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While the battle between meme launch platforms like Pumpfun and Bonk is in full swing, another market for Degens is starting to gain popularity in the space like Memecoin in '23. The prediction market has grabbed the throat of the memecoins market with one hand. John Wang, who just joined Kalshi as head of cryptocurrency last month, recently released a set of data showing that the prediction market has now reached 38% of the total market volume of Solana Memecoins. And after John tripled Kalshi's trading volume in less than a month after joining it, the overall trading volume of the prediction market also reached the level on the eve of the October election last year. Another set of data is quite striking, the number of unique addresses on Memecoins has fallen from its peak in December last year, and the number of transactions has been less than 10% of its peak. Left: Weekly trading volume in the forecast market, Right: Number of traders on Solana DEX, Source: DUNE Is the era of Memecoins really coming to an end? Will the volume of the prediction market reach more than 10 times the size of the memecoins market as John said? The decline of the memecoins craze It has to be said that memecoins in the crypto market have created many wealth-making myths in recent years and attracted many newcomers to join the industry for a while, but now this frenzy is cooling significantly. Looking back at 2021, established memecoins such as Dogecoin (DOGE) and Shiba Inu (SHIB) soared in price boosted by topics such as Musk, with market capitalizations reaching as high as $80 billion and $39 billion at one point, and the market capitalization of memecoins accounted for the entire altcoin market, peaking at 12% that year. Since then, meme culture has set off another wave in 2023-2024, especially with the emergence of the Pump.fun platform on the Solana chain in early 2024, and the zero-threshold issuance of tokens triggered a new round of "Meme minting" movement, which triggered an unprecedented explosion of memecoins trading in the crypto field at that time, and a large number of retail investors flocked to Solana to chase the next opportunity to get rich. However, signs of prosperity and decline have begun to appear. Although platforms like Pump.fun have created legendary cases of turning a few dollars into millions, the vast majority of speculators are not immune to losses. According to statistics, nearly 99% of newly issued memecoins eventually return to zero, and Solana's transaction fee income has also dropped by more than 90%. Solana transaction fee income, source: Defillama The decline of memecoins can actually be attributed to multiple factors. The uncertainty of the macro environment has made speculative funds cautious, the lack of regulatory constraints has given rise to bookmaker reckless harvesting and insider trading scandals, and the leek cutting drama of social media giants and celebrities using their influence to hype up and sell at a high level has repeatedly staged (even the president) Insider trading, lack of liquidity, and thousands of scams and rug pulls, even the most gambling Degen is tired of. The participants in the meme sector have changed structurally. On the one hand, under the pressure of compliance, many large investors who acted as bookmakers in the early days are withdrawing from this gray area; On the other hand, in addition to the inside story of whale trading, most of the remaining small and medium-sized retail investors in the market are playing games with each other, and meme trading has increasingly evolved into a naked zero-sum PVP. P will be happy to chase the pleasure of short-term games, and hold it for a long time to create a consensus culture. This lack of precipitation PVP hype model makes it difficult for Memecoins to form a true community consensus, and the price rises and falls instantly without fundamental support, often resulting in a rush when it rises and a scattering of birds and beasts when it falls. Without stable funds willing to participate in long-term construction, it is even more impossible for large funds to enter the market to take over, forming a vicious circle. The ratio of profit to loss for players participating in pumpfun, the ratio of (loss: money) previously fluctuated around 7:3, and now it has reached 6:4, but the range of profit and loss is almost concentrated in +-500 US dollars, and the wealth effect of Memecoins is disappearing, source: DUNE Consensus leads to price instability and capital avoidance, which in turn makes it difficult to increase market capitalization. This kind of "drumming and passing flowers" game is becoming more and more deserted as the wealth effect fades. Old memes have become swing tools, new memes have become the world of P young generals, and cultural consensus has become an impractical existence. There are signs that the memecoins myth is fading and the market is starting to set its sights on new hot areas. Degen's new arena As the meme frenzy faded, Degen didn't stop but shifted his enthusiasm to the prediction market. If you frequently scroll through X, you may often see some so-called "biographies", which usually tell the story of how a person can earn super high multiples with very little money. dopamine David Sklansky, the founder of Texas Hold'em Mathematical Theory, said in Poker Theory that "the essence of gambling is betting under information asymmetry", in other