Betting On “What Happens”

Market Overview

Markets were strong this week, with the S&P 500/Nasdaq 100 +4%+4%. Strong perfomance was driven primarily by the announcement of a temporary ceasefire with Iran, which reinforced the market sense that escalation risk is falling. Notably, WTI crude was -11% on the week to $99/bbl. Our NPM Private Market Tracker*, which shows the average price performance of the 50 largest names in our internal Tape D® data, is +6% YTD vs. SP500/Nasdaq 100 +0%/-1%. (Bloomberg; NPM)

Feature

Where the Only Unpriced Risk Is Regulation
Over the past two years, prediction markets have emerged as one of the hottest subsectors in private markets. These companies represent a hybrid between financial exchanges and online gambling platforms, allowing users to trade contracts tied to the outcomes of future events. Each contract is typically priced between $0 and $1 and reflects the implied probability of an event occurring. If the event occurs, the contract settles at $1; if not, it settles at $0. This simple structure enables continuous price discovery, potentially producing forecasts that rival or exceed traditional polling and expert analysis.

Due to simplicity, breadth and low transaction costs, prediction markets have, perhaps unsurprisingly, expanded rapidly. The category now spans politics, macroeconomics, sports, weather, and cultural events — positioning itself as a simplified, short duration analog to options markets. Newly listed event contracts on CFTC-regulated exchanges surged from roughly 5 per year before 2021 to approximately 1,600 in 2025, underscoring the acceleration in market activity. (Bloomberg; NPM; CFTC ANPRM on Prediction Markets)

Competitive Landscape
Two companies currently dominate prediction markets: Kalshi and Polymarket.

Kalshi
Founded in 2018, Kalshi operates as a fully regulated U.S. exchange under CFTC oversight, making it the only legally compliant prediction market platform broadly accessible to U.S. users. Its contracts are denominated and settled in USD, and its regulatory status provides a meaningful competitive moat if federal jurisdiction is upheld. Its core strength lies in credibility and regulatory validation, though this may come at the cost of higher fees and a narrower set of permissible markets. (Sacra; company reports)

Kalshi has also been on the front lines of federal-state jurisdictional battles. An Ohio judge ordered Kalshi to comply with state betting laws in March 2026, while a Tennessee court granted Kalshi a preliminary injunction against state sports prediction enforcement — illustrating the uneven terrain the company navigates across jurisdictions. Arizona filed criminal charges against the platform in March 2026, further highlighting the regulatory risk. Most recenty, on April 6 a federal appeals court ruled that New Jersey gaming regulators could not prevent residents from placing financial bets on the outcomes of sporting events. (Alvarez & Marsal; CoinDesk, Bloomberg)

In March 2026 the company completed a $1bn funding round led by Coatue Management at a $22bn valuation, doubling the December 2025 round in under 90 days. Total funding across all rounds stands at approximately $2.9bn. (Pitchbook)

Kalshi generated $260mm of revenue in 2025 — almost a 10x y/y increase — driven primarily by sports contracts, which accounted for 89% of fee revenue. Kalshi‘s ARR is currently ~$1.5bn. Robinhood’s prediction markets hub is powered by Kalshi and is Robinhood’s fastest-growing product line by revenue. (Pitchbook; Coindesk; Robinhood)

Polymarket
Founded in 2020, Polymarket takes a slightly different approach as a globally focused platform built on blockchain infrastructure. Contracts are settled in stablecoins, and, compared to Kalshi, the platform benefits from lower fees, faster iteration, and fewer constraints on market creation. Polymarket has become particularly strong in political and crypto related markets. (Sacra; NPM)

Polymarket‘s regulatory posture remains less certain, particularly in the US, where access was restricted until December 2025. However, in 11/25 the platform was formally recognized as a Designated Contract Market (“DCM”) by the CFTC — placing it alongside Kalshi and Coinbase under the same regulatory umbrella. While both Kalshi and Polymarket are located in New York, Polymarket‘s international platform is operated by a Panama based entity called Adventure One QSS. In August 2025, Donald Trump Jr. joined Polymarket‘s board of advisors. (CoinDesk; Bloomberg; Pitchbook)

Unlike Kalshi, Polymarket generated effectively no revenue through 2025, having operated as a free platform focused on volume and user acquisition. The company began monetizing in early 2026, rolling out new fees. Industry analysts estimate the company is currently approaching a $300mm ARR, still well behind Kalshi but growing quickly. (Sacra, Bloomberg)

In March 26 Polymarket raised $1.6bn from the Intercontinental Exchange at a $9.6bn post-money valuation. Other notable investors including Founders Fund, General Catalyst, Polychain, Coinbase Ventures, and Dragonfly Capital. (Pitchbook; Bloomberg)

Consumer Cost Comparison vs. Sportsbooks
The economic model of prediction markets differs fundamentally from traditional sportsbooks such as DraftKings. Both Kalshi and Polymarket operate as exchanges, matching buyers and sellers and earning revenue through transaction fees rather than taking directional risk. The result is significantly lower effective costs for users. On Polymarket, fees can be <1% per trade, while Kalshi typically charges a 1-2% fee on profits that scales with contract pricing.

In contrast, DraftKings operates as a bookmaker, embedding a “vig” (or house edge) into odds, which can translate into effective costs of 5-10% per wager. This distinction mirrors the difference between financial exchanges, such as Nasdaq, and traditional casinos: one is a low-margin, high-volume information marketplace, while the other is a high-margin entertainment product.

Regulatory Risks Loom Large
To us, the regulatory environment remains the most significant uncertainty shaping the industry. In the United States, prediction markets fall under the jurisdiction of the CFTC as event derivatives, but this classification is contested by some state level regulators who view prediction contracts as forms of gambling.

What has resulted is an ongoing legal conflict between federal and state authorities. If the CFTC retains primary authority, platforms like Kalshi could expand nationally with relatively uniform rules. Conversely, if states successfully assert control, the industry could become fragmented, mirroring the state-by-state patchwork seen in sports betting. Internationally, the landscape is more permissive, allowing platforms like Polymarket to operate globally. In short, federal vs. state jurisdiction remains an active battleground.

CFTC Chairman Michael Selig, confirmed in December 2025, has moved quickly and decisively to reposition the agency as a champion of prediction markets. At a January 2026 ‘Project Crypto’ summit jointly hosted with SEC Chairman Paul Atkins, Selig announced a four-part regulatory agenda for event contract markets, signaling a clear break from the prior administration’s approach. (Sidley Austin; Bloomberg)

Competitive Dynamics are Also Fluid
We believe the industry is likely to exhibit ‘winner-take-most’ outcomes driven by network flywheel effects. Markets with deeper liquidity produce more accurate prices and tighter spreads, attracting more users and reinforcing their advantage. This dynamic favors early leaders such as Kalshi and Polymarket but also creates an opening for large incumbents in adjacent industries.

Brokerages like Robinhood or crypto platforms like Coinbase could integrate prediction markets directly, leveraging existing user bases and distribution advantages. Coinbase is already listed as a DCM by the CFTC. Similarly, sportsbooks could replicate certain aspects of the user experience, though structural differences in economics and regulation may limit full convergence.