Prediction Markets: Trading on the Future

The Block (26 Aug 2026) reported Kalshi trading volume of $40B in July 2026, against $12.9B for Polymarket and Polymarket US combined. A separate monthly tally put Kalshi at about $38.7B in August (down about 4%), with Polymarket's core platform at $4.59B, down from $7.89B in July after the World Cup ended (crypto-economy.com, Sep 2026; secondary source, treat as indicative).

• A Form D filed with the SEC in August 2026 showed about $1.12B of equity sold since 3 April, out of a roughly $1.5B offering (The Block, 26 Aug 2026).
• The Series F of $1B, led by Coatue with Sequoia, Andreessen Horowitz, IVP, Paradigm, Morgan Stanley and Ark Invest, valued Kalshi at $22B (The Block, Aug 2026).
• The Information reported in August 2026 advanced talks for a $750M round at $40B; this had not closed in the sources read.
• Polymarket was reported (WSJ and CNBC, 2026) to be discussing a raise of about $1B at a valuation above $20B; unconfirmed.

On 6 April 2026 the Third Circuit ruled 2-1 that the Commodity Exchange Act likely preempts New Jersey gambling law for sports event contracts on a CFTC-licensed exchange, treating them as swaps (Finance Magnates and Legal Sports Report, 2026).

On 28 Aug 2026 a unanimous Ninth Circuit panel (KalshiEX v. Assad) held Nevada can enforce its gaming law against Kalshi's sports contracts; election contracts were remanded. The CFTC said the ruling 'teed up a circuit split that calls out for resolution by the Supreme Court' (Finance Magnates, Sep 2026). Kalshi has sought en banc rehearing; no decision was found.

New Jersey filed a cert petition on 2 Sep 2026 asking the Court to review the Third Circuit's decision, the first such request from either side. Kalshi's response was due within 30 days; the Court had not said whether it will take the case in the sources read. Even if granted, a ruling would not come before the next term (Finance Magnates, Sep 2026).

• In August 2026 the CFTC invoked emergency authority under the Commodity Exchange Act to keep Kalshi's exchange open despite New York's attempt to shut it down (Finance Magnates, Sep 2026).
• On 16 Sep 2026 the Ninth Circuit held in a separate tribal case that two California tribes were likely to succeed on a claim that Kalshi sports contracts entered from tribal lands violate the Indian Gaming Regulatory Act (secondary press reports).

Not refreshed: Polymarket and Kalshi cumulative notional volumes in the platform comparison and chart (2025 Dune data), the 2030 volume and sports-share projection, the Robinhood and Coinbase account counts, the accuracy and manipulation case figures, and any outcome after mid-September 2026 (en banc rehearing, Supreme Court action, closing of the $40B and $20B-plus rounds).

• Price is the argument: a contract that pays $1 if an event happens trades at its probability.
• Follow the money, not the mouth: these markets aggregate belief backed by capital, not opinion.
• Every figure is dated: volumes, valuations and rulings move weekly; data is to Feb 2026, with the main later developments to Oct 2026 collected in the first chapter.
• Signal, not oracle: markets are treated as one powerful input, and the places where they fail are named.

When belief has to be backed with money, cheap talk gets expensive, and the signal gets honest.

• Hayek, 1945: 'The Use of Knowledge in Society'. Information is dispersed; no central planner can gather it.
• Prices as information: the current price condenses millions of private views into one number.
• Incentive compatibility: staking capital forces people to reveal what they actually believe.
• Skin in the game: being wrong costs money, so noise and wishful thinking get punished.

1. List the contract: an exchange defines a verifiable question and its resolution rule.
2. Trade YES / NO: buyers of YES want the event; buyers of NO want it not to happen.
3. Price discovers: the price moves with every trade to reflect collective odds.
4. Settle at $1 or $0: at the deadline the contract pays out on the verified outcome.

Prediction markets can take all these disparate opinions that people are pontificating about, or that they have really good reason to believe, and distil it down into one probability.

Shayne Coplan, CEO of Polymarket, 60 Minutes, December 2025

• Binary: all-or-nothing. Buy YES at $0.60; win $1.00 or lose it all. The standard.
• Categorical: a bundle of binaries, mutually exclusive outcomes, winner-take-all.
• Scalar (legacy): pays along a range, not just 0/1; mostly deprecated for liquidity.
• The underlying: the 'asset' is an event, such as an election, a rate cut or a playoff berth.
• The premium: the price you pay for the contract; your maximum loss on YES.
• The expiry: the deadline at which reality resolves the bet to $1 or $0.

• What it is: a contract whose payoff depends on an underlying, here a future event.
• Why it matters: as a derivative it falls to the CFTC, the futures regulator, not gaming law.
• The old lineage: the CFTC's roots trace to 1840s grain futures; event contracts are the newest branch.
• The dividing line: regulation is what separates a licensed exchange from illegal gambling.

A two-axis map plots US-regulated status (horizontal) against liquidity and volume (vertical). Polymarket and Kalshi sit at the top, with Kalshi furthest right on regulation. Robinhood and ForecastEx / IBKR sit in the lower right (regulated, smaller). Crypto-native venues sit at the lower left (offshore, thin) and PredictIt sits at the bottom, just left of the US-regulated midline (thin). Quadrants are labelled: offshore and liquid, regulated and deep, offshore and thin, regulated and small.

The 2024 US presidential race was the category's coming-out party, and its accuracy left the pollsters looking flat-footed.