words, gamblers need to perceive odds and information advantages, not absolute wins. From this perspective, the prediction market provides a dopamine stimulus similar to speculating on Memecoins, but with a more transparent and fair mechanism. When you buy a bet on "Trump wins the election" or "Fed cuts interest rates", the final win or loss depends on the outcome of the objective event. There is no risk of the project team suddenly running away, and there is no "carpet pulling" of artificially smashing the market to zero, and the worst result is nothing more than gambling in the wrong direction and losing all your money, rather than suffering for no reason under insider manipulation like some air coins. This psychological gap from "whether the development team will run away" to "whether the event itself will happen", and the pattern of speculative behavior has "escalated". Gamblers are still betting on the game, but the game anchors the real-world outcome and is supported by basic authenticity. Polymarket has reached 1.3 million traders, while Kalshi has no public user profile, but its market share has surpassed Polymarket. The number of participants in the prediction market may have reached millions, source: PolyMarketAnalytics Supervision What's more, regulatory movements add an aura of legitimacy to prediction markets. In the past, many decentralized prediction platforms closed their doors to users in 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. The US-based prediction market exchange that operates fully compliantly was previously blocked by the CFTC for trying to launch congressional election results contracts, but in September of that year, a federal court reportedly ruled in favor of Kalshi, finding that regulators did not have the power to ban such political event contracts. This ruling clears the way for Kalshi to operate across the United States, making it the first truly licensed prediction market platform in the United States. Kalshi jumped at the opportunity to make a big splash during the 2024 U.S. election. According to Reuters and other sources, the platform generated about $1 billion in trading volume on presidential election night alone, and the annual trading volume soared tenfold year-on-year to $1.97 billion. With its compliance advantages, Kalshi has been able to quickly expand its territory and engage users regardless of geography, which has helped it secure a valuation of up to $1 billion in a new funding round in early 2025. At the same time, Polymarket, an established decentralized prediction market, is also looking for a way out of compliance. The platform was fined $1.4 million by the CFTC in 2022 for failing to comply with U.S. regulations in its early years, and was shut down for U.S. users. However, after the Trump administration took office, the US regulatory environment has loosened, and Polymarket will re-enter the US market in 2025 by acquiring licensed entities. Wealth effect For profit-seeking speculative funds, the reason why the prediction market can undertake the popularity after the ebb of Meme is that it also has a wealth effect and has more diverse gameplay. First of all, in terms of potential returns, the return of betting on the black swan event is not inferior to that of hype altcoins. In prediction markets, if you bet on a small probability event with very low odds in the early stage, you can get several times or even dozens of times the return if it actually happens afterwards. For example, before the 2024 U.S. election, many people bought contracts for Trump's victory as a hedge or speculation. According to reports, a large investor invested $30 million to buy a bullish share of "Trump was elected", and as a result, the trader made a profit of up to $85 million after Trump successfully won the election. Of course, small money players can also choose to gamble on long-tail event contracts with odds of up to tens of times to achieve "small bets win big money". It is worth mentioning that decentralized prediction markets with binary options as the core have also begun to introduce contract leverage tools to further amplify returns. Platforms such as Azuro, D 8 X, and Drift have or still offer futures leverage. This model that integrates DeFi derivatives broadens the profit margin and provides a place for professional players who are good at capturing arbitrage opportunities, which also makes it convenient for some DeFi players to participate in prediction markets. They can look for odds bias arbitrage between different platforms, or use derivatives to hedge risks, plus the increasingly sophisticated various data dashboards and copy trading bots, which are much richer than simply speculating on memecoins or simply trading contracts. The distribution table of earning players who predict the market in the past 6 months, the redder it is, the higher the ROI, and a player in the lower left corner earned nearly $60,000 with $3.72, source: hashdive Low cost of education In addition to high-yield opportunities, the "low cost of education" is also one of the important reasons why the forecast market attracts funds. Unlike memecoins, which are limited to speculating on crypto projects, the tradable targets in the prediction market cover almost everything, covering various fields such as politics, economics, sports, entertainment, etc., satisfying the "gambling interest" of different groups of people. Taking Polymarket as an example, there are both serious macro topics (such as "Will Bitcoin break a record high before a certain date" and "Will the Fed cut interest rates at its next meeting") to curious topics full of online culture (such as "Will the members of the first-line boy band Coldplay divorce before the end of the year?"). "Will the existence of aliens be officially confirmed in 2025?" ）。 