Executive Summary

• Prediction markets are structurally transforming into real-time event-driven data infrastructures, with probabilities reflecting quantified crowd sentiment and collective intelligence distilled into tradeable data. Prediction market prices, backed by staked money, instantly reflect participants' real-time expectations, offering a more accurate signal than static polls.
• Between January to October 2025, prediction markets generated over US$27.9 billion in trading volume (calculated by the contracts traded), hitting a weekly all-time high (ATH) of $2.3 billion in the week of 20 October.
• Prediction markets offer real-time event-driven price discovery, and evidence suggests they can outperform traditional polling. They leverage incentives to encourage information efficiency, using event contracts to represent market-implied probabilities. This structure also provides hedging capabilities for managing risk.
• Crypto.com | Derivatives North America (CDNA) is a Commodity Futures Trading Commission (CFTC)-regulated platform that provides prediction market users and adopters with many advantages over other regulated and unregulated alternatives:
• • Legal Clarity and Institutional Trust: CDNA’s full stack of regulatory approvals provides legal certainty and institutional confidence for new adopters and seasoned traders.
  • Tax Advantages: CFTC-designated prediction contracts offered on Crypto.com | Predictions operate under the federal derivatives framework, which may offer beneficial tax treatment for loss deductions.
  • Deep Liquidity: CDNA’s  use and collaboration with leading institutional market makers creates deep, reliable liquidity, a model that Web3 platforms have struggled to incorporate.
  • Robust Risk Management and Dispute Resolution: CDNA’s established risk management and dispute resolution processes, leveraging trusted external data and oversight, provide a robust mechanism that addresses the challenges of Web3's decentralised oracle approach.
  • Efficient Trading Architectures: CDNA has pioneered efficient trading architectures, and proprietary trading infrastructure technology such as its central limit order books (CLOB), setting technical benchmarks for scalability and user experience.
• Crypto.com exemplifies a forward-looking, and industry leading approach that is ahead of regulated competitors and unregulated offerings. By operating its Prediction Trading platform as a fully CFTC-regulated derivatives product through CDNA, it establishes Crypto.com’s legal compliance, user protection through rigorous oversight, and potential favourable tax treatment — advantages that unregulated platforms currently lack.

1. Introduction

Prediction markets are undergoing a structural transformation into event-driven data infrastructures, where probabilities serve as a quantified sentiment. These platforms are increasingly regarded as real-time information markets that reflect collective intelligence and distill it into tradeable data. Unlike static forecasts or opinion polls, prices in prediction markets are driven by participants who stake real money on their predictions. Live, fluctuating prices provide a more accurate, real-time signal of participants' expectations, as this information is instantly reflected in the asset's value.

Traditional finance (TradFi)’s growing interest in prediction markets reflects the recognition that event data has matured into a monetisable and strategically valuable asset class. This trend suggests that TradFi values and applies insights derived from collective intelligence at scale, as quantified by reliable prediction markets.

Between January to October 2025, prediction market platforms generated over US$27.9 billion in trading volume, measured by contracts traded. Weekly trading volume also reached an all-time high (ATH) of $2.3 billion in the week of 20 October 2025, surpassing the previous peak of $2.0 billion set in November 2024 during the US presidential election. Each volume milestone, supported by deep liquidity, reinforces the relevance of prediction market probabilities for institutional-grade data feeds.

Crypto.com has established itself as the leader in CFTC regulated prediction market offerings to both retail users and institutions. CDNA has established preeminent business-to-business partnerships, having signed numerous industry deals that span key segments, which include  sport, social media, finance, and entertainment industries, among others This report discusses the key features and success factors of prediction markets, and whyCrypto.com | Predictions is the first choice for users in the industry.

2. Features of Prediction Markets

2.1 Key Features

Real-Time Event-Driven Price Discovery

• Information Efficiency: Traders with informational edge can immediately profit by buying underpriced or selling overpriced contracts. This arbitrage incentive ensures that prices rapidly converge to true probabilities, particularly during volatile periods when new information emerges.​
• Demonstrated Accuracy: Some research on the 2024 US presidential election found that prices in modern prediction markets strongly led traditional polls in predicting outcomes. Prediction markets leverage liquidity and informed traders to minimise subjective biases and narrative distortion, aggregating genuine expectations into prices that accurately reflect future outcomes.

Event Contract Architecture

Events on prediction markets platforms usually have two opposing shares: YES and NO, with prices between $0 and $1. In a perfectly efficient market, the sum of the prices of these two shares should equal $1. These shares represent probabilistic stakes in the event outcome. This mathematical elegance creates several trader benefits:

• Probabilistic Transparency: The contract price directly represents market-implied probability. A YES share trading at $0.65 reflects a 65% consensus likelihood of the event occurring, with no interpretation required.​
• Automatic Order Inversion: The system displays a unified order book in which every buy order for YES automatically appears as its inverse (a sell order for NO at the complementary price). This prevents artificial fragmentation and ensures deep, efficient liquidity across both outcomes.