The markets moved before the polls, called swing states days early, and nailed the outcome while prognosticators hedged. As one political economist put it: 'all the polls and prognosticators were left in the dust, nobody came close to the markets.'

A log-scale line chart of monthly notional volume (Feb '25, Jun '25, Sep '25, Oct '25, Nov '25, Dec '25, Jan '26) rises almost in a straight line.

• Regulation: Kalshi v. CFTC and the dropped appeal gave a clear legal path to operate.
• Liquidity: AMMs, order books and instant settlement cured the thin-market problem.
• Access: ICE, Robinhood, Coinbase, DraftKings, FanDuel put it in front of 100M+ accounts.
• Legitimacy: an accurate election call converted skeptics into users and investors.
• Capital: billions in venture and strategic money followed the legal certainty.
• Culture: cable news now scrolls market odds; the price became a news product.

1. More traders join
2. Deeper liquidity
3. Tighter spreads
4. More reliable prices
5. More attention & trust (and the loop returns to more traders joining)

1. Sep '24Kalshi v. CFTC: federal court rules prediction markets are regulated exchanges, not gambling.
2. Nov '24The election call: markets beat the pundits on a national stage.
3. May '25CFTC drops appeal: legal status cemented; the investment wave begins.
4. Jul '25QCEX acquired: Polymarket buys a CFTC-licensed exchange to come onshore.
5. Oct '25ICE invests $2B: NYSE's parent backs Polymarket at a $9B valuation.
6. Dec '25Record ATH: weekly volume tops $6B, up ~10x year-on-year.

• Federal: Kalshi v. CFTC established preemption; CFTC issued first formal guidance March 2026 and in Aug 2026 invoked emergency authority to keep Kalshi's exchange open against New York.
• State: 20+ lawsuits and cease-and-desist orders, mostly over sports contracts.
• The split: Massachusetts ruled against preemption (Jan 2026); Nevada and NJ upheld it.
• The ladder: the Third Circuit sided with Kalshi (Apr 2026) and the Ninth Circuit against it (Aug 2026); New Jersey has petitioned the Supreme Court.

The vision the founders talk about is blunt: financialise every difference of opinion into a tradable asset.

In 'Kalshi and the Rise of Macro Markets', Fed researchers found these markets 'provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.' When the central bank starts citing your price, you are no longer a novelty.

• The gap: engineers spot risks (tech debt, supply delays) months before executives hear of them.
• The trade: staff bet virtual credits on 'Project X ships by Q4'; anonymity removes the fear of bad news.
• The result: internal markets at Google and Ford beat official project leads by ~25% on accuracy.
• The payoff: leadership gets an early termination signal and can reallocate before a crisis.

• Media: as prices become the default probability, journalism shifts from opinion to price-reporting.
• Insurance: event contracts can hedge liabilities cheaper than policies (disintermediation risk).
• Campaigns: candidates already manage their own market odds as a comms strategy.
• Reflexivity: a market watched closely enough starts shaping the outcome it measures.
• Policy: central banks and agencies get a live, high-frequency read on expectations.
• Treasury: corporates could manage event risk alongside FX and rates.

1. Slot machine (pure gambling): no skill, pure chance.
2. Sports parlay: entertainment-led.
3. Thin event market: manipulable, retail-heavy.
4. Deep macro market: priced by informed capital.
5. Fed-cited benchmark (information market): genuine information good.

• Low barrier: a smartphone and a bank account, indistinguishable from a betting app to many.
• Young and male: usage skews to 18-25 year-old men, where problem-gambling rates are rising.
• The regulatory gap: the CFTC oversees market integrity, not consumer protection or addiction.
• The scale risk: at trillions in volume with heavy sports exposure, this becomes a public-health question.

The compounding of liquidity, access and legal certainty is what moved them from experiment to infrastructure.

AI agents are already becoming the main traders by volume. One bot turned $313 into $438,000 through cross-market arbitrage; analysis of 86M bets found ~70% of markets resolve NO, a bias bots systematically exploit. If algorithms dominate liquidity, do prices still reflect human consensus, or just machine efficiency?

• Institutional trust collapse: pollsters missed 2016, 2020, 2024; markets fill the credibility vacuum.
• Decentralized information: social media disrupted news distribution; markets disrupt its interpretation.
• AI-accelerated pricing: agents compress the lag between event and price toward zero.
• Financialising information: any verifiable difference of opinion becomes a tradable asset.
• Retail on-ramps: 100M+ accounts already hold the app that trades these contracts.
• Global fragmentation: different winners inside and outside the US as regulation diverges.

The long-term vision is to financialise everything and create a tradable asset out of any difference of opinion.

Tarek Mansour, CEO of Kalshi, Citadel Securities Future of Global Markets Conference, 2025

• Polymarket; Kalshi: platform data, contract specifications and disclosures (2024-26).
• Dune Analytics; CNBC: prediction-market volume and share data (2024-26).
• Kalshi v. CFTC: federal ruling and CFTC guidance (2024, 2026).
• Federal Reserve: Diercks et al., 'Kalshi and the Rise of Macro Markets' (Feb 2026).
• Hayek, F.: 'The Use of Knowledge in Society' (1945).
• arXiv: 2024 election prediction-market accuracy study.
• The Block; Reuters; Forbes; Futurism: use-case and manipulation reporting (2025-26).
• Figures marked 'est.' are compilations of the above.