How the prediction market will become the next layer of infrastructure for derivatives and insurance

Source: Yellow Original Title: How Prediction Markets Are Becoming the Next Layer of Derivatives and Insurance

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Prediction Markets Are Becoming Mainstream Financial Infrastructure

Prediction markets are surpassing niche speculation and entering the core of financial market structure. As major exchanges, crypto platforms, and regulators converge in this category, it now boasts over $600 million in active trading volume.

According to Delphi Digital’s analysis, the next phase of prediction markets will no longer be dominated by betting activities but will instead serve more as simplified derivatives, on-chain insurance mechanisms, and governance tools.

With traditional financial participants entering alongside crypto-native platforms that control global liquidity, this shift is underway.

Institutional Entry Marks a Structural Shift

The most significant development is the coordinated entry of traditional financial platforms.

CME Group has announced plans to list sports-related prediction products, while a compliance platform is preparing its own prediction market products.

A leading brokerage has also entered this category through the acquisition of MIAXdx, enabling it to internalize the market and reduce reliance on external exchanges.

These initiatives indicate that prediction markets are being reclassified from fringe products to regulated tools for expressing and hedging risk.

Market participants increasingly describe binary contracts as simplified options trading, offering volatility exposure without the complexity of traditional derivatives.

Competition Intensifies Between Polymarket and Kalshi

The current market centers around two dominant platforms with distinct strategies.

Polymarket aims to combine crypto-native liquidity with U.S. regulatory legitimacy, including plans to relaunch through a CFTC-licensed exchange.

The platform is also expanding to the mass market through partnerships with sports leagues and media.

Kalshi leverages its regulatory advantages. After securing $300 million in funding, Kalshi is expanding to over 100 countries and integrating with on-chain ecosystems, rather than directly competing with decentralized finance.

Its strategic focus is on deep order books and market access that is compliant from the outset.

Prediction Markets as Financial Infrastructure

Delphi’s analysis suggests that the real opportunities go far beyond consumer-facing platforms.

Dedicated markets are emerging to hedge risks in decentralized finance, such as stablecoin decoupling or liquidity shocks, effectively creating a permissionless on-chain insurance layer.

At the same time, prediction markets are fragmenting into analysis tools, aggregators, and automated trading systems.

AI-driven agents are increasingly expected to dominate arbitrage and liquidity provision, reducing human traders’ advantages and pushing innovation toward new market designs.

These include impact markets that measure consequences rather than probabilities, sentiment markets that gauge opinions, and governance systems that use market signals to guide decisions.

As liquidity deepens and institutional participation increases, prediction markets are evolving into the foundational layer for pricing uncertainty in finance, governance, and coordination.

Starting from initial betting infrastructure, they are now positioned as the core component of next-generation digital markets.