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Prediction markets turn beliefs about future events into contracts that can be traded directly. Instead of building a complicated portfolio to express a view on an election, an interest-rate decision or an energy price, a trader can simply buy a contract tied to that outcome. Kalshi and Polymarket have proved that this idea can attract a large retail audience. Their harder task is convincing Wall Street that these markets are reliable, liquid and efficient enough for serious institutional money.

From retail enthusiasm to institutional scale

The growth has been striking. In June, Kalshi processed \$33bn in trades, while Polymarket handled \$10.7bn on its international crypto-based exchange and another \$3.3bn on its regulated American platform. The companies were reportedly seeking valuations of \$40bn and \$15bn, respectively.

Yet those figures do not mean prediction markets have become a major institutional asset class. Sports still account for well over 70% of activity. Nearly \$2bn was traded on the winner of the football World Cup, compared with only about \$30m riding on the Federal Reserve’s next interest-rate decision. Hedge funds and asset managers watch the odds, and firms such as Susquehanna and Jump Trading provide liquidity, but most large investors have not begun making substantial bets.

The potential appeal is clear. Kalshi offers contracts linked to electricity, oil and computing prices, which could help businesses and funds hedge specific risks. It has also worked with ARK Invest to develop markets around questions that matter to analysts, such as when a biotechnology company might receive regulatory approval. Prediction markets could therefore become more than a venue for speculation: they could provide prices for risks that conventional securities express only indirectly.

The missing market machinery

Institutional adoption depends first on trust. Event contracts are unusually vulnerable to traders with private information. Kalshi has already caught people betting on outcomes connected to their jobs or candidacies. Exchanges need surveillance and enforcement strong enough to convince investors that insiders cannot quietly drain value from everyone else.

Clearer regulation is equally important. The Commodity Futures Trading Commission has become friendlier toward prediction markets, but rapid growth has exposed unanswered questions, including how disputed outcomes should be resolved. A lawsuit over a Polymarket contract concerning whether Strategy would sell bitcoin showed how much can turn on wording, evidence and timing. Large investors will hesitate if an exchange’s settlement decision lacks a predictable appeals process.

The industry also needs the infrastructure familiar to professional traders. Kalshi has completed a customised block trade and launched a more sophisticated trading terminal. It has regulatory approval to offer margin trading, but users generally still have to fund the full value of a wager upfront. That is manageable for a short sporting event; it is expensive for geopolitical or election contracts that may lock up capital for months or years.

A market that may humble Wall Street

Even if these problems are solved, professional dominance is not guaranteed. Prediction exchanges are peer-to-peer and zero-sum: one trader’s gain is another’s loss. Specialists with expensive models sometimes lose to anonymous amateurs, because useful knowledge about an event can be widely dispersed and unrelated to formal financial expertise.

That uncertainty is also the product’s strength. Prediction markets force participants to attach money to their beliefs and reveal a collective probability. To win over Wall Street, Kalshi and Polymarket must build the safeguards, rules and capital efficiency of mature exchanges. But if they succeed, the institutions joining them may discover that the crowd remains harder to beat than expected.