Amidst the intense Hundred Regiments War on meme launchpads like Pumpfun and Bonk, another sector is gaining popularity across the space like a 23-year-old Memecoin.

The prediction market has firmly gripped the throat of the Memecoins market.

John Wang, who recently joined Kalshi as the Head of Cryptocurrency just last month, has released a set of data indicating that the prediction market now accounts for 38% of the overall trading volume of Solana Memecoins.

Since John joined Kalshi and doubled its trading volume in less than a month, the overall trading volume of the prediction market has also surged to levels not seen since the eve of last October's election due to various stimuli. However, another set of data is quite striking: the number of unique addresses trading Memecoins on major DEXs has steadily declined from its peak in December last year, with the number of traders now less than 10% of the peak.

Left: Prediction Market Weekly Trading Volume, Right: Solana DEX Traders Count, Source: DUNE

Is the era of Memecoins really coming to an end? Will the volume of the prediction market, as John stated, surpass that of the Memecoins market by more than 10 times?

The Decline of the Memecoins Craze

It must be said that Memecoins in the crypto market have indeed created many rags-to-riches stories in recent years, attracting many newcomers to the industry at one point, but now this frenzy is clearly cooling off.

Looking back at 2021, veteran Memecoins like Dogecoin (DOGE) and Shiba Inu (SHIB) saw skyrocketing prices driven by figures like Musk, with market caps once reaching $800 billion and $390 billion, respectively. At the peak that year, Memecoins accounted for 12% of the entire altcoin market cap.

Subsequently, the Meme culture once again surged in 2023-2024, especially with the emergence of the Pump.fun platform on the Solana blockchain in early 2024. The platform, known for its zero-barrier token issuance, sparked a new wave of "Meme Coinage," leading to an unprecedented frenzy of Memecoins trading in the crypto space at that time. A large number of retail investors flooded into Solana in pursuit of the next opportunity for sudden wealth.

However, signs of decline after reaching its peak had already begun to surface. Despite platforms like Pump.fun creating legendary cases of turning a few dollars into millions, the vast majority of speculators could not avoid 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 downturn of Memecoins can be attributed to multiple factors. The uncertainty in the macro environment made speculative funds more cautious, the lack of regulatory constraints fostered rampant market manipulation and insider trading scandals, social media influencers and celebrities leveraging their influence to pump and then dump at the peak, insider trading running rampant, liquidity shortages, coupled with countless scams and rug pulls. Even the most risk-loving Degens could not help but feel exhausted by this.

Participants in the Meme sector have undergone structural changes. On the one hand, under compliance pressures, many early whales who played the role of market makers are now withdrawing from this gray area; on the other hand, aside from the insider whale manipulation, the market is mostly left with retail participants engaging in a zero-sum game with each other, turning Meme trading increasingly into a naked zero-sum player-versus-player (PVP) game.

The younger generation is eager to chase short-term speculative thrills, while the older generation aims to build a consensus culture through long-term holding. This lack of solid foundation in the PVP hype model has made it difficult for Memecoins to establish genuine community consensus. The price lacks fundamental support and experiences instant fluctuations, often resulting in FOMO buying during rallies and panic selling during dips. Without stable funds willing to participate in long-term development and major players reluctant to step in, a vicious cycle has formed.

Ratio of gains and losses for participants in Pumpfun, previously fluctuating around 7:3 (loss: gain), has now reached 6:4. However, both gains and losses are concentrated around ±$500, indicating that the wealth effect of Memecoins is fading, Source: DUNE

Consensus leads to price instability and capital flight, which in turn makes it difficult for market cap to grow. This "passing the buck" game is becoming increasingly bleak as the wealth effect fades.

Old memes have turned into trading tools, new memes have become the domain of small players, and cultural consensus has become an unrealistic presence. Various signs indicate that the Memecoin myth is gradually fading, and the market is beginning to shift its focus to new hot areas.

