Prediction markets experienced a transformative year in 2025, witnessing a massive fourfold surge in trading volume and solidifying their position as a significant, albeit concentrated, financial product. This rapid expansion, extending beyond the typical election cycle, signals a growing mainstream adoption and a shift from a niche crypto offering to a high-turnover trading venue. However, this growth also brings to the forefront critical integrity issues related to market structure, user onboarding, and the very mechanisms that determine trust and payouts, posing significant challenges for the sector's long-term institutional ambition.
Market Maturation and Centralization Risks
The sector’s explosive growth, reaching $63.5 billion in 2025, has coincided with a stark centralization of power, with just three platforms—Kalshi, Polymarket, and Opinion—now commanding over 95% of global volume. This concentration transforms what might otherwise be isolated operational glitches into systemic vulnerabilities. CertiK highlights that a primary concern isn't smart contract exploits, but rather integrity problems stemming from onboarding processes and the true meaning of reported volume. The reliance on "Web2.5" onboarding methods, exemplified by an incident involving Polymarket’s third-party authenticator, exposes users to centralized identity failures despite the underlying on-chain settlement remaining secure. Furthermore, incentive programs have led to widespread wash trading, artificially inflating volume metrics by up to 60% on some platforms. While this "noise" hasn't yet compromised the accuracy of forecasting signals, it creates a crucial dilemma for platforms striving for mainstream acceptance: balancing short-term volume boosts with the long-term optics and trust required to attract institutional capital.
Evolving Infrastructure and Critical Resolution Challenges
Beneath the headline numbers, prediction markets are undergoing a structural shift in liquidity execution. There's a notable migration of activity from Polygon to the BNB Chain, driven by ecosystem incentives. Concurrently, many on-chain venues are transitioning from Automated Market Makers (AMMs) to Central Limit Order Books (CLOBs) deployed on high-throughput chains. While CLOBs offer tighter spreads and mechanics familiar to professional traders, they also introduce exchange-like micro-structure risks such as front-running. Perhaps the most critical long-term challenge, however, lies in market resolution – the process of converting probabilities into actual payouts. CertiK identifies oracle manipulation as the primary technical attack vector, alongside disputes arising from ambiguous market definitions. Platforms employ diverse resolution models: Polymarket uses UMA's optimistic oracle (fast but vulnerable to disputes), Kalshi relies on centralized arbitration (predictable but requires platform trust), and Opinion uses consensus oracles (distributed but dependent on resolver integrity). As prediction markets scale, the inherent trust assumptions and tradeoffs of these resolution models become paramount, with the potential for edge-case controversies to escalate into governance crises if mainstream finance begins to rely on these markets for risk assessment.
