While the battle of meme launch platforms such as Pumpfun and Bonk is in full swing, for Degens, another market is beginning to become popular in the entire space, just like Memecoin in 23 years.
The prediction market has already got a hold of the Memecoins market.
John Wang, who just joined Kalshi as the head of cryptocurrency last month, recently released a set of data showing that the current prediction market has reached 38% of the total trading volume of Solana Memecoins.
After John joined Kalshi and tripled its trading volume in less than a month, prediction market trading volume, driven by various factors, reached levels last seen just before the October election. However, another striking data point is that the number of unique addresses on several major DEXs trading Memecoins has plummeted since its peak in December of last year, with the number of traders now less than 10% of their peak.
Left: Prediction market weekly trading volume, Right: Number of traders on Solana DEX, Source: DUNE
Is the era of Memecoins really coming to an end? Will the prediction market reach 10 times the size of the Memecoin market as John said?
The decline of the memecoin craze
It has to be said that Memecoins in the crypto market have created many myths of wealth creation in recent years and attracted many newcomers to join the industry for a time, but now this craze is clearly cooling down.
Looking back at 2021, the prices of old Memecoins such as Dogecoin (DOGE) and Shiba Inu (SHIB) soared thanks to topics such as Musk, and their market capitalizations once reached 80 billion and 39 billion US dollars. The market capitalization of Memecoins accounted for a peak of 12% of the entire altcoin market that year.
Since then, Meme culture has set off a wave again in 2023-2024, especially in early 2024 when the Pump.fun platform on the Solana chain came out of nowhere. The zero-threshold issuance of tokens triggered a new round of "Meme coinage" movement, which triggered an unprecedented outbreak of Memecoins transactions in the crypto field at the time. A large number of retail investors flocked to Solana to pursue the next opportunity to get rich.
However, signs of a decline are already emerging. While platforms like Pump.fun have created legendary cases of turning a few dollars into millions, the vast majority of speculators are doomed to lose money. Statistics show that nearly 99% of newly issued Memecoins eventually return to zero, and Solana's transaction fee revenue has also dropped by over 90%.
Solana transaction fee income, source: Defilama
The decline of Memecoins can be attributed to a variety of factors. Macroeconomic uncertainty has led to cautious speculative capital, while a lack of regulatory constraints has fostered rampant market manipulation and insider trading scandals. Social media influencers and celebrities have repeatedly exploited their influence to hype up prices and then sell them off at high prices (even the president has done this). Rampant insider trading, a lack of liquidity, and countless scams and leveraged pulls have left even the most ardent DeFi investors feeling the pinch.
The structure of participants in the meme sector has shifted. On the one hand, under pressure from regulatory compliance, many large investors who initially acted as market makers are withdrawing from this gray area. On the other hand, aside from the insider trading of whales, the remaining market is mostly composed of small and medium-sized retail investors competing with each other, and meme trading is increasingly evolving into a naked zero-sum PvP.
Young players are more interested in short-term speculation than long-term holding to build a culture of consensus. This lack of sustained PVP speculation makes it difficult for Memecoins to form a true community consensus. Prices fluctuate rapidly, lacking fundamental support. The result is often a rush to buy when prices rise and a frenzy when prices fall. Without stable capital willing to participate in long-term development, large investors are even less likely to enter the market, creating a vicious cycle.
The profit-loss ratio of players participating in PumpFun previously fluctuated between 7:3 and 6:4, but now it has reached 6:4. However, the range of profit and loss is almost concentrated in the range of +-$500. The wealth effect of Memecoins is disappearing. Source: DUNE
Consensus leads to unstable prices and capital avoidance, which in turn makes it difficult to expand market capitalization. This "pass the parcel"-style game is becoming increasingly deserted as the wealth effect fades.
Old memes have become trading tools, new memes have become the domain of P-junkies, and cultural consensus has become unrealistic. All signs indicate that the myth of memecoins is gradually fading, and the market is beginning to turn its attention to new hot areas.
New Arena in Degen
As the meme craze faded, Degen continued its pursuit, shifting its focus to prediction markets. If you frequently browse X, you'll likely come across biographies of individuals who achieved exorbitant returns with minimal capital. These stories used to be about arbitrage in Memecoins or DeFi, but now they're about prediction markets.
