Prediction markets did not begin with Kalshi or Polymarket. They began in 1988, in a basement at the University of Iowa, with a small group of economists who wanted to test whether a market of traders could forecast an election more accurately than the pollsters. The answer, over nearly four decades, has been a consistent yes. This is the story of how prediction markets evolved from an academic experiment into a multi-billion-dollar industry at the center of American political, economic, and sports forecasting.
Before Iowa: The Forgotten Era of Election Betting
While the modern prediction market is often described as a product of the digital age, large-scale political wagering is older than the Federal Reserve. From the 1860s through the 1930s, Wall Street curb traders ran active markets on US presidential elections. In many years, the dollar volume on election outcomes exceeded trading in major stocks. Newspapers printed the odds the way they print polls today.
These markets quietly outperformed every other forecasting method of their era. Research by economists Paul Rhode and Koleman Strumpf has shown that the pre-poll election markets correctly identified the winner in every presidential race from 1884 to 1940, with only one exception. The rise of scientific polling in the 1940s pushed election betting underground, and it would take nearly fifty years for the idea to resurface in a regulated form.
1988: The Iowa Electronic Markets Change Everything
In the summer of 1988, the Henry B. Tippie College of Business at the University of Iowa launched a small-stakes experimental market on the Bush versus Dukakis race. Traders could buy and sell contracts tied to the vote share each candidate would receive. The market was capped at modest deposit sizes, operated under a CFTC no-action letter, and was framed as a teaching and research tool.
The results surprised even its creators. The Iowa Electronic Markets (IEM) beat major national polls not only in 1988 but in every subsequent presidential cycle it ran. Across more than a hundred elections studied, IEM prices were more accurate than aggregated polling in roughly three out of four cases. The project became the foundational empirical case for the wisdom-of-crowds theory applied to political forecasting.
The Rise and Fall of Intrade
If Iowa proved the concept, Intrade commercialized it. Founded in Dublin in 1999 and relaunched as Intrade.com in 2003, the Irish-regulated exchange opened real-money prediction markets to a global audience. At its peak, Intrade traded contracts on everything from presidential elections to Supreme Court rulings to the next pope.
The platform’s political markets drew mainstream attention. Nate Silver cited Intrade. Cable news anchors read its odds on air. For a brief window between 2004 and 2012, Intrade seemed poised to become the default price-discovery venue for political and policy outcomes.
Then came the Commodity Futures Trading Commission. In November 2012, the CFTC sued Intrade for offering commodity options to US customers without regulatory approval. Intrade blocked American traders within weeks. By March 2013, after the sudden death of its founder John Delaney, the company shut down entirely, leaving customer balances frozen. Intrade’s collapse froze US prediction markets for nearly a decade.
The Wilderness Years: PredictIt and Offshore Books
Between 2013 and the early 2020s, Americans wanting to trade political and current-event contracts had only two realistic options. The first was PredictIt, a small-scale academic exchange operated by Victoria University of Wellington under a CFTC no-action letter. PredictIt capped positions at $850 per contract and limited traders to 5,000 per market, which was useful for research but inadequate for serious price discovery.
The second option was offshore. Sites like Betfair’s exchange and various unregulated crypto-based markets filled the gap for traders willing to accept legal and counterparty risk. None achieved the mainstream legitimacy Intrade had enjoyed.
The table below summarizes the key US-accessible prediction markets of this era:
| Platform | Years Active in US | Position Limit | Status |
|---|---|---|---|
| Iowa Electronic Markets | 1988–present | $500 account cap | Academic, still operating |
| Intrade | 2003–2012 | None | Shut down after CFTC suit |
| PredictIt | 2014–present | $850 per contract | CFTC withdrew no-action letter in 2022; ongoing litigation |
| Kalshi | 2021–present | Variable, up to millions | CFTC-regulated, fully legal |
2021: Kalshi and the First CFTC-Approved Event Exchange
The breakthrough came in November 2020, when the CFTC approved KalshiEX LLC as a Designated Contract Market. Founded by Tarek Mansour and Luana Lopes Lara, two MIT graduates who had met while trading at Goldman Sachs and Citadel, Kalshi launched its first contracts in July 2021. For the first time since Intrade, Americans had access to a fully regulated, legally sanctioned prediction market exchange.
Kalshi initially focused on economic and weather contracts to avoid regulatory friction. The decisive moment came in October 2024, when a federal court ruled against the CFTC’s attempt to block Kalshi’s political contracts. Kalshi launched election markets just weeks before the 2024 US presidential election, and traded over $1 billion in volume on that race alone. By 2026, Kalshi has become the dominant regulated prediction market in the United States.
Polymarket and the Crypto Chapter
Running in parallel to Kalshi’s regulatory path, Polymarket took the crypto route. Launched in 2020 by Shayne Coplan on the Polygon blockchain, Polymarket settles contracts in USDC and operates without a traditional US license. After a 2022 CFTC settlement forced it to block US users, Polymarket became the leading international prediction market, with its 2024 US election markets generating over $3.6 billion in volume despite the US ban.
In 2025, Polymarket acquired a CFTC-registered exchange and began the process of relaunching to US customers under a compliant structure. By 2026, both Kalshi and Polymarket operate legally in the United States, offering overlapping but distinct product sets.
Where Prediction Markets Stand Today
What began as a $500-capped experiment in Iowa City is now one of the fastest-growing segments of American financial infrastructure. Prediction markets have been cited by the Federal Reserve, quoted in Treasury research, and used by major hedge funds as alternative data. The core thesis Iowa proved in 1988, that markets aggregate information more efficiently than any single expert, has held up across four decades of empirical testing.
For a full comparison of today’s leading platforms, see our Best Prediction Markets 2026 rankings.
Start Trading on Today’s Leading Prediction Markets
Ready to put the lessons of forty years of prediction market history into practice? The two platforms that define the modern era are both open to US traders:
- Kalshi — The first and only CFTC-regulated event exchange. Trade elections, economic indicators, sports, and more under full US regulatory protection.
- Polymarket — The highest-volume international prediction market, now accessible to US users through its CFTC-registered acquisition. Known for the deepest liquidity on political and crypto contracts.
Prediction markets have come a long way from a basement in Iowa. The question is no longer whether they work. It is which contracts you are going to trade next.