Prediction Markets: The Potential Multi‑Trillion Dollar Asset Class Hiding In Plain Sight

In a world where trust in information is breaking down, prediction markets offer a model for truth discovery backed by capital, not opinion. Beyond their early traction in sports, we believe predication markets’ real potential will come from their instantiation as the future of financial infrastructure, presenting a potential medium-term opportunity up to ~$5 trillion.

In the digital era, information has become the world’s most important asset, as it shapes markets, politics, and individual decisions. Despite unprecedented access to data and analysis, trust in traditional information intermediaries is collapsing. Data from the Pew Research Center suggests that, in the US, adults’ trust in information from national news organizations is near all-time lows, as shown below. Source: ARK Investment Management LLC, 2026, based on data from Eddy and Shearer/Pew Research Center 2025.1 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. The erosion of trust extends beyond journalism. Confidence in government has been near historic lows for more than 15 years, as only 22% of Americans report that they trust the Federal government to do the right thing most or all of the time, as shown below.2 Source: ARK Investment Management LLC, 2026, based on data from Pew Research Center 2025.3 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Increasingly, the general public questions not only the accuracy of information but also the incentives and biases that shape it. Enter prediction markets. Prediction markets give anyone the opportunity to trade on the potential outcome of future events by assigning prices to uncertainty. A contract that pays one dollar if an event occurs and is trading at sixty-five cents implies that the market is estimating the probability of the outcome at sixty-five percent. Unlike polls or editorial commentary, real capital is backing prices that are updated continuously and capture the wisdom of crowds by aggregating what people believe will happen, not what they say will happen. The concept of prediction markets is centuries old. In early 16th century Italy, people used markets to predict who would succeed the next pope, quoting the odds in letters. In 18th century England, Jonathan’s Coffee House traded on news of parliamentary scandals and changes in prime ministers, eventually becoming the London Stock Exchange.4 In this article, we argue that prediction markets will not disrupt sports betting and that they could become a foundational layer of financial services, impacting markets well beyond sports. As new financial primitives, the most transformational applications associated with prediction markets might not exist today.

Two distinctive types of prediction markets are emerging today, one global, and one US-based, with regulation as the key differentiator. Outside the US, prediction markets are evolving on blockchain-based platforms like Polymarket that are unlocking global liquidity. Founded in 2020 during a murky regulatory environment, Polymarket embraced an open-access design that uses blockchain-based smart contracts to enable permissionless participation in prediction markets. In recent years, Polymarket has tripled its trading volume by scaling its prediction offerings across categories, including politics, sports, and financials, as illustrated below. Source: ARK Investment Management LLC, 2026, based on data from Dune Analytics as of March 31, 2026.5 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. In the US, prediction markets hit a regulatory inflection point in 2024 thanks to Kalshi, founded in 2018. First, in 2020, the U.S. Commodity Futures Trading Commission (CFTC) granted Kalshi approval to operate as a Designated Contract Market (DCM) and then, in 2024, it won a landmark legal challenge clearing the way for broad-based event contracts.6 With a regulated framework, Kalshi began paving the way for US prediction markets, which inflected during the Presidential election in 2024. As traditional polls pointed to a tight race, Kalshi’s prediction markets signaled a Trump victory throughout the campaign season. While Kalshi prediction markets span a broad variety of categories, sports contracts have been the standout volume driver since the beginning of the NFL season in September 2025, with weekly notional volume catapulting 21x to dominate trading volume, as shown below. Source: ARK Investment Management LLC, 2026, based on data from Dune Analytics as of March 31, 2026.7 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Does this data suggest that prediction markets are disrupting or displacing online sports betting? Not necessarily. Our research suggests that sports volumes on Kalshi are benefiting from regulatory constraints associated with sports betting in the US that could change over time. In the US today, 30-32 states representing ~40% of the US population lack access to legal online sports betting (OSB).8 Because the CFTC regulates prediction markets at the federal level, they may not require gambling approval on a state-by-state basis for sports event contracts subject to the ongoing court cases described later in this article. In our view, Kalshi’s current sports event contract volume is a function largely of regulatory arbitrage in states which have not legalized online sports betting. According to YipitData, the percentage of Kalshi’s deposit dollars in 2025 from non-legal sports betting states averaged ~60% and was higher during March Madness and the September-December NFL season, as shown below. *Only states where DraftKings currently operates. Source: ARK Investment Management LLC, 2026, based on data from YipitData as of December 31, 2025. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Furthermore, based on the ~40% from legal OSB states, deposits on Kalshi are a fraction of those on DraftKings, as shown below. *Only states where DraftKings currently operates. Source: ARK Investment Management LLC, 2026, based on data from YipitData as of December 31, 2025. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. While betting on sports events has driven early engagement in and volume on prediction markets, our research suggests that the activity is a byproduct of regulatory arbitrage. Sports as a percent of total Kalshi volume has dropped from

