Written by: Jake Nyquist
Compiled by: Blockchain Knight
In 2026, major institutions are launching new prediction markets.
From the fierce competition between NFTs and perpetual contract exchanges over the past five years, we have learned that differentiated products can quickly capture market share.
Although existing leading platforms enjoy liquidity and regulatory advantages, they are burdened with heavy technical debt in their products, making it difficult to respond flexibly to challenges from new entrants.
So how should new entrants compete? In my view, differentiated competition in prediction markets revolves around seven core dimensions:
1. Product Quality
Founding teams can create differentiation in dimensions such as front-end user experience, API stability, development documentation, market structure, and fee mechanisms.
Currently, most established platforms have obvious shortcomings: unreasonable tier settings, opaque fee rules, slow and unstable APIs, and limited order types.
A high-quality product experience, especially services for API-driven programmatic traders, is itself a lasting core advantage, allowing a platform to hold its ground even against competitors with stronger distribution channels.
2. Asset Categories and Market Selection
Currently, trading volume in prediction markets is mainly concentrated in sports betting and crypto-native markets.
New exchanges can list exclusive markets unavailable on other platforms. This advantage is further amplified when paired with a vertical strategy (point 7).
3. Capital Efficiency
Capital efficiency determines how effectively traders can use their collateral. Currently, there are two key levers:
First, yield-bearing collateral: Instead of letting idle funds earn only treasury yields, provide higher returns, similar to Lighter supporting LP deposits as collateral or HyENA's USDE-margined perpetual contract model.
Second, margin mechanisms. Due to gap risk, the market generally underestimates the value of leverage in prediction markets. However, platforms can offer limited leverage for continuous markets or implement portfolio margin for hedging positions.
Exchanges can also subsidize lending pools or act as market-making counterparties to internalize gap risk, rather than having users share the losses.
4. Oracles and Market Settlement
Oracle reliability remains a systemic industry weakness. Settlement delays and incorrect results significantly amplify trading risks.
Beyond improving stability, platforms can implement innovative oracle mechanisms: human-machine hybrid systems, zero-knowledge proof-based solutions, AI-driven oracles like those from context, etc., unlocking new markets that traditional oracles cannot support.
5. Liquidity Provision
Exchange survival depends on liquidity. Feasible paths include: paying to onboard professional market makers, using tokens to incentivize ordinary users to provide liquidity, and adopting Hyperliquid's HLP aggregated liquidity model.
Some platforms can also fully internalize liquidity, following the model of FTX which relied on Alameda as an internal trading team.
6. Regulatory Compliance
Kalshi, with its US regulatory license, has achieved embedded distribution through Robinhood and Coinbase, capturing retail traffic that Polymarket cannot reach.
There are still numerous jurisdictions and regulatory frameworks available for expansion. Compliant prediction markets can unlock similar distribution channels, for example, by adapting to US state-level gambling regulations.
7. Vertical Strategy vs. Horizontal Strategy
Horizontal Strategy: Similar to Hyperliquid in the perpetuals space, focusing on building top-tier underlying trading infrastructure, inviting third parties to build front-ends and vertical applications, and encouraging ecosystem builders to add markets and develop revenue-generating front-ends (like phantom) through proposals.
Vertical Strategy: Exemplified by Lighter, which controls the front-end itself, launches mobile apps, and creates a full-funnel user experience, emphasizing integrated experience and direct user connection.
Polymarket's resistance to deeply embedded partnerships versus Kalshi's openness is a clear reflection of these two strategic choices.
