The History of Prediction Markets: From Iowa to Kalshi

Prediction markets, once a quiet academic experiment on a single university campus, have grown into a multi-billion-dollar global industry that routinely outperforms pundits and polls. The story of how we got from a classroom in Iowa City to CFTC-regulated event contracts on Kalshi runs through economists, entrepreneurs, legal fights, and a persistent belief that market prices contain information nothing else can match. This is the complete history, from the first regulated exchange in 1988 through the Intrade boom and collapse, the PredictIt experiment, the decentralized blockchain era, and the mainstream breakthrough of today.

1988: The Iowa Electronic Markets Begin It All

The modern prediction market was born in June 1988 at the University of Iowa’s Tippie College of Business. Professors Robert Forsythe, Forrest Nelson, George Neumann, and Jack Wright launched what would become the Iowa Electronic Markets (IEM), initially called the Iowa Political Stock Market, to let students trade contracts on the outcome of the Bush-Dukakis presidential race.

IEM ran under a no-action letter from the Commodity Futures Trading Commission (CFTC), which permitted small-stakes trading (contracts capped at $500 per trader) for academic research purposes. What the Iowa researchers quickly discovered became one of the most cited findings in forecasting history: the market, with no polling apparatus and no media bureau, consistently beat the Gallup Poll in predicting the final popular vote margin, often by multiple percentage points. IEM still runs today and remains the oldest continuously operating prediction market in the world.

1996 to 2003: The First Wave of Commercial Experiments

By the mid-1990s, the idea had jumped from academia to commerce. In 1996, the Hollywood Stock Exchange (HSX) launched as a play-money market where users traded shares in movies and box-office outcomes. HSX became famous for its uncanny accuracy at predicting Oscar winners and opening weekends, and the data it generated was eventually licensed to film studios. NewsFutures, Foresight Exchange, and others followed, establishing the pattern: aggregated trader opinion, expressed as prices, was a serious information source.

2003 to 2013: The Rise and Fall of Intrade

If one platform defined the first mass-market era of prediction markets, it was Intrade. Launched in Dublin, Ireland in 2003 by John Delaney and growing out of the earlier TradeSports exchange, Intrade let anyone in the world put real money on binary outcomes: Will the Pope visit the United States? Will Osama bin Laden be captured by year end? Will the Dow close above 10,000?

Intrade became a staple of political reporting during the 2004, 2008, and 2012 US presidential elections. Journalists cited its Obama contract the way they would later cite polling averages. At its peak, Intrade handled millions of dollars in volume on major political events.

The collapse was swift. In November 2012, the CFTC sued Intrade for offering commodity option contracts to US customers without registration. Intrade blocked American traders, lost most of its liquidity, and in March 2013, founder John Delaney died while climbing Mount Everest. The platform suspended trading shortly after and never recovered. For nearly a decade, US prediction markets effectively did not exist in regulated form.

2014 to 2020: PredictIt, Augur, and the Decentralized Experiment

The vacuum did not last long. In 2014, PredictIt launched under a CFTC no-action letter granted to Victoria University of Wellington in New Zealand. Treated as an academic research project, PredictIt capped positions at $850 and limited the number of traders per market, but it quickly became the de facto home of US political prediction trading. For most of the Trump era, PredictIt odds were the numbers quoted on cable news and in Twitter arguments.

At the same time, Augur launched on Ethereum in 2018, promising decentralized, censorship-resistant prediction markets secured by smart contracts and resolved by token-holder voting. The vision was powerful, but liquidity remained thin and most markets attracted few traders.

In August 2022, the CFTC withdrew PredictIt’s no-action letter, citing non-compliance. A protracted legal fight followed, and PredictIt continued in a legal gray zone while the industry waited for a successor.

2020 to 2024: Polymarket and the Blockchain Breakthrough

Shayne Coplan founded Polymarket in 2020, building on the lessons of Augur but with a sharper focus on usability. Polymarket ran on the Polygon network, settled trades in USDC stablecoin, and offered a clean trading interface that felt more like a modern exchange than a crypto experiment. It also offered something earlier platforms could not: deep liquidity on a growing number of global events.

In January 2022, Polymarket settled with the CFTC for $1.4 million and agreed to block US customers. The platform continued serving international traders and quickly became the largest prediction market in the world by volume. The 2024 US presidential election drove explosive growth: Polymarket processed billions of dollars in volume on the Trump-Harris matchup, and its odds were covered by every major news outlet.

2021 to 2026: Kalshi and the Regulated Future

While Polymarket grew offshore, Tarek Mansour and Luana Lopes Lara pursued a different strategy. Their company, Kalshi, spent years in direct dialogue with the CFTC and became the first federally regulated event-contracts exchange in US history when it received approval in November 2020 and launched trading in July 2021. Kalshi was legal, licensed, and open to American traders from day one.

The decisive moment came in September 2024, when a federal court ruled against the CFTC’s attempt to block Kalshi from offering political control contracts, including markets on which party would hold the US House and Senate. Kalshi launched those contracts in October 2024, and the floodgates opened. By late 2026, Kalshi offers event contracts on elections, economic indicators, Federal Reserve decisions, sports, weather, and entertainment, with volumes that rival Polymarket on US-centric events.

Why This History Matters for Traders Today

The arc from Iowa to Kalshi tells you something important as a trader: prediction markets have been accurate for almost four decades, but they have only recently become accessible, liquid, and legal in the United States. Three practical takeaways follow.

• Regulation is now a feature, not a bug. Kalshi’s CFTC oversight means tax reporting is clean, deposits are protected, and the exchange cannot vanish overnight the way Intrade did.
• Liquidity has reached critical mass. On any given day, Polymarket and Kalshi together host tens of millions in volume across thousands of contracts, which means tight spreads and real edge for informed traders.
• The accuracy edge is real and persistent. Every academic study since the IEM has confirmed that prediction market prices beat polls, pundits, and expert forecasts across political, economic, and sports domains.

Where to Trade Today

If you want to put the lessons of this history into practice, two platforms stand above the rest in 2026. Kalshi is the clear choice for US traders who want regulated, tax-friendly event contracts with federally licensed infrastructure. Polymarket is the global leader by volume and the first stop for crypto-native traders and anyone outside the United States.

For a side-by-side breakdown of fees and markets across every major platform, see our full rankings at PredictWire’s Best Prediction Markets. The forty-year experiment that started in Iowa has finally become the mainstream market layer its founders imagined.