Prediction markets are often described as a recent innovation, but the idea of using financial incentives to forecast the future is centuries old. The story of prediction markets spans Wall Street betting pools, academic experiments, regulatory battles, crypto innovation, and a 2024 election that changed everything. Understanding this history helps explain why the industry looks the way it does today — and where it is headed.
The 19th Century: Election Betting on Wall Street
The earliest documented prediction markets in the United States date to the presidential elections of the 1880s. During the 1884 race between Grover Cleveland and James Blaine, organized betting pools formed on Wall Street and in major cities. The New York Times, the New York Herald Tribune, and other newspapers regularly published betting odds alongside election coverage.
These were not small operations. Historians Paul Rhode and Koleman Strumpf estimate that election betting volumes in the early 1900s reached the equivalent of hundreds of millions of dollars in today's money. The 1916 election between Woodrow Wilson and Charles Evans Hughes saw particularly active trading, with Wall Street curb exchanges processing large volumes of election contracts.
Remarkably, these early markets were highly accurate. Rhode and Strumpf's research found that pre-election betting odds correctly predicted the winner in 11 of 15 elections between 1884 and 1940. The markets outperformed the polling technology of the era, which was rudimentary at best — the infamous 1936 Literary Digest poll that predicted Alf Landon would defeat Franklin Roosevelt was contradicted by betting markets that showed Roosevelt as a heavy favorite.
Election betting declined in the mid-20th century as anti-gambling sentiment, the rise of scientific polling, and expanded gambling laws pushed it to the margins. For several decades, prediction markets essentially disappeared from the American mainstream.
1988: The Iowa Electronic Markets
The modern era of prediction markets began in 1988 when professors at the University of Iowa's Tippie College of Business launched the Iowa Electronic Markets (IEM). The IEM was designed as a research tool to study whether small-scale financial markets could forecast election outcomes.
The IEM allowed participants to trade real-money contracts on presidential elections, with individual investments capped at $500. Despite its small scale, the research results were striking. A 2008 study by Berg, Nelson, and Rietz found that IEM forecasts beat major national polls 74% of the time when compared on the same dates.
The IEM's academic success established several foundational principles: that prediction markets could work with relatively few participants, that even small financial stakes produced meaningful information aggregation, and that market prices could be interpreted directly as probability estimates. These insights would guide every platform that followed.
The IEM continues to operate today as a research and educational tool, though its influence has been far surpassed by commercial platforms.
1996: The Hollywood Stock Exchange
In 1996, the Hollywood Stock Exchange (HSX) launched as a play-money prediction market focused on the entertainment industry. Users traded virtual currency on box office performance, Oscar outcomes, and celebrity careers.
HSX demonstrated that prediction markets could attract a large, engaged user base even without real money. It also proved accurate — HSX's Oscar predictions frequently matched or outperformed expert forecasts, correctly predicting Best Picture winners and major award categories with impressive consistency.
HSX was eventually acquired by Cantor Fitzgerald, which attempted to launch a real-money version but was blocked by regulatory opposition. The play-money model that HSX pioneered, however, would later be adopted by platforms like Manifold Markets.
2001-2013: The InTrade Era
InTrade, originally launched as TradeSports in 2001 from Dublin, Ireland, became the world's most prominent prediction market during the 2000s. The platform offered real-money contracts on politics, economics, entertainment, science, and current events, attracting a global user base.
InTrade's finest hour came during the 2008 US presidential election. The platform's Obama-vs-McCain contracts were widely cited by media outlets, analysts, and even the campaigns themselves. InTrade correctly forecast Obama's victory with high confidence, and its state-by-state markets matched 49 of 50 states (missing only Indiana, which Obama won narrowly).
By 2012, InTrade was processing millions of dollars in monthly volume and had become the default reference point for market-implied election probabilities. Mainstream media outlets, including the New York Times, BBC, and CNN, regularly cited InTrade prices in their coverage.
The end came swiftly. In November 2012, the CFTC filed a civil complaint alleging that InTrade offered illegal commodity options to US customers without proper registration. In March 2013, InTrade suspended trading, citing "financial irregularities." The platform never reopened, and some traders were unable to recover their deposited funds.
InTrade's collapse created a vacuum in the prediction market space that would take years to fill. It also served as a cautionary tale about the importance of regulatory compliance and the risks of trading on unregulated platforms.
2014: PredictIt Fills the Gap
In 2014, Victoria University of Wellington launched PredictIt, a prediction market focused on US politics. PredictIt operated under a no-action letter from the CFTC, which allowed it to function as an academic research project while offering real-money trading.
The no-action letter came with significant limitations: individual investments were capped at $850 per contract, the platform was limited to 5,000 traders per market, and PredictIt charged a 10% fee on profits plus 5% on withdrawals. These constraints limited the market's accuracy (informed traders could not deploy enough capital to fully correct mispriced contracts) but kept it within regulatory boundaries.
Despite its limitations, PredictIt became the primary legal US prediction market for nearly a decade. It was widely cited during the 2016 and 2020 elections and built a dedicated community of political traders.