Dopamine
David Sklansky, the originator of the mathematical theory of Texas Hold'em, said in "Poker Theory" that "the essence of gambling is betting under information asymmetry." In other words, what gamblers need is the perception of odds and information advantage, not absolute victory.
From this perspective, prediction markets offer a similar dopamine rush to memecoin speculation, but with a more transparent and fair mechanism. When you buy a contract betting on "Trump winning the election" or "the Federal Reserve cutting interest rates," your ultimate win or loss depends on the outcome of objective events. There's no risk of a sudden absconding project owner, nor is there a "blanket purge" of the market that artificially crashes the market to zero. The worst-case scenario is a loss of all your money on the wrong bet, rather than the unwarranted losses of insider manipulation that plague some virtual currencies.
This shift in mindset from "Will the development team abscond with the funds" to "Will the event itself occur" represents an upgrade in the pattern of speculative behavior. Gamblers are still placing bets, but the bets are anchored to real-world outcomes and have a fundamental basis of authenticity.
Polymarket has 1.3 million traders, and while Kalshi hasn't disclosed user data, its market share has surpassed Polymarket. The number of participants in the prediction market may have reached millions. Source: polymarketanalytics
Regulation
More importantly, regulatory trends have lent prediction markets an aura of legitimacy. In the past, many decentralized prediction platforms closed their doors to users in markets like the United States due to policy risks, but this is now changing.
In late 2024, a legal battle between the Kalshi platform and the U.S. Commodity Futures Trading Commission (CFTC) marked a turning point. The US-based, fully compliant prediction market exchange had previously faced CFTC blockades over its attempt to launch contracts on congressional election results. However, in September of that year, a federal court reportedly ruled in favor of Kalshi, determining that regulators lacked the authority to prohibit such political event contracts.
This ruling cleared the way for Kalshi to operate nationwide, making it the first truly licensed prediction market platform in the United States. Kalshi seized the opportunity and aggressively entered the market during the 2024 US presidential election. According to Reuters and other sources, the platform generated approximately $1 billion in trading volume on election night alone, and its annual trading volume surged tenfold year-on-year to $1.97 billion. Leveraging its regulatory advantages, Kalshi was able to rapidly expand its reach and attract users regardless of geographic location, ultimately securing a $1 billion valuation in a new round of funding in early 2025.
Meanwhile, Polymarket, a long-established decentralized prediction market, was also seeking regulatory compliance. The platform was fined $1.4 million by the CFTC in 2022 for failing to comply with US regulations, and was temporarily closed to US users. However, after the Trump administration took office, the US regulatory environment relaxed somewhat, and Polymarket re-entered the US market in 2025 through the acquisition of a licensed entity.
Wealth Effect
For profit-seeking speculative funds, the reason why the prediction market can continue to be popular after the meme tide has subsided is that it also has a wealth effect and the gameplay is more diverse.
First, in terms of potential returns, betting on a black swan event is comparable to speculating on altcoins. In prediction markets, early bets on low-probability events at extremely low odds can yield returns several times, or even dozens of times, higher if they actually occur. For example, before the 2024 US election, many people purchased contracts predicting a Trump victory as a hedge or for speculation. One major investor reportedly invested $30 million in bullish positions on a "Trump win" bet, and ultimately, after Trump won the election, the trader pocketed a whopping $85 million.
Of course, small investors can also opt for long-tail event contracts with odds as high as dozens of times higher, achieving the goal of "small bets, big wins." It's worth noting that decentralized prediction markets, centered around binary options, have also begun to incorporate contract leverage tools to further amplify returns. Platforms like Azuro, D8X, and Drift have all offered or continue to offer contract leverage.
This integration of DeFi derivatives broadens profit margins and provides a niche for professional traders adept at exploiting arbitrage opportunities. This has also enabled some DeFi players to become adept at participating in prediction markets. They can exploit arbitrage opportunities based on odds deviations across platforms or hedge risks using derivatives. Combined with increasingly sophisticated data dashboards and trading bots, the opportunities offered by these platforms are far more diverse than simply speculating on Memecoins or simply trading futures contracts.
Distribution of players who have made profits in the prediction market over the past six months. The redder the color, the higher the ROI. The player in the lower left corner earned nearly $60,000 with $3.72. Source: hashdive
Low education costs
In addition to high-yield opportunities, "low education costs" is also one of the important reasons why the prediction market attracts funds.
