025. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.