The Rise of Prediction Markets: Unpacking the $20 Billion Surge

Prediction markets have gone mainstream and what started as a small corner of the crypto world has rapidly expanded into a $20 billion a month global market.

While platforms like Polymarket and Kalsi are seeing record trading volumes and users are not just betting on sports or pop culture.

The biggest drivers of the surge are high stakes geopolitics as well as macro and the ongoing conflict in the Middle East.

And with that massive Growth comes intense new scrutiny.

Now a new report from blockchain intelligence firm TRM Labs has identified suspicious trading patterns ahead of the recent US airstrikes in Iran, and it is raising serious questions about market manipulation and whether bad actors are profiting off insider knowledge of global conflicts.

Well joining me this morning is Ari Redbord, the Global Head of Policy at TRM Labs.

Very good morning.

Thank you so much.

For joining us here on Wall Street, we continue to keep an eye on the conflict in the Middle East as well as oil prices.

But let's start with the sheer scale of growth when it comes to prediction markets.

Now these platforms went from doing $1.2 billion a month to over $20 billion in just a year.

So how much of that explosion is tied to people wagering on geopolitical events rather than say traditional politics or even crypto?

It's really a mix and first of all, thank you so much for having me.

I always love joining joining the show.

It really is a mix of a whole host of different categories to include sports, to include more typical sort of futures activity, right, the weather, but also these major geopolitical events.

One thing that's extraordinary, you mentioned the 1.2 billion monthly users in 2025 to 20 billion in Just in January of 2026, we are also seeing about 840,000 unique wallet addresses.

So this this is a lot of money across a broad swath of individual users who are engaging with these platforms.

You know, I don't know that I've ever seen anything sort of move this quickly and get this hot this fast when it comes to sort of new technology.

Ari, I understand that your team analyzed trading activity right before the US airstrikes on Iran, and you found four specific accounts that turned $40,000 into nearly $900,000.

So walk us through what that data shows and why it looks like coordinated trading here.

What's really interesting about it, right, you see this activity right before the strikes and obviously we're very accurate in the results there and in in securities markets that would be potentially indicative of, you know, insider trading, which is more than a term of art, right?

That's a legal term.

It's a charge, and here you saw that type of activity to potentially manipulate these markets, but insider trading.

Never really existed in future markets regulated by the CFTC.

In fact, in some respects, it's a feature, not a bug, right?

You want people with inside information to help improve the knowledge of the markets, whether we're talking about cattle, whether they're talking about weather, but here we saw this type of activity which could align with market manipulation.

I think one thing really important is kind of.

Step back is when you're talking about $40,000 I think there's an open question of sort of like who is behind this activity.

These weren't, this is not huge millions of dollars, sort of, uh, you know, invested in these contracts.

So I think there's an open question about who was involved, the extent of it, because really at the end of the day you're talking about much less money than you would about sort of some major market manipulation type activity.

Yes, and building on what you just said, Ari, I understand your research also shows that high frequency traders and algorithms are actually driving a huge portion of this volume.

So how does that actually change the way that these markets operate?

What's so interesting is that we're at this really interesting moment where we have this type of Technology, these prediction markets married with AI and sort of bot type activity, and we're seeing people able to trade faster, higher velocity than ever before, and I think it really presents an open question for regulators not just about how, how to regulate these markets, but how to regulate some of the technology that's being used to potentially manipulate them.

Yes, and Erin, you just mentioned regulators and we're hearing from individual states regarding regulations.

So what do you think needs to happen and why?

You know, it's interesting.

Obviously the CFTC regulates futures markets like these prediction markets.

However, the states regulate gambling, and I think we're seeing one of the most interesting conversations around federalism that I've seen in a long time play out.

And I think there's an open question as to whether some of the sports betting, if you will, on these prediction markets are in fact.

Gambling that would more align to state regulation, but yet the vast majority of activity, this truly sort of futures contracts, does that regulate, does that align more to where the CFTC regulates?

So I think we're going to see a lot of activity in the courts over the next really several years as as this plays out.

And speaking of which, Polymarket as well as Kosi announcing new measures to crack down on trading with non-public information.

So given the anonymous nature of blockchain, do you think these platforms can realistically police themselves, or do you think a major crackdown is inevitable here?

I absolutely think they can, they can kind of regulate themselves to some extent.

I think that you have technology, you have the use of AI, you have the use of blockchain intelligence, right?

We were able to paint a pretty robust picture about what's happening on chain, particularly for a polymarket, which is on chain as opposed to some other, some other platforms like Calshi.

I think you can, you can use technology to get a pretty decent picture.

Regulation is coming, no question, but I think that this is a real move by Polymarket and Calshi to say, hey, look, we're going to take, we're going to take some action here to ensure that we're not seeing this type of market manipululation happen on our platforms, but this is new technology, and I think the regulation is going to have to catch up and catch up quickly.

Yes, and speaking of new technology, I do want to ask you about artificial intelligence.

I understand TRM Labs just launched a new AI assistant called Coase Agent, and it's designed to help investigators track down illicit crypto funds.

So give us an idea of how crypto crime caseloads are actually outpacing the number of investigators who are available.

And how exactly does this new technology help authorities stop criminals?

It's a truly extraordinary moment.

We put out a report recently that said we saw about a 500% increase in the use of AI for fraud and scam activity, and the reality is that bad actors are always early adopters of new technology, and AI is just the most recent example of that.

But the reality is that we also have to move as fast as the criminals, and co-case agent is really a way for law enforcement to use AI in blockchain tracing.

In other words, to really sort of auto trace, auto build the investigations that we're taking, you know, investigators, you know.

Hours to do in the past, you know, hop by hop investigations.

Now they're able to do with the click of a button because we need to supercharge our response the same way that bad actors have sort of really supercharged criminal activity.

Yeah, and finally, before I let you go while we're talking about blockchain crypto as well as what we're seeing in artificial intelligence, what do you think needs to happen on the regulatory front and why?

You know, it's interesting.

We're at a very interesting moment when it comes to US market structure.

It feels very stalled.

The sides have been back and forth on this issue of stable coin yield for some time, but there's a host of other issues to include decentralized finance, to include ethics around sort of the Trump administration and others.

But I think what you're really seeing is the regulators say even without market structure we're going to really take action, and that's why the CFTC and the SEC put out really important guidance on.

Around defining what is a security, what is a tokenized security a few weeks ago, but I see what we're seeing here is now it feels very stalled in Congress.

Folks may disagree with that, but I'm becoming less and less convinced that we're going to get market structure anytime soon.

But yet the regulators are moving very, very quickly SEC, CFTC, and Treasury.

I think as long as we see that and the current environment stays the same, we'll be all right.

But eventually we're going to need to codify the work that the regulators are doing.

Well, Ari, a lot to keep our eyes on.

So thank you so much for joining us this morning and as always, great talking to you.

Thank you so much for all of your perspective.

Thanks for having me.