Unlike Memecoins, which are limited to hype around crypto projects, prediction markets offer a wide range of tradable assets, encompassing politics, economics, sports, entertainment, and other fields, satisfying the gambling needs of diverse audiences. For example, Polymarket offers both serious macroeconomic topics (e.g., "Will Bitcoin reach a new all-time high by a certain date?", "Will the Federal Reserve cut interest rates at its next meeting?") and quirky topics steeped in internet culture (e.g., "Will the members of the top boy band Coldplay divorce by the end of the year?", "Will the existence of aliens be officially confirmed by 2025?").
Many seemingly absurd hot topics have corresponding markets on the platform, effectively integrating meme culture into prediction trading. Users can bet on popular memes, celebrity topics, and more, making this entertaining participation easier to access and more engaging.
Polymarket's prediction themes
In contrast, Memecoins, despite their name, are ultimately a product of the crypto community's internal entertainment, and outsiders often struggle to grasp their meaning and value. Prediction markets, on the other hand, bet on real-world events, making them easier for the general public to understand and participate in.
Some have vividly described prediction markets as simply moving offline horse racing and football betting to the blockchain, conducting it in a more open and transparent manner. Many ordinary investors, previously unaware of crypto tokens, are now interested in testing the waters by placing bets once they see contracts tied to news events on the platform.
Furthermore, some platforms (such as MYRIAD) have begun embedding predictive behavior logic directly into social media and mobile apps through plug-ins or embedded apps, allowing users to participate in predictions while browsing Twitter or opening apps, thereby increasing participation. All of this makes prediction markets more likely to break through niches and attract long-tail users beyond traditional crypto assets like Bitcoin.
Prediction markets have a reverse impact on the real world
The fairness and information value of prediction markets are also praised by some. Because final settlement of contracts is based on objective facts, there's no room for market manipulation, resulting in relatively fair and transparent results. In the Memecoin space, retail investors often worry about malicious development teams or market manipulation, but these aren't issues in prediction markets. Furthermore, participants with high information acuity can profit by placing bets early, which in turn provides signals for market prices. This is seen as the original intention of the mechanism design to "use money to predict the future."
For example, when the true probability of an event is underestimated, traders with insider information or professional insights will buy large quantities of corresponding contracts, pushing the price closer to a reasonable level. This arbitrage process corrects the erroneous odds. Research has shown that it is precisely because of these rational arbitrageurs that mature prediction markets can often provide more accurate event probabilities than polls, and are therefore used as a reference by media and institutions.
Of course, excessive speculation can also obscure the validity of information. If a large influx of uninformed, speculative funds simply follow the trend, contract prices may deviate from reasonable probabilities in the short term. However, practice has shown that as long as there are enough rational players, significant deviations are usually quickly corrected, and extreme and persistent price mispricing is relatively rare.
In general, prediction markets possess unique value in aggregating public opinion and information. The more diverse the participants and the richer the information, the more valuable the results. This model of "combining speculation with prediction" has even gained recognition among some mainstream figures. Because prediction markets emphasize trading based on information and judgment, many supporters avoid using the term "gambling" and instead refer to it as an "information market" to enhance its social acceptance.
This packaging has been quite effective, with many VCs and government officials increasingly using prediction market data to inform their own opinions. Compared to the impression of Memecoins as a "pure betting game," prediction markets are striving to create a more intelligent and rewarding investment environment, thereby attracting a wider range of participants.
Dragonfly partner Hasseb cited Polymarket's forecast in his discussion of USDH
Notably, the capital market is also embracing this emerging trend. Since last year, several prediction market platforms have secured significant funding, leading to rapidly rising valuations. Shortly after winning their lawsuit, Kalshi announced a $100 million funding round, bringing its post-money valuation to $1 billion. Polymarket also raised $200 million in early 2025, boosting its valuation to approximately $2 billion.
Emerging startups are emerging one after another, and capital interest in them is also increasing. From just $3 million in investment in 2021, institutional investment in this field has now reached $370 million.
Thomas Peterffy, founder of Interactive Brokers, a veteran online brokerage, publicly predicted in an interview with CNBC in November 2024 that the size of the prediction market may surpass the stock market in the next 15 years because it uniquely prices various public expectations.
After the rise and fall of the Memecoins craze, the prediction market may be taking over as the arena for a new round of speculative capital competition.