Many seemingly absurd hot topics have corresponding markets on the platform, which actually incorporates meme culture into predictive trading. Users can bet on popular memes, celebrity topics, etc., and this entertaining participation lowers the threshold and increases the fun. Prediction topics for Polymarket In contrast, Memecoins, although their names have "Meme", are ultimately the product of self-entertainment within the crypto circle, and it is often difficult for outsiders to understand their memes and value. Prediction markets bet on real-world events, making it easier for the public to understand and participate. Some people vividly say that the prediction market has only moved the original offline betting on horses and balls to the chain and carried out in a more open and transparent way. Many ordinary investors who were originally confused about crypto tokens will also be interested in betting to test the waters once they see contracts related to news events on the platform. In addition, some platforms (MYRIAD, etc.) have begun to directly embed predictive behavior logic into social media or mobile apps through plugins or embedded apps, allowing users to easily participate in quizzes when swiping Twitter or opening apps, increasing participation. All of this makes prediction markets more likely to break out of the circle and attract long-tail users outside of traditional crypto assets like Bitcoin. Predict the reverse impact of the market on the real world The fairness and informational value of prediction markets are also celebrated by some views. Since the final settlement of the contract is based on objective facts, there is no room for artificial fraud in the market, so the results are relatively fair and transparent. In the Memecoins space, retail investors often worry about the development team doing bad or the market maker crashing, but these are not a problem in prediction markets. At the same time, highly informed participants can profit by placing bets early, which in turn provides signals to market prices, which is seen as the original intention of the mechanism of "predicting the future with money". For example, when the true probability of an event is underestimated, a trader with insider information or professional insights will buy a large number of the contract, pushing the price closer to a reasonable level, which is a profitable process that corrects false odds. Some studies have pointed out that it is precisely by relying on these rational arbitrageurs that mature prediction markets can often give more accurate event probabilities than polls, which are referred to by the media and institutions. Of course, excessive speculation can also mask the validity of information. If a large amount of uninformed speculative funds pour in, it may deviate the contract price from a reasonable probability in the short term. However, practice shows that as long as there are enough rational players, obvious deviations are usually corrected quickly, and extremely persistent miscalculations are rare. Overall, prediction markets have unique value in aggregating public opinion and information, and the more diverse and informative the participants they attract, the more informative the results will be. This model of "speculation and prediction" has even been recognized by some mainstream people. Since prediction markets emphasize information and judgment-based trading, many proponents avoid using the term "gambling" and instead refer to the concept of "information market" to increase their social acceptance. This packaging has been quite effective, as many VCs and government officials are increasingly using prediction market data as a basis for sharing their opinions. Compared to memecoins that give the impression of "pure gambling", prediction markets are trying to create a higher intelligence and more rewarding investment game atmosphere to attract a wider range of participants. Hasseb, a partner at dragonfly, cited Polymarket's forecast views in his discussion on USDH It is worth noting that the capital market is also chasing this new outlet. Since last year, a number of prediction market platforms have received large amounts of financing, and valuations have risen rapidly. Kalshi announced the completion of a $100 million funding round shortly after winning the lawsuit, with a post-investment valuation of $1 billion. Polymarket also raised $200 million in early 2025, raising its valuation to around $2 billion. Emerging entrepreneurial projects are emerging one after another, and capital interest in them is also increasing. From only $3 million in investment in 2021 to $370 million in institutional investment in this track. In an interview with CNBC in November 2024, Thomas Peterffy, founder of veteran internet brokerage Interactive Brokers, publicly predicted that the size of the prediction market over the next 15 years could catch up with the stock market because it uniquely prices various public expectations. After the ebb and flow of the memecoin craze, the prediction market may be taking over as an arena for a new round of speculative capital competition.