Layer One: Prediction markets primed for growth in 2026, despite regulatory scrutiny

Welcome to Layer One: the newsletter and podcast on the intersection of crypto and the real world. Hosted by Steven Gates and Kelvin Sparks, Layer One brings you inside the conversations driving blockchain forward.

Last time on the podcast, we were joined by Jason DeSimone, CEO of SocialFi platform The Arena, to discuss the state of the Web3 creator economy and how AI agents may become the leading KOLs of the future. In this edition of the Layer One newsletter, we're taking a closer look at the AI agent trend, to ask whether the onchain future really does belong to the machines.

Insider trading allegations prompt prediction market legislation

It’s the start of a new year, which means that crypto Twitter is abuzz with crypto industry predictions for the months ahead. KOLs, VCs and journalists are all locking in their forecasts on the trending narratives and major milestones to come.

Last week, The Block’s research team published their own predictions for the year, and one major theme featured in the responses from almost all nine contributors: prediction markets themselves. Namely, the continued meteoric growth of prediction platforms Polymarket and Kalshi.

Both platforms saw explosive growth through 2025, building upon the momentum generated during the previous year’s US presidential election. That one event alone saw Polymarket users staking upwards of $3.3 billion on the result. Since then, Kalshi and Polymarket have processed a combined $44 billion in volume from millions of registered users.

During that time, the platforms expanded their coverage across sports, politics, finance, media and more. Essentially, any future event — a soccer match in Europe, an election in Subsaharan Africa, a military coup in South America — can be turned into a market with freely tradeable shares. It’s a gamification of politics and culture, which boils an increasingly unpredictable world down into thousands of simple “A or B” choices.

Following the massive adoption these two platforms have seen over the past year, several major centralized exchanges are moving to launch their own versions. Gemini, Coinbase and Crypto.com are all looking to challenge the dominance of the two established giants.

The incentive to launch a native prediction markets platform extends beyond generating fees. As their usage metrics have increased, Kalshi and Polymarket have grown into rich sources of data on public sentiment and belief. These platforms have essentially become crowdsourced statistics engines which can react to world events in real time: What psychologist Ian MacRae called “public sensors for what humanity collectively knows (or thinks it knows).”

That’s why, towards the end of last year, Kalshi secured a partnership with CNN to integrate its prediction market data into the network’s news programming. The month prior, Polymarket likewise celebrated integrations with both Yahoo Finance and Google Finance. The data offered by these platforms is of growing value to legacy media and finance, as their market-based model has proven to be consistently more accurate than traditional opinion polls when predicting future events.

However, it seems not all users are operating on their best guess alone. After the capture of Venezuelan president Nicolás Maduro last week, Polymarket users reported suspicious activity from a single new account, which bought a reported $32,500 in shares predicting that the Venezuelan dictator would be toppled before the end of the month. The bet was placed just hours before the military operation unfolded, and within less than 24 hours had netted the individual over $400,000. Allegations of insider trading ensued.

In direct response, New York congressman Rep. Ritchie Torres has moved to fast track legislation which will extend bans on insider trading to prediction market participation. This comes at a pivotal time for US policymakers, with Democrats in Congress likewise pushing for key conflict-of-interest clauses to be added to the crypto market structure bill — a sticking point which analysts at investment bank TD Cowen warned could push the bill’s approval back to 2027.

Regardless of whether individual markets are driven by insider knowledge or aggregated public opinion, reading the geopolitical tea leaves on the Polymarket homepage suggests investors are preparing for another turbulent year ahead. In the days since the US military action in Venezuela, the platform has reported a spike in the odds of the US acquiring Greenland before 2027 (up to 16%), while its odds on Iran’s Supreme Leader losing power before June 30 have almost doubled (up to 36%).

Podcast Recap: How Arena outlasted rivals and built a real social crypto app

In the latest edition of the Layer One podcast. We were joined by Jason DeSimone, CEO of next-gen social media platform The Arena, to discuss the future of the creator economy and how he turned a struggling project into one of the longest-surviving social apps in Web3.

Subscribe to Layer One on Youtube, Apple, Spotify or wherever you get your podcasts.

In the Headlines: The stories driving the conversation this week

• Polymarket is expanding its coverage to real estate markets through a partnership with Parcl Labs. With data feeds provided by the real estate analytics platform, Polymarket users will be able to speculate on the price movement of real estate indices for housing markets across the US. The company plans to roll out these new prediction markets for a select few US cities at first, then gradually expand across the country in phases. 
• Grayscale has become the third issuer to add staking rewards to its AVAX ETF filing. The updated proposal follows in the footsteps of BitWise and Van Eck, both of whom added staking rewards to their Avalanche ETF S-1 proposals. As previously reported in the Layer One newsletter, the first AVAX spot ETFs are expected to hit the market as early as Q1 this year.
• US lawmakers are pushing ahead with a vote on the draft crypto market structure bill in January. Senate Banking Committee Chair Tim Scott is reportedly aiming for a January 15 deadline for an initial markup on the bill. This comes despite continuing disagreement over amendments to address conflict-of-interest issues. Such amendments would theoretically interfere with President Trump's own highly profitable crypto ventures, which have earned him a reported $620 million. 

Top of the Charts: Politics and sports lead in Polymarket volume

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