Despite all these weighty variables, the chances that prediction markets will gather additional steam are better than a coin flip. After forecasting in April that contract volume would reach $1 trillion by 2030, 80% annualized growth from 2025, Bernstein analysts are revisiting their assumptions. Robinhood generated more revenue from event contracts in the year through June than from crypto assets or equities.
Kalshi, conceived in 2018 by Tarek Mansour and Luana Lopes Lara, may nearly double its worth in mere months. Sequoia Capital and Wellington Management are in talks to lead a $750 million injection that would set the fledgling company’s valuation at $40 billion, The Information reported.
It might even be a bargain. Kalshi’s weekly notional volume has jumped about 10-fold in a year, according to data cruncher Dune. World Cup soccer turbocharged growth, and US professional football and midterm elections should help sustain the surge. Moreover, at 10 times annualized revenue, the imputed valuation multiple would be on a par with most exchange peers, including Nasdaq NDAQ.O, Coinbase COIN.O and NYSE owner Intercontinental Exchange ICE.N.
A pitched legal battle over sports contracts represents a significant binary event. New Jersey and other states argue that swaps on eventualities like whether Manchester City striker Erling Haaland will score against Arsenal constitute illegal sports betting. Federal courts are split over whether the Commodity Futures Trading Commission should be the industry’s exclusive regulator.
Kalshi, which collects a fee of around 1% to 1.5% on trades, insists that as a nationwide financial exchange it cannot be overseen by 50 different authorities. The company won a separate lawsuit against the CFTC in 2024 after the agency tried to ban its election contracts.
Prediction markets are redefining future shock
Prediction markets are redefining “future shock.” Businessman Alvin Toffler popularized the term with his 1970 book about technological advances overwhelming society. The proliferation of online swap contracts for a broad array of events has created similar effects. Crystal balls remain cloudy, but there's enough momentum to confidently foretell some financial outcomes for Kalshi, Polymarket, Robinhood Markets HOOD.O and others.
A nearly 40-year-old academic exercise behind the not-for-profit Iowa Electronic Markets has spawned an industry on pace to exceed $1 trillion in trading volume. Punters can now speculate on everything from the winner of the BMW PGA golf championship to who will be Donald Trump's next press secretary and when Jesus Christ will return to Earth. Structured as peer-to-peer binary transactions, prices fluctuate between a penny and 99 cents to reflect implied probability; a contract trading at 75 cents, for example, indicates a perceived 75% chance of the event occurring.
Regulatory fights and uncertain business models
As with many fast-paced tech developments, leading prediction venues traverse regulatory gray areas. Sports-betting sites reeling from the competition and US state governors missing out on tax revenue are waging cutthroat legal battles destined for the Supreme Court.
Prediction-market business models are also, well, unpredictable. What is now largely a consumer product could morph into one more dependent on data or order flow. Wall Street may become a valuable user or partner, though investment banks and traditional bourses may prefer to harness the wisdom of crowds themselves. Consolidation already has begun, and it’s likely to accelerate.
The societal value of prediction contracts is also unsettled. Unequal access to information makes suckers of most customers today, while breakneck expansion leads to risky new products, including gold futures with no expiry date that can be juiced by leverage and traded all day every day. The backlash will inevitably extend far beyond a fuss over endorsements from naked actress Sydney Sweeney.
Banks, sports-betting operators and other potential customers
Yet even if prediction markets lose sports-related trading, they will have built popular brands, amassed millions of users and tempted them with a variety of other swaps. This clout may allow the markets to strike deals with online sports-betting operators like DraftKings DKNG.O and Flutter Entertainment-owned FLUT.N FanDuel, which only recently debuted their respective prediction apps.
There are more points of contention, however. Some contracts raise qualms about election campaign staffers and soldiers leveraging non-public information, the spread of misinformation and war profiteering. Kalshi fined and suspended US political candidates for betting on their own races. The European Securities and Markets Authority warned earlier this month that prediction markets present serious market integrity issues. The top 1% of Polymarket users capture 77% of the profit, one recent study found, while Citizens JMP Securities analysts said that only investors trading at least $500,000 make money on predictions.
The CFTC has probed insider trading, but money managers collectively urged the agency to beef up investor protections, including by reviewing any new prediction-market products ahead of being released. The Managed Funds Association trade group also recommended giving the Securities and Exchange Commission oversight of securities-related contracts.
As all these controversies simmer, the industry is eyeing banks, fund managers and insurers as possible customers. Mansour got a kernel of the idea for Kalshi while working at Goldman Sachs, where he saw clients being sold tortuous and expensive options to hedge against Brexit because there was no simple way to trade the outcome of the UK referendum. His venture has teamed up with electronic marketplace Tradeweb, The Weather Company and others to help investors price and offset exposure to macroeconomic and geopolitical events.
Citadel Securities boss Jim Esposito indicated some early interest, but most big institutions will await more regulatory clarity and liquidity. Event contracts on Polymarket and Kalshi reached $39 billion combined in August, according to research outfit The Block. It's more than the $14 billion Americans wagered monthly on sports last year on average, but a tiny fraction of the $61 trillion of volume across asset classes reported by TradeWeb during the month.
A spate of companies in adjacent businesses are mobilizing, however. ICE said last October it would invest up to $2 billion in Polymarket at an $8 billion valuation. International lottery operator Allwyn secured a toehold in predictions this year by backing fantasy sports app PrizePicks. UK-based online trading company IG Group IGG.L took bolder aim at the market, agreeing in June to buy Underdog for nearly 11 times annualized EBITDA.
These transactions augur more investment and activity despite the murky trajectories. FanDuel and DraftKings have powerful brands, but their depressed stock prices could make them tempting takeover targets. Upstarts such as Novig, whose Hollywood equity partner Sweeney stripped bare in the company’s ad campaign, also might attract suitors. The accumulated attention, money and usage suggest that the idea of a future with prediction markets embedded in the financial firmament will soon lose any shock value.
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