During the fierce competition among Meme launch platforms like Pumpfun and Bonk, another market is starting to gain popularity among Degen, similar to the Memecoin trend of 2023.

The prediction market has already grasped the throat of the Memecoins market.

John Wang, who recently joined Kalshi as the head of cryptocurrency, released a set of data indicating that the current prediction market has reached 38% of the total trading volume of Solana Memecoins.

In less than a month since John joined Kalshi and doubled its trading volume, the overall trading volume of the prediction market has also reached the level seen before the October elections last year. However, another set of data is quite striking: the number of independent addresses trading major Memecoins on DEX has dropped from the peak in December last year to less than 10% of the peak trading volume.

Left: Weekly trading volume of the prediction market, Right: Number of traders on Solana DEX, Source: DUNE

Is the era of Memecoins really coming to an end? Will the size of the prediction market, as John mentioned, exceed ten times that of the Memecoins market?

The Decline of the Memecoins Craze

It must be said that Memecoins in the crypto market have created many wealth myths in recent years, attracting many newcomers to the industry, but this frenzy is clearly cooling down now.

Looking back at 2021, established Memecoins like Dogecoin (DOGE) and Shiba Inu (SHIB) saw their prices soar, boosted by figures like Musk, with market capitalizations reaching as high as $80 billion and $39 billion, respectively. The market capitalization of Memecoins accounted for a peak of 12% of the entire altcoin market that year.

Subsequently, Meme culture surged again in 2023-2024, especially with the emergence of the Pump.fun platform on the Solana chain in early 2024, which triggered a new round of "Meme minting" movements with zero-threshold token issuance, leading to an unprecedented explosion of Memecoins trading in the crypto space, as many retail investors flocked to Solana in pursuit of the next opportunity for wealth.

However, signs of decline have begun to emerge. Although platforms like Pump.fun have created legendary cases of turning a few dollars into millions, the vast majority of speculators cannot escape the fate of losses. Statistics show that nearly 99% of newly issued Memecoins ultimately go to zero, and Solana's transaction fee revenue has also dropped by over 90%.

Solana transaction fee revenue, Source: Defillama

The decline of Memecoins can actually be attributed to multiple factors. The uncertainty of the macro environment has made speculative funds cautious, the lack of regulatory constraints has led to rampant insider trading scandals, and social media influencers and celebrities have repeatedly engaged in schemes to hype up and sell at high points (even presidents have done so). Insider trading is rampant, liquidity is scarce, and with thousands of scams and rug pulls, even the most gambling-prone Degen are feeling fatigued.

The structure of participants in the Meme sector has changed. On one hand, many early large players acting as market makers are withdrawing from this gray area due to compliance pressures; on the other hand, aside from insider trading by whales, the market is now mostly filled with small and medium retail investors competing against each other, and Meme trading is increasingly evolving into a naked zero-sum PVP.

Small players are eager to chase short-term gaming thrills, while long-term holding to build consensus culture has become less common. This lack of sedimentation in the PVP speculation model makes it difficult for Memecoins to form a true community consensus, leading to price fluctuations without fundamental support, resulting in a rush during price increases and a scattering during declines. Without robust funds willing to participate in long-term construction, large funds are even less likely to step in, creating a vicious cycle.

The ratio of profits to losses among players participating in pumpfun, previously fluctuating around 7:3 (losses: profits), has now reached 6:4, but the range of profits and losses is almost concentrated around +---$500, indicating that the wealth effect of Memecoins is fading, Source: DUNE

Consensus leads to price instability, causing funds to shy away, which in turn makes it difficult for market capitalization to grow. This "pass-the-parcel" type of gaming is becoming increasingly cold as the wealth effect fades.

Old Memes have turned into swing trading tools, new Memes have become the domain of small players, and cultural consensus has become an impractical existence. Various signs indicate that the Memecoins myth is gradually fading, and the market is starting to shift its focus to new hot areas.

The New Arena for Degen

As the Meme craze gradually recedes, Degen have not pulled back but have shifted their enthusiasm to the prediction market. If you frequently browse X, you may often see some so-called "personality stories," which usually narrate how someone turned a small amount of money into a high multiple. The background of these stories used to be Memecoins or DeFi arbitrage, but now it has changed to the prediction market.

