The "Nipple Play" Trap of the Prediction Market and DeFi Redemption: The Path to Integration in 2026

Prediction markets are becoming a new focus in the crypto space, but a hidden danger also comes with it—if the pursuit is solely for trading volume and user numbers, prediction markets can easily turn into “nipple toys” of the information age, rather than truly valuable financial tools. In 2026, a year dense with political cycles and sporting events, prediction markets need to deeply integrate with DeFi to achieve a transformation from false prosperity to real value.

Prediction markets are already mature, but hidden risks are emerging

Polymarket and Kalshi have become mainstream information betting platforms in the US, attracting significant funds to forecast presidential elections, midterms, and sporting events. The core value of these platforms lies in information discovery—prices fluctuate in real-time with new information and ultimately converge into self-fulfilling prophecies.

But here’s a key issue: the reason prediction markets can attract intense capital interest largely stems from an obsession with trading volume. This obsession is pushing prediction markets toward the “nipple toy” trap—when all participants focus on the thrill of trading and the growth of numbers, neglecting the true efficiency of capital, the entire ecosystem begins to hollow out.

Most of the surrounding ecosystem models are harvesting “nipple toy” dividends

The market has evolved four main peripheral service models:

Type 1: Clone platforms. These are competitors to Polymarket and Kalshi, attempting to copy their models to share the pie. But this route is extremely costly—requiring infrastructure investments comparable to Perp DEXs, plus compliance costs in the US market. Most clones end up only in the TGE track, with almost no users. This is the most direct manifestation of the “nipple toy” phenomenon.

Type 2: Asset-layer innovations. Including projects like Gondor, which allow users to use prediction assets as collateral for loans; Space, which offers 10x leverage. These projects try to “forcefully incorporate” DeFi elements but fundamentally still play the trading volume game, without truly solving capital efficiency issues.

Type 3: Custom tools. Providing data aggregation, cross-platform trading, and other specific functions for high-frequency traders and arbitrageurs. These tools have some vitality but still depend on cyclical trading volume fluctuations.

Type 4: KOL rebate platforms. Using social viral growth and rebate mechanisms to attract users—classic “nipple toy” marketing—user gains and losses are not important; as long as trading volume grows, it’s fine.

These four models seem diverse, but in reality, they all fall into the same trap: to meet investors’ expectations of high growth, they sacrifice the true efficiency of capital use.

Sleeping funds are the real enemy of prediction markets

Here’s an overlooked key fact: a large portion of funds in prediction markets are idle before expiration.

After users place bets, the money “sleeps” until the event settles. If it’s a US election, it might take months. During this period, the capital that should be circulating cannot generate any yield—an unacceptable waste for any financial system that prioritizes capital efficiency.

This is why, despite Polymarket’s soaring valuation through funding rounds, it is still considered “inefficient” by traditional finance standards. Conversely, Kalshi, with more aggressive risk management and capital utilization, might be more efficient in the long run.

If prediction markets continue to pursue only trading volume growth, they will never break through the current “nipple toy” ceiling—because the number of public events available for trading is ultimately limited, and more and more trading will attract whales and high-frequency traders, eventually turning into a zero-sum exchange race.

The way out: using affiliate models to achieve DeFi integration

There is a simpler solution inspired by early e-commerce third-party rebate models.

This plan involves three key steps:

Step 1: Proxy ordering service. The platform offers users discounted order placement for prediction markets, allowing users to participate in Yes/No bets at better prices. The platform gains lower financing costs, and Polymarket gains more traffic. This is an acceptable starting point for all parties.

Step 2: Funds onboarding. After users place bets, the prediction platform or LP/MM acts as the treasury manager, depositing these unsettled funds into DeFi protocols like Morpho to earn stacking yields. This is a crucial step—activating idle capital.

Step 3: Yield sharing. Before the settlement date, the DeFi yields generated are distributed among the platform, users, and DeFi protocols. As long as the platform’s discount costs are less than the DeFi yields, the entire model can operate autonomously.

The beauty of this model is that it does not interfere with the user’s prediction experience. Users still make their judgments and bets, and their profits or losses are entirely determined by the prediction outcomes, unrelated to treasury management. This is not like leveraged risk tokens such as xUSD, but rather combines the technical attributes of prediction markets (fixed expiration, real asset reserves) with DeFi’s programmability.

Why 2026 will be a watershed year for prediction markets

2026 will face two major global events: the US midterm elections and the FIFA World Cup, plus potential regulatory relaxations on DeFi and gambling ecosystems. This year will be a window for prediction market explosion.

But explosion does not necessarily mean success. Platforms that only pursue trading volume growth will ultimately become synonymous with “information nipple toys”—users seek stimulation, but the ecosystem itself does not generate real economic value.

Conversely, those that can deeply integrate prediction markets with DeFi are more likely to establish a true moat in 2026 and beyond. Because they address a fundamental question: how to leverage on-chain capital’s programmability and composability to empower prediction markets.

This is not just technological innovation but a cognitive upgrade—shifting from chasing trading hype to pursuing capital efficiency, from burning money to attract users to creating real returns. Only such prediction markets can become genuine fertile ground within the DeFi ecosystem, rather than temporary “nipple toy” celebrations.