Traditional finance firms are accelerating their entry into crypto prediction markets as event-based contracts attract deeper liquidity. Blockchain analytics firm Chainalysis reported on May 7 that inflows have risen sharply since September 2024, supported by a mix of retail traders, market makers, and institutional participants. The trend marks a shift from prediction markets being niche crypto speculation tools toward becoming part of broader financial infrastructure.
Retail Activity Paves the Way for Institutional Liquidity
Initially, retail traders drove activity by betting on outcomes tied to elections, interest rate decisions, sports, and entertainment. That activity attracted professional firms seeking pricing gaps and stronger order books. Market makers now supply large deposits that support deeper trading, bringing prediction markets closer to derivatives-style venues. Chainalysis noted: “The most significant shift is the arrival of traditional finance. Major institutions are no longer ignoring the volume these markets generate; they are building infrastructure to capture it.”
Smart contracts provide the core structure, with users depositing collateral into blockchain systems, stablecoins supporting settlement, and decentralized oracles verifying real-world outcomes. This design gives institutions faster settlement, public transaction records, and programmable liquidity across global markets.
Major Players Enter the Arena: CME, ICE, Coinbase
Several prominent firms illustrate the shift. CME Group has launched swap-based event contracts, while Coinbase, Robinhood, and Crypto.com are exploring or rolling out prediction market products. Chainalysis also cited Intercontinental Exchange’s announced investment of up to $2 billion toward Polymarket.
Asset managers are testing broader access through securities markets. Bitwise, Roundhill, and Graniteshares have filed with the Securities and Exchange Commission (SEC) for prediction market exchange-traded funds (ETFs). Those funds would track contracts tied to the 2028 U.S. presidential election and 2026 congressional midterms. Chainalysis stated: “While regulators debate oversight, the markets are already moving, and prediction markets have become a venue for retail speculation on real-world events.”
Regulatory Battle Heats Up: 40 States Challenge CFTC
Regulation remains the main unresolved issue. The Commodity Futures Trading Commission (CFTC) and state authorities are disputing whether event contracts are derivatives or gambling products. A multistate coalition of 40 states told the CFTC that sports-related prediction markets should remain under state gambling oversight, deepening the regulatory fight. Despite the lack of legal clarity, institutional activity is advancing, placing prediction markets at the center of a wider debate over liquidity, compliance, and blockchain-based market systems.