Dopamine

David Sklansky, the founder of poker mathematics theory, once said in "The Theory of Poker," "The essence of gambling is betting under information asymmetry." In other words, what gamblers need is a perception of odds and information advantage, rather than an absolute guarantee of winning.

From this perspective, the prediction market provides a dopamine rush similar to that of speculating on Memecoins, but with a mechanism that is more transparent and fair. When you buy a betting contract for "Trump winning the election" or "the Federal Reserve cutting interest rates," the final outcome depends on the objective results of events. There is no risk of project teams suddenly running away, nor is there a "carpet pull" where prices are artificially driven to zero; the worst outcome is simply losing your bet, rather than being unjustly harmed like some air coins under insider manipulation.

This psychological shift from "Will the development team run away with the funds?" to "Will the event itself happen?" represents an "upgrade" in speculative behavior. Gamblers are still betting and competing, but the bets are anchored to real-world outcomes, providing a basic level of authenticity.

The number of traders on Polymarket has reached 1.3 million, while Kalshi has not disclosed user data, but 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 added a halo of legitimacy to the prediction market. Many decentralized prediction platforms previously closed their doors to users in markets like the U.S. due to policy risks, but the situation is changing.

In the second half of 2024, a lawsuit between the Kalshi platform and the U.S. Commodity Futures Trading Commission (CFTC) became a turning point. This prediction market exchange, which operates fully compliant in the U.S., was previously blocked by the CFTC for attempting to launch contracts on congressional election results. However, reports indicate that in September of that year, a federal court ruled in favor of Kalshi, stating that the regulatory agency had no authority to prohibit such political event contracts.

This ruling cleared the way for Kalshi to operate nationwide in the U.S., making it the first truly licensed prediction market platform in the country. Kalshi quickly seized the opportunity to expand its operations during the 2024 U.S. elections. According to reports from Reuters and others, on the night of the presidential election alone, the platform generated approximately $1 billion in trading volume, with the total annual trading volume surging tenfold to $1.97 billion. With its compliance advantage, Kalshi was able to rapidly expand its reach and attract users without geographic restrictions, which also helped it achieve a valuation of up to $1 billion in a new round of financing in early 2025.

Meanwhile, the established decentralized prediction market Polymarket is also seeking a path to compliance. The platform was fined $1.4 million by the CFTC in 2022 for failing to comply with U.S. regulations and temporarily closed to U.S. users. However, after the Trump administration took office, the regulatory environment in the U.S. loosened, and Polymarket re-entered the U.S. market in 2025 through the acquisition of a licensed entity.

Wealth Effect

For profit-seeking speculative funds, the reason the prediction market can absorb the heat after the decline of Memecoins lies in its similar wealth effect and more diverse gameplay.

First, from the perspective of potential returns, betting on black swan events can yield returns comparable to speculating on altcoins. In the prediction market, if you bet on a low-probability event at very low odds early on, you can achieve several times or even dozens of times the return if it actually happens. For example, before the 2024 U.S. elections, many people purchased contracts for Trump's victory as a hedge or speculation. Reports indicate that one large player bet $30 million on "Trump winning" and made a profit of up to $85 million after Trump successfully won the election.

Of course, small capital players can also choose long-tail event contracts with odds of dozens of times to make a big win. It is worth mentioning that decentralized prediction markets centered around binary options have also begun to introduce contract leverage tools to further amplify returns. Platforms like Azuro, D8X, and Drift have provided or still provide contract leverage.

This integration of DeFi derivatives broadens the profit space and provides professional players skilled in capturing arbitrage opportunities with a place to showcase their skills, allowing some DeFi players to navigate the prediction market with ease. They can look for odds discrepancies for arbitrage between different platforms or use derivatives to hedge risks, along with increasingly sophisticated data dashboards and copy trading bots, making the gameplay much richer than simply speculating on Memecoins or engaging in pure contract trading.

Distribution of players' returns in the prediction market over the past six months, the redder the area, the higher the ROI. One player in the lower left corner made nearly $60,000 from an investment of $3.72, Source: hashdive

Low Education Cost

In addition to high return opportunities, "low education cost" is also an important reason why the prediction market attracts funds.

