Opinion
|4 min ReadPrediction markets face thin liquidity, weak volatility
Maya Chen
Senior Analyst
Published
Jan 16, 2026
You want the edge before the crowd. You want a market that pays for being early, not loud. Prediction markets promise that edge. Today they are small, messy, and overlooked. That is why they matter.
“Prediction markets are still very niche.”
David traded all summer. He built tools. He joined Polymarket in mid-2024 for the election run. In June, the Israel–Iran flare-up pulled him deeper. He used markets for fun and for signal. He routed real portfolio moves through those odds. In August, John Wang blasted the space with a rapid thread storm. Attention spiked. Curiosity spread. The market stayed young.
The promise is real, the path is narrow
The first wall is liquidity. It is thin. Professionals cannot size. Funds cannot build positions. Binary markets make market making hard. Inventory risk is high. Hedging is tricky and often impossible at speed.
Picture this. A contract trades like there is an 80 percent chance of “Yes.” A headline hits. Odds gap to 30 percent. If a maker is on the wrong side, they hold a pile of losses. There is no mean reversion to bail them out. Exit doors are small. Slippage bites.
Flow quality hurts too. Makers live on the spread. Buy at
1.01, repeat. They need low-information flow to win. Think index rebalances and portfolio hedges in equities. Those trades are price insensitive. They keep spreads healthy.Prediction markets skew the other way. Flow is informed. Insiders and sharp readers chase mispricing. Toxic flow rises. Demand lacks variety. Without a base of low-information trades, makers step back. Liquidity stays shallow.
Retail wants action, not caps
Retail hits a second wall. The payouts feel small. Most Polymarket and Kalshi markets move slowly. A contract at 70 percent with two months to go does not light up dopamine screens. Leverage is rare because making two-sided leverage work is tough in binary space.
Binary caps also dull the thrill of early positioning. Stocks and crypto reward reflexivity. Hype feeds price which feeds more hype. Event markets mute that loop. That is good for integrity. It is bad for 100x dreams. New prototypes try non-binary designs to restore reflexivity. Results are TBD.
Discovery and UX lag too. Power users feel the pain. There are tens of thousands of markets across Polymarket and Kalshi, growing fast, yet most traders never see the best ones. Surfacing is weak. Navigation is clunky. The right contract hides behind noise.
The opportunity nobody is pricing
Here is the kicker. These problems are solvable. DeFi had them. Perps had them. Weekly options had them. Then builders fixed liquidity, leverage design, and UX. Volume followed.
Polymarket has about 250,000 active users. Last month volume hit $1 billion. For comparison, the top 100 traders on HyperLiquid each can approach that number. Read that again. The entire leading prediction venue equals a leaderboard of crypto killers. That gap is not a ceiling. It is a runway.
This is why I care. Liquidity will deepen when makers see balanced flow. That means bringing in hedgers and rebalancers, not just speculators. Better routing, tighter tick sizes, and inventory-aware quotes can help. Non-binary structures can widen spreads and support leverage. Smarter curation and search will unlock the long tail of markets that already exist but cannot be found.
Prediction markets are early. That is the edge. They will not replace stocks or crypto tomorrow. They do not need to. They just need to pay the sharp trader who does the work before headlines hit. That is our game. Act while the room is quiet.
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.