Prediction Markets History: From Iowa to Polymarket

The forty-year path from a University of Iowa experiment to billion-dollar event exchanges, told plainly.

Published 2026-08-07 · Data as of 2026-08-07 · Market & data intelligence · Educational, not advice.

Prediction markets feel like a 2024 invention. They are not. The core idea — let people trade contracts that pay out if an event happens, and read the price as a probability — is more than a century old. What changed is who runs the markets, who is allowed to trade, and whether a regulator is watching.

Here is the short version of how we got from a research project in Iowa to exchanges that move on election night.

Before the exchanges: betting on outcomes was ordinary

Long before polling, Americans wagered on presidential races openly. Economic historians Paul Rhode and Koleman Strumpf have documented large, organized election-betting markets operating on Wall Street from the 1860s through the 1930s, with newspapers reporting the odds as a matter of course. These markets often tracked outcomes well, and they faded mainly as scientific polling and stricter gambling rules arrived.

The intuition underneath was later formalized. Friedrich Hayek argued that prices aggregate scattered, private information better than any central planner can. A market price is a running vote weighted by conviction and money. That is the whole pitch for prediction markets: a price is a crowd's best guess, updated in real time.

Iowa builds the first modern one

In 1988, faculty at the University of Iowa launched the Iowa Electronic Markets, a small real-money exchange run for research and teaching. Trades were capped at a few hundred dollars, and the platform operated under a hands-off posture from the Commodity Futures Trading Commission, the federal regulator for futures and derivatives.

IEM mattered for one reason: academics studied it closely and repeatedly found its election prices competitive with, and sometimes ahead of, contemporaneous polls. That gave the field its founding evidence — not that markets are magic, but that a modest crowd putting real money on the line produces a serious forecast.

Intrade, PredictIt, and the offshore era

Retail interest arrived through Intrade, an Ireland-based exchange popular across the 2004, 2008, and 2012 US elections. Intrade let ordinary people trade a wide menu of political and economic contracts, and its odds were quoted widely in the press. It shut down in 2013 amid financial problems and after the CFTC sued to block US customers, arguing it was offering unregistered contracts.

PredictIt followed in 2014, run in partnership with a New Zealand university under a CFTC no-action letter — a conditional blessing rather than full approval. Its trade-offs were visible in the design: trader counts per contract and dollar positions were capped, which kept it small and academic-feeling. In 2022 the CFTC moved to withdraw that letter, triggering a multi-year legal fight over whether it could keep operating.

The through-line of this era is regulatory. In the US, event contracts sit in a gray zone between gambling and derivatives, and every platform's fate turned on how the CFTC read it.

Kalshi, Polymarket, and the mainstream turn

Two very different bets on that gray zone define the current era.

Kalshi went straight at the regulator. Founded in 2018, it won CFTC approval as a designated contract market and launched trading in 2021 — the first federally regulated US exchange built specifically for event contracts. That status later became the center of a public legal fight over whether election markets were permitted at all, a fight that pushed the question toward the courts.

Polymarket took the crypto path. Launched in 2020, it runs on blockchain infrastructure with contracts settled in stablecoins, which let it scale globally and fast. It also drew a CFTC enforcement action; in 2022 it settled and agreed to bar US traders from its main platform. Its scale during the 2024 US election put prediction markets in front of a mainstream audience in a way nothing since Intrade had.

The mainstreaming continued as brokerages moved in, with retail apps beginning to surface event contracts through partnerships with regulated exchanges. The audience stopped being economists and crypto natives and started being anyone with a trading app.

Why the history matters now

The pattern repeats. A platform proves crowds can price events, a regulator draws a line, the platform either shuts, moves offshore, or gets licensed — and the next one learns from it. Understanding that arc tells you why the same contract can be legal on one venue and blocked on another, and why prices sometimes diverge between them.

That divergence is exactly the thing worth watching. Delta Arc's Prediction Markets product puts the Kalshi and Polymarket boards side by side in one place, so you can see how the same question is priced across venues instead of squinting at two tabs.

The open question for the next chapter is simple to ask and hard to answer: as these markets get big enough to move narratives, does the crowd stay a mirror of reality, or start bending it. That is where this story goes next.