Prediction markets are riding a growth wave, yet fundamental hurdles remain unresolved and could define their trajectory.

First up: the classification puzzle. Where's the line between legitimate financial derivatives and gambling? Regulators haven't decided, and neither have markets. This ambiguity creates friction for platforms operating across jurisdictions.

Second, liquidity dynamics matter more than people think. In thin markets, even modest trades can swing prices dramatically—a problem when participants are trying to assess real-world outcomes accurately.

Then there's the ethics angle. Events with human stakes—elections, natural disasters, social movements—raise uncomfortable questions when money flows to prediction outcomes. It's not just about market mechanics; it's about what kind of incentives we're creating.

These three challenges aren't side issues. They'll determine whether prediction markets become a mainstream financial tool or remain niche products. The winners will be those who navigate this complexity best.