The Real Disruption According to financial market history, unexpected innovation often surfaces in new markets. In the early 1980s, volatile chicken feed prices made large-scale poultry production risky. Ray Dalio helped McDonald’s hedge its exposure to that risk by using corn and soybean futures, giving the company confidence to launch Chicken McNuggets nationwide.10 What looked like a menu innovation on the surface was a breakthrough in financial engineering. Similarly, prediction markets are introducing new forms of risk management and coordination as retail investors price and manage uncertainty. Traditional financial markets give institutional investors exposure to or hedges against specific events. Derivatives offer second order exposure, as they bundle risks that might influence the price of a security. During a technology revolution, however, long term vision and narratives can influence asset prices as much as near-term fundamentals. In this environment, offering direct exposure to unbundled, discrete outcomes could be game changing, especially for retail investors. A fictional Tesla (TSLA) call or put option11 illustrates this point, as shown below. Source: ARK Investment Management LLC, 2026, made on Gemini using Nano Banana Pro. For illustrative purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. As a multi-layered instrument, the derivative contract is a composite of the Greeks—which capture how the options respond to price, time, and volatility—the price of the underlying asset, and the myriad catalysts driving the price up and down. Consider a Tesla (TSLA) option. While the underlying is Tesla’s stock, the price is pulled in many directions by disparate forces, including interest rates, quarterly delivery milestones, EV competitor pricing, Elon Musk’s social media activity, and new business opportunities like Robotaxi or Optimus humanoid robots. Those forces give rise to a dilemmatic bundle of risk. An investor’s thesis may center on a single catalyst, such as the long-term upside of the Optimus humanoid robot, but because the option is tied to TSLA’s stock price, that conviction must absorb the full weight of unrelated volatility, from macro noise to second-order exposures. Traditional financial instruments cannot isolate the impact of such discrete value drivers. Prediction markets offer a solution. Enabling users to take positions on binary outcomes tied directly to underlying events—“Will Tesla Optimus robots be released by Dec 31, 2026?”—prediction markets unbundle risk and provide direct exposure to specific catalysts or signals. Moreover, event contracts are easier and more intuitive tools for retail investors than are complex derivative contracts that appeal to highly sophisticated investors. Recognizing Signal As real-world outcomes become tradable through event contracts, we believe prediction markets are positioned for widespread adoption, but their scaling will require the liquidity that ensures market prices reflect accurately the collective wisdom of participants. High liquidity produces strong signal, while lower liquidity amplifies the noise emitted from uninformed or marginal traders, thereby reducing the precision. Importantly, liquidity takes different forms depending on the structure and regulatory context of the market. The majority of prediction market liquidity is concentrated on Polymarket and Kalshi. Despite their dominance, the liquidity models these platforms employ differ meaningfully, based on divergences in infrastructure, regulatory positioning, and target markets. At their core, prediction market platforms are shaped by their technical architecture and licenses, which in turn influence both the initial liquidity mechanisms and the way they evolve as the platform scales. The breakdown of the operating structure for some of the most notable prediction market platforms is outlined below. While no structure ap

Source: ARK Investment Management LLC, 2026, based on data from Agarwal and Dikshit 2025, International Swaps and Derivatives Association (ISDA) 2025.15 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.