Unlike Memecoins, which are limited to speculating on crypto projects, the tradable subjects in the prediction market cover almost everything, including politics, economics, sports, entertainment, and more, catering to the "gambling interest" of different groups. Taking Polymarket as an example, it features serious macro topics (such as "Will Bitcoin break its historical high before a certain date?" or "Will the Federal Reserve cut interest rates at its next meeting?") as well as quirky topics rich in internet culture (such as "Will a member of the first-line boy band Coldplay get divorced by the end of the year?" or "Will aliens be officially confirmed to exist in 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, etc., making participation more entertaining and lowering the threshold.

Prediction themes on Polymarket

In contrast, although Memecoins have "Meme" in their name, they are ultimately products of self-entertainment within the crypto circle, and outsiders often find it difficult to understand their memes and value. The prediction market, on the other hand, bets on events occurring in the real world, making it easier for the public to understand and participate.

Some have vividly described the prediction market as simply moving the behavior of betting on horse racing and sports betting from offline to online, conducted in a more open and transparent manner. Many ordinary investors who were previously confused about crypto tokens may become interested in betting when they see contracts related to news events on the platform.

Additionally, some platforms (like MYRIAD) have begun to directly embed the logic of prediction behavior into social media or mobile apps through plugins or integrations, allowing users to participate in betting while scrolling through Twitter or using apps, thereby increasing participation. All of this makes the prediction market more likely to break through barriers and attract long-tail users beyond traditional crypto assets like Bitcoin.

The Reverse Impact of Prediction Markets on the Real World

The fairness and informational value of prediction markets are also praised by some viewpoints. Since contract settlements are based on objective facts, there is no room for human manipulation, making the results relatively fair and transparent. In the realm of Memecoins, retail investors often worry about malicious actions by development teams or market manipulation, but these are not issues in the prediction market. At the same time, participants with high information sensitivity can profit by betting early, and this process provides signals for market prices, which is seen as the original design intention of "using money to predict the future."

For example, when the real probability of an event is underestimated, traders with insider information or professional insights will buy a large number of corresponding contracts, thereby pushing the price closer to a reasonable level. This arbitrage process corrects erroneous odds. Research has pointed out that it is precisely because of these rational arbitrageurs that mature prediction markets often provide more accurate event probabilities than polls, which are referenced by media and institutions.

Of course, excessive speculation may also obscure the effectiveness of information. If a large influx of uninformed, purely trend-following speculative funds enters, it may cause contract prices to deviate from reasonable probabilities in the short term. However, practice shows that as long as there are enough rational players, significant deviations are usually corrected quickly, and extreme sustained mispricing is relatively rare.

Overall, prediction markets have unique value in aggregating public opinion and information. The more diverse the participants and the richer the information, the more meaningful the results. This model of "embedding speculation in prediction" has even gained recognition from some mainstream figures. Since prediction markets emphasize trading based on information and judgment, many supporters avoid using the term "gambling" and instead refer to it as "information markets" to enhance its social acceptance.

This rebranding has proven effective, as many VCs and government officials increasingly use prediction market data as a basis for sharing their views. Compared to the impression of Memecoins as "purely gambling," prediction markets are striving to create an atmosphere of higher intelligence and greater value in investment games, thereby attracting a broader range of participants.

Hasseb, a partner at Dragonfly, cited Polymarket's predictions in discussions about USDH.

It is worth noting that the capital market is also chasing this new trend. Since last year, several prediction market platforms have received significant financing, and their valuations have rapidly increased. Shortly after winning the lawsuit, Kalshi announced the completion of a $100 million financing round, achieving a post-investment valuation of $1 billion. Polymarket also raised $200 million in early 2025, bringing its valuation to approximately $2 billion.

Emerging startup projects are springing up, and interest from capital is increasing. In this sector, institutional investment has grown from just $3 million in 2021 to $370 million today.

Thomas Peterffy, the founder of the established internet brokerage Interactive Brokers, publicly predicted in a CNBC interview in November 2024 that the scale of prediction markets could surpass that of the stock market in the next 15 years, as they uniquely price various public expectations.

After experiencing the ebb and flow of the Memecoins craze, the prediction market may be poised to become the new arena for speculative capital competition.

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