Prediction Market
|3 min ReadPrediction Markets Are Dead Unless They Become Perps
Carter Hayes
Senior Analyst
Published
Jan 16, 2026
Success is the ultimate trap. When you win early, you stop looking for better ways to win. Polymarket and Kalshi are winning the wrong game. They have captured the niche of political betting, but they are failing the broader market.
The problem is structural. The current binary "YES/NO" model is archaic. It fragments liquidity and makes hedging impossible. Without a fundamental redesign, these platforms will never scale beyond election cycles. They are two kites dancing in a hurricane, mistaking wind for flight.
The Liquidity Mirage
On the surface, everything looks fine. Kalshi boasts $30 billion in annualized volume. Polymarket is a cultural phenomenon. But dig deeper. The liquidity is shallow. Outside of major events like the US election, bid-ask spreads are wide enough to drive a truck through.
To mask this, both platforms are paying users to trade through subsidy programs. This is not organic growth. It is the BlackBerry Moment. Just as RIM optimized physical keyboards while the iPhone ate the world, prediction markets are optimizing a broken binary model. They are polishing a product that is structurally obsolete.
The Leverage Problem
The biggest failure is leverage. Traders want it. Crypto natives demand it. But binary markets cannot offer it efficiently. Betting $100 on a 1% outcome is not the same as opening a 100x perp position.
Without continuous price movement, you cannot have safe liquidations. In a binary market, prices jump. A 45% probability can snap to 100% in a second. This "jump risk" makes margin calls impossible. If you cannot liquidate gradually, you cannot offer leverage safely.
We saw this story with WeWork. They claimed to be a tech platform but were just a risky real estate carry trade. Prediction markets are making the same mistake: they claim to be exchanges, but they are just glorified betting parlors without the capital efficiency of true finance.
The Macro Pivot: Perp-Ification
The solution is obvious but painful. Prediction markets must become perpetual futures markets.
They need to treat events as continuous assets. This requires a complete overhaul of the tech stack. We need dynamic margining that accounts for time-to-event risk. We need "leverage decay" as resolution nears. We need JIT (Just-In-Time) collateral to allow market makers to quote across hundreds of markets simultaneously.
This is the innovator's dilemma. Polymarket and Kalshi are too successful to change. They are holding onto film while digital cameras eat the world. The next generation of prediction markets will not look like betting sites. They will look like Binance for reality.
Disclaimer: This document is intended for informational and entertainment purposes only. The views expressed in this document are not, and should not be taken as, investment advice or recommendations. Recipients should do their own due diligence, taking into account their specific financial circumstances, investment objectives and risk tolerance, which are not considered here, before investing. This document is not an offer, or the solicitation of an offer, to buy or sell any of the assets mentioned.