The New Arena of Degens

As the Meme frenzy gradually recedes, Degens have not stopped but have instead shifted their passion to the prediction market. If you often browse X, you may frequently come across some so-called "rug pulls," where they usually tell a story of how someone turned a small amount of money into a huge multiple. The background of these stories used to be Memecoins or DeFi arbitrage, but now it has switched to the prediction market.

Dopamine

David Sklansky, the originator of the Texas Hold'em math theory, once said in "The Theory of Poker" that "the essence of gambling is betting under information asymmetry." In other words, what a gambler needs is the perception of odds and information advantage, not absolute certainty of winning.

From this perspective, the prediction market provides a dopamine stimulus similar to trading Memecoins, but with a more transparent and fair mechanism. When you buy a betting contract for "Trump winning the election" or "Fed interest rate cut," the final outcome depends on the objective event result. There is no risk of the project team suddenly exit scamming, nor is there the artificial rug pull to zero, as the worst-case scenario is losing your bet by guessing wrong, rather than being unjustly harmed by insider manipulation as with some shitcoins.

This shift from "will the development team rug pull" to "will the event itself happen" represents a psychological gap in speculative behavior. Gamblers still engage in betting games, but the game is anchored to the outcome of the real world, providing a fundamental support of authenticity.

Polymarket's traders have reached 1.3 million people, while Kalshi, without publicly available user data, has already surpassed Polymarket in market share. The number of participants in the prediction market may have already reached millions of people, source: polymarketanalytics

Regulation

More importantly, regulatory trends have added a halo of legitimacy to the market prediction space. Many decentralized prediction platforms in the past have closed their doors to users from markets such as the United States due to policy risks, but now 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 U.S.-based, fully compliant operation prediction market exchange had previously been hindered by the CFTC for attempting to list contracts on the outcome of congressional elections. However, in September of that year, a federal court ruled in favor of Kalshi, determining that the regulatory agency did not have the 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. Seizing the opportunity, Kalshi made significant strides during the 2024 U.S. election. According to Reuters and other reports, on the night of the presidential election alone, the platform generated approximately $1 billion in trading volume. The annual transaction volume increased tenfold year-on-year to $1.97 billion. Leveraging its compliance advantage, Kalshi rapidly expanded its user base without geographic restrictions, helping it achieve a valuation of up to $1 billion in early 2025 in a new round of funding.

Meanwhile, the long-standing decentralized prediction market Polymarket is also seeking a path to compliance. The platform, which was fined $1.4 million by the CFTC in 2022 for non-compliance with U.S. regulations, had temporarily closed to U.S. users. However, with a more lenient regulatory environment under the Trump administration, Polymarket re-entered the U.S. market in 2025 through the acquisition of a licensed entity.

Wealth Effect

For profit-driven speculative funds, the reason why the prediction market can sustain its popularity after the Meme craze is also due to its wealth effect, as well as its diverse gameplay.

Firstly, in terms of potential returns, the rewards for correctly predicting a Black Swan event are not inferior to pumping meme coins. In the prediction market, if one bets on a low-probability event at very low odds early on, they can receive returns of several times or even tens of times after the event actually occurs. For example, before the 2024 U.S. election, many people bought contracts predicting a Trump victory as a hedge or speculation. It was reported that a high-net-worth individual wagered $30 million on a "Trump wins" contract and after Trump won the election, the trader made a profit of up to $85 million.

Of course, small players with limited funds can also choose to bet on long-tail event contracts with odds as high as tens of times to achieve a "small bet to win big money" outcome. 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 either provided or continue to offer leverage on contracts.

This model of integrating DeFi derivatives has expanded the profit space and provided a place for professional players who are good at capturing arbitrage opportunities, which also allows some DeFi players to participate in prediction markets more skillfully. They can search for odds discrepancies between different platforms for arbitrage, or hedge risks using derivatives. With the increasingly sophisticated array of data dashboards and copy-trading bots, the gameplay is much richer than just speculating on Memecoins or engaging in contract trading.

Distribution chart of players' returns in the prediction market over the past 6 months, with redder shades indicating higher ROI. The player in the bottom left corner earned nearly $60,000 with just $3.72, Source: hashdive

Low Education Cost

In addition to high-yield opportunities, "low education cost" is also an important reason why prediction markets attract funds.