Hedge Construction

Essentially, prediction markets provide financially backed probability assessments for any quantifiable future event. TradFi can synthetically replicate prediction market payoffs or use them directly to hedge portfolio exposure to events with two outcomes such as elections, regulatory decisions, or merger approvals. This could create new derivatives markets worth billions.​

Risk Assessment

Prediction markets provide probabilistic information on macroeconomic and geopolitical events. For example, a prediction market pricing a 75% probability of Federal Reserve (Fed) rate cuts represents one data input among multiple information sources that institutions may consider for risk management purposes. Prediction markets differ from analyst consensus, because they aggregate trading activity from participants with financial incentives; however, the relative value of this information compared to other forecasting methods varies by context and application.

2.2 Different Designs: Crypto | Predictions  vs Web3

Crypto.com | Predictions and Web3 players differ fundamentally in their underlying design mechanisms, trading infrastructure, and resolution systems.

Trading Architecture and Market Mechanisms

Crypto.com | Predictions utilises central limit order book (CLOB) system. The order book displays only bids rather than both bids and asks, leveraging the reciprocal relationship inherent to binary prediction markets: a YES bid at price X mathematically equals a NO ask at price (100 – X). This design ensures complete market information while eliminating redundancy. The matching engine operates in price-time priority, executing trades by matching the highest bid with the lowest ask once they meet.​

These centralised systems employ traditional database architectures with institutional-grade matching engines that process orders off-chain. The platforms maintain full control over order routing, execution priority, and price discovery mechanisms. Transaction settlement occurs through conventional payment rails and fiat currency systems.

Web3 prediction markets are saddled with complex, multi-step processes that undermine the promise of simplicity and accessibility. The Hybrid architecture attempts to reconcile the slowness of blockchain with the speed of traditional finance, but merely introduces a central point of control. Operators managing off-chain order books mirror the very centralized exchanges Web3 aims to replace, re-introducing custodial risk and the need for trust in the 'non-custodial' system's operators. 

Furthermore, the tokenization of outcomes using the Conditional Token Framework (CTF) is an overly complicated and cumbersome mechanism:

• Condition Preparation requires multiple technical parameters (oracle address, questionId, outcomeSlotCount) that act as significant barriers to entry for non-technical users.
• Position Splitting forces users to receive 'conditional' tokens (e.g., 1 YES + 1 NO) that are essentially useless until traded, unnecessarily complicating a simple bet.
• Trading relies on the liquidity of these fragmented ERC-1155 tokens on nascent order books or AMMs, meaning users often face high slippage or outright inability to trade at fair prices.
• Position Merging is a clunky step required just to retrieve the initial collateral, adding friction and gas costs to an already complex user journey.

Ultimately, the entire system relies on a decentalised oracle resolution for determining winners. If the oracle is compromised, delayed, or simply wrong, the 'trustless' system collapses, and users' collateral becomes trapped or misallocated, proving that Web3 prediction markets have merely traded one form of centralized risk for another, more convoluted one.

Oracle and Resolution Systems

Centralised platforms depend on trusted external sources such as official websites, government reports, or reputable data providers for final event resolution rather than purely decentralised oracles. Regulated platforms like Crypto.com | Prediction Market can provide fast and unambiguous outcomes with institutional trust.

Web3 platforms utilise various oracle architectures. One example is the Optimistic Oracle (UMA Protocol), adopted by some Web3 platforms. This mechanism operates on an ’optimistic’ assumption, under which proposed outcomes are considered true unless disputed. However, Optimistic Oracle faces critical vulnerabilities related to settlement speed, governance security through token voting, scalability, and fair resolution of subjective disputes:

• Settlement Speed Bottlenecks: UMA's dispute resolution process requires 48 to 96 hours when disputes arise.
• Economic Security and Manipulation Risks: Large token holders can potentially influence dispute outcomes through disproportionate voting power. In March 2025, customers of a Web3 prediction market platform suffered a $7 million loss due to oracle manipulation. When UMA's market capitalisation is smaller than the value it secures, whale addresses create structural conflicts between objective truth and the financial interests of token holders in specific market outcomes.
• Plutocratic Voting System: UMA relies on token-weighted voting, where the more UMA tokens held, the greater the influence. This creates a plutocratic system where truth is dictated by stake rather than expertise, particularly problematic for subjective or complex disputes requiring nuanced judgment rather than binary coin-flip outcomes.
• Scalability Challenges: As prediction markets scale to thousands of daily markets, manual review and specialised proposer models become unsustainable.

Liquidity Provision and Incentives

Market makers provide the majority of liquidity by quoting both sides of a market in larger markets. When a customer buys or sells, they’re typically interacting with this liquidity provider.

