Is the Price Right? Prediction Markets Seem to Think So

The future of prediction markets will hinge on innovative front-ends and user experiences

Dec 03, 2025

We recently returned from a week in Buenos Aires, Argentina, for Ethereum’s developer conference Devconnect. Despite the recent crypto market headwinds, we felt encouraged by the continued energy from developers (and copious amounts of steak in Argentina’s summer). Privacy was a huge theme during the conference with Vitalik Buterin, Founder of Ethereum, recently announcing a new privacy-focused framework for Ethereum called Kohaku and Zcash’s recent resurgence from its price appreciation of as much as 10x during the past two months. While it took nearly 22 hours to get to Buenos Aires from Los Angeles, the trip was worth every mile.

In last month’s newsletter, we discussed the recent AWS outage in late October that lasted 15 hours, which demonstrates the need for decentralized infrastructure. And then just two weeks ago, Cloudflare experienced an outage lasting approximately 3.5 hours, which took much of the internet offline. Web2 is more fragile than we think, and we are dependent on it.

Convergence is brought to you by 321 Converge Inc. (“321”), a new 501c6 created by the founders of The Medici Network.

Integrations We Want To See 🔮

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Sparks ✨

Quick, curated Web2 and Web3 insights you need to know

Referenced in Spark #3 (below): The Privacy Manifesto

#1 Netscape and Microsoft Redux

Author: AVC: musings of a VC blog by Fred Wilson (Co-Founder of Union Square Ventures)

TLDR:

The original Netscape browser defined the web era but was ultimately defeated by Microsoft’s bundling of Internet Explorer. However, the true winner of the internet was Google, because of its search engine
The AI battle echoes this history - ChatGPT had the “Netscape moment,” and Google has countered by catching up with its release of Gemini 3 and aggressively bundling its AI across all consumer surfaces
A question remains: what will search engines be in an AI world?

Our Takeaway:

The model layer will eventually be commoditized. In our view, the winning layer will be personalized AI agents that leverage user data to build proprietary context and bespoke knowledge
Control over a personalized knowledge graph of users’ intent, data, and relationships is the ultimate prize. This is why Google introduced advertising and monopolized the search engine space
We’ll eventually have an economy full of specialized agents to unbundle the application stack by using autonomous workers to replace them

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#2 2025 On-Chain Revenue Report

Authors: 1kx

TLDR:

On-chain activity has significantly matured, and fees in 2025 are expected to reach $20B
Fees today are primarily driven by financial apps, but are quickly expanding into other types in Decentralized Physical Infrastructure Networks (DePIN), wallets, and consumer apps
While the top 20 protocols account for 70% of on-chain fees, innovators can still disrupt incumbents. Don’t be afraid to vampire attack, lure users over from other platforms (remember what Sushi Swap did to Uniswap?)

Our Takeaway:

On-chain revenue is highly susceptible to narrative momentum. Fees will flow to the “new shiny object” in select periods
The blockchain layer has largely been commoditized. Apps have been dominating revenue share over blockchains over the past two years. Value accrual will increasingly shift more to apps
Next big flip will be when AI agents transform DeFi apps into core infrastructure to enable an automated, machine-to-machine economy on blockchain rails

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#3 The Privacy Manifesto

Authors: Zachary Williamson (Co-Founder and CTO of Aztec)

TLDR:

Incentives of the existing internet are cursed from advertising and we need new technology to create new, better incentives
Two enabling technologies that provide a solution to rebuilding the internet are zero-knowledge (ZK) cryptography and blockchains
As a user, you have a choice between using products and services that milk you for information or using alternatives that protect your data and respect your dignity
Privacy blockchains allow users to transact freely without sacrificing user data to centralized authorities

Our Takeaway:

We get access to free services on the internet, but the price is the surrender of ownership over our own digital identity and attention. As cryptography like ZK becomes cheaper and more efficient, privacy will become the path of least resistance and flip to becoming a default platform utility
Platforms that grant users the ability to have genuine control and ownership over their data will be the winners — users can demand better value, services, and compensation
Blockchains provide global accessibility to products without requiring users to give up their private data to participate. This is how Polymarket was able to outcompete Kalshi in prediction markets, despite Kalshi being earlier to market
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Featured insight breaking down a major story or trend that matters

A Momentarily Comprehensive Guide to Prediction Markets

Authors: Will Ventures

TLDR:

There is misalignment between the media portrayal of prediction markets and Polymarket / Kalshi investors’ views on the industry. The media sees prediction markets as a looming threat to the sports betting industry, but investors are not primarily focused on sports betting, despite media depictions. The grand ambition of prediction markets is to establish a new, massive financial asset class. The comps are not sportsbooks with $10-40B market caps. They’re financial exchanges with $50-150B market caps, such as Intercontinental Exchange, CME Group, and Binance.

The sudden explosion of prediction markets is driven less by new technology than by regulatory tailwinds (and by arbitrage enabled by blockchains). The political environment has turned favorable as the CFTC views prediction markets’ event contracts as federally regulated financial instruments rather than state-regulated gambling.

However, prediction markets are still far away from perfection. There are risks that could trigger political blowback, including insider trading, market manipulation on lower liquidity markets, and the societal and public health implications of gambling addictions.

Our Takeaway:

Prediction markets will likely follow a winner-take-most market dynamic, similar to the traditional sports betting industry. Success will be determined by companies that can leverage large marketing budgets for customer acquisition and retention. Cash is king.

The current duopoly of Polymarket and Kalshi is now under direct threat from platforms that already command massive user distribution. Robinhood is the perfect example, recently announcing its own prediction market product in a JV with Susquehanna, despite also being a key distribution partner for Kalshi this year. Could the future market leadership instead be a duopoly between Polymarket and a distribution behemoth like Robinhood?

Digging deeper into specific markets, we believe focusing solely on sports is a distraction that misses the transformative potential of prediction markets. Sure, there are some easy customer acquisition strategies missing, such as promos, parlays, and player props. But providing prediction markets on sports offers a minimal net-new user experience compared to a traditional sportsbook. The true vision is far broader, with prediction markets becoming the source of truth for real-time news, trends, and future events. Imagine a future where any company can monetize its domain knowledge by using prediction markets to expand revenue streams and hedge business risks.

As prediction markets evolve and go into their next phase of growth, they should all use (i) stablecoins to facilitate global access and ensure instant settlement of trades / winnings, and (ii) blockchains. The trustless, decentralized, and open nature of blockchains allows any developer to build engaging user experiences on top of the base market infrastructure without the risk of being shut down.

While the underlying settlement layer will be dominated by Polymarket, Kalshi, Robinhood, or another existing distribution giant, a new class of companies will emerge to create differentiated user experiences on top of the underlying infrastructure. Think of them as the next generation of financial, social, and news platforms: news aggregators (e.g., Fireplace), social trading platforms on IG/X (e.g., Kash, Flipr), games (e.g. Upshot), specialized trading terminals.

Power Quote:

You could even imagine Kalshi or Polymarket becoming a “dictionary word company.” Just like you’d Google Taylor Swift’s tour dates, you’d check the Kalshi of when she’ll release her next album.

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