Unlike Memecoins, which are limited to speculative trading of cryptocurrency projects, almost anything can be traded on prediction markets, covering various fields such as politics, economics, sports, entertainment, etc., catering to the "gambling enthusiasm" of different groups of people. Take Polymarket as an example. It features both serious macro topics (e.g., "Will Bitcoin reach a new all-time high before a certain date?" "Will the Fed cut interest rates at the next meeting?") and quirky topics with a strong network culture flavor (e.g., "Will a member of the A-list band Coldplay divorce by the end of the year?" "Will it be officially confirmed that aliens 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. This kind of entertainment participation lowers the threshold and increases the fun.

Prediction themes on Polymarket

In contrast, while Memecoins have the word "Meme" in their name, they are ultimately products of self-entertainment within the crypto community, often incomprehensible to those outside the circle in terms of their jokes and value. On the other hand, prediction markets bet on real-world events, which the public finds easier to understand and participate in.

Some people vividly describe that prediction markets have simply moved the behavior of offline horse and sports betting to the chain in a more openly transparent manner. Many regular investors who were originally puzzled by cryptocurrency tokens, once they see contracts related to news events on the platform, also become interested in betting and trying their luck.

In addition, some platforms (such as MYRIAD) have started to directly embed predictive behavior logic into social media or mobile apps through plugins or integrations, allowing users to easily participate in predictions while browsing Twitter or using apps, thereby increasing engagement. All of this makes the prediction market more hopeful in breaking through barriers and attracting long-tail users beyond traditional crypto assets like Bitcoin.

Prediction Market's Real-World Impact

Some perspectives also uphold the fairness and informational value of prediction markets. Due to the fact that contract settlement is based on objective facts, there is no room for manipulation in the market, making the outcomes relatively fair and transparent. In the Memecoins space, retail investors often worry about developer misconduct or whales dumping the market, but these are non-issues in prediction markets. Furthermore, participants with sharp informational awareness can profit by placing early bets, a process that, in turn, signals market prices and is seen as the original intent of designing a mechanism for "predicting the future with money."

For example, when the true probability of an event is underestimated, traders with insider information or professional insights will buy a large amount of the corresponding contract, driving up the price closer to a fair level. This arbitrage process corrects the mispricing. Research has shown that it is these rational arbitrageurs that often enable mature prediction markets to provide more accurate event probabilities than traditional polls, which are referenced by the media and institutions.

Of course, excessive speculation can also obscure information efficiency. If a large influx of uninformed, purely speculative funds enters, the contract price may deviate from the fair probability in the short term. However, in practice, as long as there are enough rational players, significant deviations are usually quickly corrected, and extreme prolonged mispricing is rare.

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

This packaging has been quite effective, with many VCs or government officials increasingly using prediction market data to support their viewpoints. In contrast to Memecoins, which give off a purely gambling impression, prediction markets are striving to create a more intellectually stimulating and valuable investment game atmosphere, thereby attracting a broader range of participants.

Dragonfly's partner Hasseb referenced Polymarket's prediction viewpoint in the discussion about USDH.

It is worth noting that the capital market is also chasing this new trend. In the past year, several prediction market platforms have received large funding rounds, leading to a rapid increase in valuation. Kalshi announced a $100 million funding round shortly after winning a lawsuit, pushing its post-money valuation to the $1 billion level. Polymarket also raised $200 million in early 2025, raising its valuation to around $20 billion.

A plethora of emerging startups are emerging, and capital interest in them is growing. In this race, from a $3 million investment in 2021 to institutional investment amounts now reaching $370 million.

Thomas Peterffy, the founder of the established internet broker Interactive Brokers, publicly predicted in a CNBC interview in November 2024 that the size of the prediction market might surpass the stock market in the next 15 years, as it uniquely prices various public expectations.

After the ebb and flow of the Memecoin craze, the prediction market may be poised to take over as the arena for a new round of speculative capital competition.

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