Centralised platforms rely on institutional market makers or internal liquidity provided by the platform operator, ensuring robust and deep liquidity pools. These platforms usually implement efficient maker-taker fee structures where makers (liquidity providers) earn rebates while takers (liquidity consumers) pay fees, promoting continuous liquidity.

In decentralised finance (DeFi), the Automated Market Maker (AMM) approach has been explored for liquidity provision. However, AMM-based liquidity provision in decentralised prediction markets faces significant challenges, including impermanent loss exposure for liquidity providers, operational losses for market makers, high on-chain transaction costs, and increased manipulation vulnerabilities, especially in low-liquidity markets. Consequently, most successful decentralised platforms have shifted to off-chain market makers that operate similarly and efficiently as the centralised platforms, highlighting the efficacy of the centralised model.

Regulatory Compliance

A key factor that sets Crypto.com’s prediction market footprint apart from Web-3 alternatives, is its very own CFTC-registered Designated Contract Market (DCM). Our DCM undergoes regular regulatory audits and must submit new market proposals for compliance review. This ensures that our prediction market platform complies with strict standards for financial integrity, fair trading, consumer protection, and risk management.​ Users can benefit from enhanced market safety, reduced risk of fraud or manipulation, and prompt, transparent resolution of disputes. Furthermore, compliance reviews guarantee that all listed markets are legally vetted, providing users with confidence that event contracts are properly regulated and outcomes are reliably settled. These material risks to users are not mitigated or prevented in Web3 alternatives.

Web3 platforms typically avoid mandatory KYC/AML (Know Your Customer/Anti-Money Laundering) procedures. However, the lack of regulatory oversight creates risks: potential market manipulation, unclear legal status, and challenges in dispute resolution which are demonstrated in the key success factors section below.

Tax Implications

The tax treatment of prediction market trading differs between CFTC-regulated event contracts and alternative contracts, particularly concerning loss deductions. This distinction is critical for understanding the true after-tax returns from prediction market participation.

When trading on gaming platforms with sportsbooks, traders face limitations on loss deductions because traditional sports wagering is considered gambling under federal tax law.

• Gambling losses cannot be used to reduce other taxable income.
• Deduction of gambling losses requires itemising deductions, which most taxpayers may not do.

For trading on CFTC-designated contracts on Crypto.com | Predictions fall under the federal derivatives framework, some of the advantages including:

• Losses sustained from prediction market trading may be utilised to decrease one's ordinary income. 
• In the US, commodity losses (in excess of gains) are deductible against ordinary income for up to $3,000 per year. Any losses beyond this $3,000 can be carried forward to future tax year.

2.3 Key Success Factors

Regulatory Compliance

Crypto.com Prediction Trading operates as a CFTC-regulated derivatives product, establishing legal status in United States markets. This regulatory classification differentiates Crypto.com from other platforms for providing regulated event derivatives contracts fully under derivatives regulation in the US. 

CFTC regulatory compliance establishes legal certainty, promotes investor protection, ensures market integrity, enables beneficial tax treatment, and facilitates broader market participation—factors indispensable to sustaining trusted, scalable, and legitimate prediction trading markets within the complex US legal and financial ecosystem.

Trading on unregulated platforms may deter participation and limit market utility due to the lack of fund protection and other benefits offered by regulated alternatives.

Liquidity

Liquidity is another most critical factor determining whether prediction markets succeed or fail. Without sufficient liquidity, markets suffer from wide bid-ask spreads, high slippage, poor price discovery, and prone to manipulation — rendering them unusable for both retail and institutional participants.​ Generating a true signal from prediction markets is dependent on deep liquidity and high trading volume.

Oracle Reliability and Security

The design of oracle should consider the accuracy, speed, costs and prevent potential manipulation. 

Web3 prediction markets use decentralised oracles to achieve trustless settlement infrastructure instead of the centralised one. However, decentralised oracles can lead to governance controversies in disputable cases. For instance, the event "Will Zelenskyy wear a suit before July?" resulted in a "No" outcome. This occurred despite photographs showing him in a suit, due to a lack of rigorous definition for what constituted a "suit." The community cast doubt on UMA, the oracle used by some decentralised platforms, because its voting mechanism prioritised validators who staked large amounts of tokens over the number of voters or factual accuracy.

3. Crypto.com Prediction Markets

Crypto.com's prediction trading is a CFTC-regulated, event-based derivatives trading feature available in the Crypto.com App, offered through its CFTC-regulated affiliate, Crypto.com | Derivatives North America (CDNA). This platform provides event outcome prediction contracts available exclusively in the United States.

