Online Gambling Platforms Chase Wall Street's Giant Funds

Prediction markets are developing rapidly and beginning to attract the attention of global financial industry players. Platforms such as Kalshi and Polymarket, initially known as venues where the public could bet on election results, sport and even central bank decisions, now harbour ambitions of becoming part of financial market infrastructure, much like conventional derivatives exchanges.

The idea originated from the experience of 30-year-old Luana Lopes Lara, one of Kalshi’s founders, who worked at several major Wall Street hedge funds including Citadel Securities and Five Rings Capital.

According to her, many investment managers build complicated investment strategies simply to take a position on an event, such as the outcome of a general election or a Federal Reserve interest rate decision.

Through prediction markets, investors can directly trade the probability of an event without having to construct complex portfolios. In this way, anyone, from retail investors to large institutions such as Goldman Sachs, has an equal opportunity to express their views about the future.

“What we have built is a financial exchange where anyone, from a Robinhood trader to Goldman Sachs, or even someone in an MIT dormitory, can transact directly based on their views about the future,” Lopes Lara said, quoted by The Economist on Friday (24/7/2026).

The popularity of prediction markets has surged sharply in recent years. Users are no longer limited to professional investors, but now include students, freelancers and members of the public interested in testing their ability to read unfolding events.

Quoting The Block, transaction activity on Kalshi reached approximately US$33 billion in June, while its competitor Polymarket recorded around US$10.7 billion in transactions on its crypto-based international platform, plus a further US$3.3 billion through its regulated platform in the United States.

Although still far smaller than trading volumes on the world’s major derivatives exchanges, this growth has caused the valuations of both companies to soar. Kalshi is reportedly raising funds at a valuation of around US$40 billion, while Polymarket is estimated to be worth about US$15 billion.

However, to sustain this growth momentum, prediction markets must be able to attract the participation of institutional investors, whose transaction capacity far exceeds that of retail investors.

A number of hedge funds, asset managers and high-frequency trading firms have begun monitoring developments in this industry. Some trading firms have even acted as market makers to maintain market liquidity, while finance students have begun using their track records in prediction markets as portfolio evidence when applying for jobs at major financial institutions.

Kalshi itself has sought to offer contracts more relevant to institutional investors. Beyond markets on Federal Reserve interest rate decisions, the company also offers contracts related to electricity prices, oil and computing capacity that can be used as hedging instruments.

Kalshi has even partnered with ARK Invest to launch markets that address various investment questions, for instance regarding the likelihood of a biotechnology company obtaining regulatory approval for a particular product.

Even so, interest in such contracts remains relatively limited. The largest transaction values still come from sports markets, which account for more than 70% of trading activity, while contracts related to monetary policy record only around US$30 million in transactions.

Beyond expanding product variety, the biggest challenge for prediction markets is building trust in market integrity. Institutional investors require assurance that all participants have equal access to information.

Earlier this year, Kalshi encountered a case in which an editor working for content creator MrBeast was suspected of using inside information in trading activity, as well as a Californian gubernatorial candidate who was found to have bet on his own election outcome.

Cases of this kind have raised concerns about insider trading practices that could damage the credibility of prediction markets. Kalshi said it has implemented user screening processes and real-time transaction monitoring systems to detect suspicious activity.

On the other hand, regulatory certainty is also an important factor before institutional investors increase their exposure. Under the administration of President Donald Trump, the Commodity Futures Trading Commission (CFTC) is viewed as more open to the development of prediction markets.

However, the industry’s rapid growth has revealed that many regulatory aspects still lack clarity. Early this year the CFTC began drafting new rules expected to provide certainty on dispute resolution mechanisms, contract settlement procedures and investor protection.

The company has also launched Kalshi Pro, a desktop platform that allows investors to monitor around 2,000 markets simultaneously and analyse various investment positions more efficiently.

This move is seen as an effort to transform prediction markets from an emerging platform into more mature trading infrastructure.

Nevertheless, several industry players believe prediction markets still require more flexible leverage or margin trading features in order to appeal to institutional investors.

Kalshi has indeed obtained regulatory approval to provide margin trading facilities, but most users are still required to deposit funds in full before opening a position.

This situation is considered inefficient, particularly for long-term contracts such as elections or geopolitical developments, as investors’ capital can be locked up for months or even years.

Despite these various challenges, a fundamental question remains about the potential profits professional investors can generate in prediction markets. Unlike stock markets, prediction markets are zero-sum markets, in which one party’s gain comes from another party’s loss.