In 2023, the CFTC withdrew PredictIt's no-action letter, forcing the platform to wind down existing markets. The decision reflected the regulator's evolving approach to prediction markets — moving away from academic exemptions toward a framework of fully regulated exchanges.
2015-2018: The DeFi Experiments
The emergence of blockchain technology spawned several attempts to build decentralized prediction markets. Augur, launched in 2015 on the Ethereum blockchain, was one of the earliest. Augur used smart contracts and a decentralized oracle system to create a platform where anyone could create and trade on prediction markets without a central operator.
In theory, decentralization solved the InTrade problem — no central entity could be shut down by regulators, and no single party controlled user funds. In practice, Augur faced significant challenges: high Ethereum gas fees made small trades uneconomical, the user interface was complex, liquidity was thin, and the decentralized oracle system was slow and sometimes contested.
Gnosis, another Ethereum-based platform launched in 2017, offered prediction market infrastructure that other developers could build upon. While technically innovative, Gnosis and Augur demonstrated that full decentralization came at a steep cost in usability and liquidity.
These early DeFi experiments, however, proved that blockchain technology could support prediction market mechanics and laid the groundwork for more practical implementations that would follow.
2020: The Regulatory Breakthrough
The year 2020 marked the most significant regulatory milestone in prediction market history. Kalshi received full approval from the CFTC to operate as a Designated Contract Market (DCM) — the same regulatory category held by the Chicago Mercantile Exchange and other major derivatives exchanges.
This was transformational. For the first time, a prediction market could operate in the United States with unambiguous legal authority, institutional-grade compliance, and the credibility that comes with federal regulation. Kalshi launched with markets on economic events, weather, and other topics, carefully navigating the types of contracts the CFTC would permit.
Also in 2020, Polymarket launched as a crypto-native prediction market built on the Polygon blockchain. Polymarket learned from Augur's mistakes by using a layer-2 network with negligible gas fees, a clean user interface, and USDC as its settlement currency. It attracted significant crypto-native trading volume and quickly became the highest-volume prediction market for political events.
2024: The Election That Changed Everything
The 2024 US presidential election was the inflection point that turned prediction markets from a niche interest into a mainstream phenomenon.
Polymarket's 2024 election markets attracted unprecedented attention. The platform processed approximately $3.5 billion in election-related volume in October and November 2024 alone. A French trader known as "Theo" (later identified as a professional gambler) placed over $30 million in bets on Trump, drawing intense media scrutiny and debates about market manipulation.
But the markets were right. While major polling averages showed a near-toss-up race, Polymarket, Kalshi, and PredictIt all showed Trump with a clear lead in the final weeks. Trump's decisive victory validated the market signal and generated massive media coverage of prediction markets as forecasting tools.
Kalshi fought a parallel legal battle that shaped the industry. The platform sued the CFTC for the right to list election contracts. After initially losing, Kalshi won on appeal, and the CFTC chose not to block the contracts pending further proceedings. This legal victory opened the door for regulated political prediction markets in the United States for the first time.
2025: Mainstream Adoption
The 2024 election success triggered an explosion of mainstream adoption in 2025.
Kalshi scaled dramatically, processing over $43 billion in total volume in 2025 — up from roughly $100 million in 2023. The platform expanded its contract offerings to cover hundreds of political, economic, weather, entertainment, and technology events.
Robinhood launched Robinhood Sports, bringing prediction market contracts (branded as "event contracts") to its 24-million-user base. With zero-commission trading and a familiar stock-trading interface, Robinhood made prediction markets accessible to a mass retail audience for the first time.
FanDuel and DraftKings entered the prediction market space, leveraging their existing sports betting customer bases and regulatory licenses across multiple states.
Gemini, the cryptocurrency exchange, launched prediction market features, and several other fintech companies announced plans to enter the space.
The total US prediction market volume in 2025 exceeded $50 billion across all platforms — a figure that would have been unimaginable just two years earlier.
2026: The Current State
As of early 2026, prediction markets have achieved a level of legitimacy and scale that the founders of the Iowa Electronic Markets could barely have imagined. The industry is characterized by several key dynamics:
Regulatory clarity is increasing. The CFTC has established a clear framework for regulated prediction markets, and additional guidance on permissible contract types continues to evolve. The Kalshi election contract legal battle established important precedents.
Competition is intensifying. With Kalshi, Polymarket, Robinhood, FanDuel, DraftKings, and others all competing for traders, fees are falling, liquidity is deepening, and user experiences are improving.
Institutional interest is growing. Hedge funds, media organizations, and research institutions increasingly reference prediction market probabilities as data inputs. Bloomberg and Reuters now regularly include prediction market prices in their financial data feeds.
Play-money markets continue to thrive. Manifold Markets and Metaculus maintain active communities forecasting topics that regulated markets cannot cover, including scientific research outcomes, technology milestones, and existential risk questions.
The history of prediction markets is a story of an idea that was ahead of its time — tried, suppressed, reinvented, and ultimately validated by the intersection of technology, regulation, and a dramatic election that proved the concept to a global audience.