Crypto.com's prediction trading presents straightforward yes/no decisions on global events spanning politics, economics, finance and sports. Participants select either ‘Yes’ or ‘No’ based on their belief regarding event outcomes. Upon correct prediction, traders receive US$1 or US$10 per contract depending on contract value; incorrect predictions result in loss of the initial investment with a defined maximum loss equal to the position cost.

Core Platform Features

CFTC Designation and Compliance

Crypto.com Prediction Trading operates as a CFTC-regulated derivatives product, establishing legal status in United States markets. This regulatory classification differentiates Crypto.com from, and is superior to decentralised Web3 prediction platforms, which operate without explicit regulatory designation and carry kinds of risks.

Comparative Tax Treatment

As a CFTC-regulated exchange, Crypto.com Prediction Trading contracts qualify for tax efficiency advantages on loss deduction over traditional sportsbook trading.

Dual Funding Options

The platform accommodates both traditional and cryptocurrency funding mechanisms:​

• Cash funding: Wire transfers, ACH deposits, instant deposits
• Cryptocurrency conversion: Direct crypto-to-USD conversion through ‘Crypto Funding’, supporting 350+ tokens (BTC, ETH, CRO, etc.)

Multiple Contract Strategy

Traders can open multiple contracts simultaneously on the same event to maximise profit potential through diversified positioning or hedging strategies. This capability allows sophisticated traders to construct complex multi-leg prediction strategies within single events.

Two Order Types  and Exit Flexibility

The platform supports Market Orders and Limit Orders. Market Orders execute with Immediate-or-Cancel (IOC) protection, meaning orders must fill immediately within a specified slippage tolerance or be canceled.

Unlike market orders which execute immediately at the current best price, limit orders offer greater control in volatile markets, executing only when the market price meets or exceeds users specified limit, allowing users to trade at their desired price without constant monitoring. 

A distinctive feature enables traders to exit positions at any time before event resolution, locking in profits or limiting losses without waiting for outcome determination.

Real-Time Settlement

Upon event resolution, payments are processed shortly thereafter, providing rapid capital return and enabling traders to redeploy funds into subsequent predictions. This operational efficiency distinguishes Crypto.com from platforms with prolonged settlement delays.

These features are embedded directly in the Crypto.com App, leveraging its existing user base for liquidity and distribution. This represents a major step towards operationalising event finance inside a major mainstream exchange - an integration that merges trading and data generation in one interface. 

Partnerships

Truth Social

Trump Media and Technology Group Corp. (“Trump Media”), operator of the social media platform Truth Social, the streaming platform Truth+, and the FinTech brand Truth.Fi, announced that it will make prediction markets available on Truth Social through an exclusive arrangement with CDNA, a CFTC-registered exchange and clearinghouse. Following the integration, Truth Social will be the first social media platform to offer its users technology to access embedded prediction markets capabilities through CDNA.

Underdog

Underdog, historically ranked #1 in the Sports category on the Apple App Store, partnered with CDNA in September to launch sports event markets in 16 US states, particularly in jurisdictions where traditional sports betting is less adopted. This collaboration marks the first prediction market exchange offered on a major sports gaming operator app. Users can trade outcome contracts across major sports leagues, including NFL, college football, NBA, and MLB, with prices updating in real-time, enabling instant reactions and opinion expression.

The partnership is strategically synergetic: CDNA provides the regulatory infrastructure as a CFTC-regulated exchange, while Underdog offers trusted distribution through its reputation in fantasy sports. This combination of compliance, mass-market audience, and exchange-grade infrastructure significantly strengthens Crypto.com’s prediction market offerings.

4. Conclusion

The future of prediction markets is poised for significant growth and evolution as institutional-grade, robust information infrastructure, with regulatory compliance emerging as a pivotal factor shaping their development and adoption. Regulation is a foundational element that ensures legality, investor protection, and market integrity, especially in complex jurisdictions like the United States. As interest in prediction markets expands to mainstream retail and institutional participants, the need for clear regulatory frameworks becomes ever more pressing.

Crypto.com | Predictions exemplifies a forward-looking approach by operating its Prediction Trading platform as a fully CFTC-regulated derivatives product through CDNA. This regulatory compliance establishes Crypto.com’s legal standing, safeguards users through rigorous oversight, and enables favorable tax treatments advantages that other platforms currently lack. The platform's ability to merge cutting-edge technology with formal regulatory approval sets a standard for how prediction markets can scale sustainably while meeting evolving legal demands.

Looking forward, prediction markets integrated within regulated environments will attract broader institutional participation thanks to the trust and transparency regulation affords. Platforms like Crypto.com, which blend compliance with user-friendly features such as fiat and crypto funding, pre-event exit flexibility, and real-time settlements, are best positioned to lead the industry. The strategic partnerships and commitment to consumer protection provide a blueprint for the next generation of prediction markets—ones that are accessible, efficient, and above all, compliant.

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Authors

Crypto.com Research and Insights team

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