Wall Street is interested in prediction markets — but the rules are still being written
Fast-moving startup Kalshi just gave Wall Street another reason to eye prediction markets.
The federally regulated platform that lets users bet on the outcome of almost everything recently said its crypto derivatives product crossed $1 billion in notional volume less than a week after launch.
The milestone comes as Kalshi and rival Polymarket are actively making moves to cater to Wall Street customers. They’re pitching that they are growing into a broader platform for finance where businesses, investment funds, and everyday investors can hedge some of their risks.
The New York Knicks helped Kalshi put the business case on display last week. A Manhattan sports bar, The Jeffrey, offered customers a free bar tab of $100 each if the Knicks won game one of the NBA Finals. To hedge their risk, the bar also placed a bet on the Knicks winning on Kalshi.
The Knicks victory brought in a little under $13,000 to the sports bar, “just about covering the entirety of the discounts,” owner Andrew Freedman told Yahoo Finance, calling the publicity stunt a “dream scenario all around.”
Polymarket last week announced it had completed its first block trade aimed at helping a trading firm hedge exposure to GPU compute. Similarly, Kalshi notched its first block trade between a Texas hedge fund and market maker on carbon allowances in April.
Despite the speed of growth, prediction platforms are running into an age-old problem for big Wall Street institutions: The rules are still being written.
The Commodity Futures Trading Commission (CFTC) on Wednesday proposed new rules for prediction markets, laying out a framework for determining which events contracts can trade on federally regulated platforms and which can be blocked.
The proposal aims to draw sharper lines around how it will police contracts tied to unlawful activity, war, terrorism, and gaming. The agency is proposing a test over whether specific contracts pose market integrity risks and if a platform can effectively administer and monitor trading.
That matters because the case for institutions using prediction market platforms is “ramping” but “still in early innings,” according to Julie Hoover, a Bank of America analyst.
“Given some of the headline risk that there’s been on insider trading on prediction markets globally, I think institutions want clearer rulemaking and a better understanding of counterparty risk,” said Hoover.
Over the last 10 months ending June 1, combined trading volume across Kalshi and Polymarket has climbed by $23 billion to $25 billion, according to data from The Block.
