Prediction Markets Have Reached an All Time High and Company Kalshi is Riding the Wave
The rise of prediction markets has revolutionized how we forecast political outcomes and engage with elections. In layman's terms, events based investing. In official terms, a prediction market is defined as an exchange-traded market where people can trade contracts based on the outcome of future events. They are also known as betting markets, information markets, or decision markets.
In a prediction market, traders with different beliefs buy and sell contracts that provide financial rewards (or punishments) based on the outcome of an event. The market price of a contract reflects the aggregated beliefs of all the traders, and can indicate what the crowd thinks the probability of the event is including presidential elections.
One of the leading companies in the industry is Kalshi. They are developing a new asset class, “event contracts,” and a financial exchange for trading on the outcome of events: they are federally regulated by the CFTC as the first-ever legal futures exchange in the U.S. for trading on a broad category of events. The others in the market are primarily built on blockchain and their transactions are done in cryptocurrency. The foremost example would be Polymarket, the world’s largest predictions market.
I met the CEO of Klashi, Tarek Mansour a few years ago at a rooftop soiree prior to his Sequoia raise and at the time he had just finished YC in 2019. Kalshi was built by Mansour alongside his co-founder and COO Luana Lopes Lara. The two progenitors built Kalshi based on a belief that people should be able to capitalize on their knowledge and personal convictions. They make this possible by expanding what people can trade on and allowing them to trade in the domain of everyday knowledge.
Kalshi has raised a total of $106 million in equity capital to date across multiple funding rounds. This includes $70 million of Series B venture funding in January 2022 led by Global Founders Capital and a $30 million Series A round in February 2021 led by Sequoia Capital and additional funding from investors like Y Combinator, Henry Kravis, and Neo. Kalshi's revenue increased from $7.5M in 2023 to $29.4M in 2024, representing substantial year-over-year growth.
In the weeks leading up to the election, Kalshi’s trading platform went viral as an alternative to traditional polling methods. In October 2024, Kalshi had seen around $85 million in bets related to the U.S. presidential race. What I find most interesting about Kalshi is they have found a new stakeholder position in the election cultural zeitgeist. As a first in history, individuals looked to prediction markets for an accurate election prediction in comparison to the incumbent pollsters like RealClearPolitics or Gallup, as well as for capital gain based on the winning outcomes. In a way prediction market platforms minimizes the place of media, from polls to articles breaking down the candidates political program and its effect interested parties flock to Kalshi to look for election decision accuracy.
Here we’re looking at volume in transactions and amount invested in. During several moments in the fall of 2024, polls pointed to Harris winning by a slim margin. Whereas, on the Kalshi platform it was clear that wasn’t the case and on election day that is exactly what happened as the nation turned red in every swing state.
Following the U.S. election, concerns about election tampering emerged, similar to the scrutiny faced by Cambridge Analytica in the past. Polymarket, a betting platform, came under investigation when the FBI arrived at its CEO’s Soho home with a warrant the day after the election. The investigation focused on claims that Polymarket had accepted trades from U.S.-based users, despite its platform being restricted to international bettors.
Meanwhile, Kalshi, a derivatives trading platform, achieved a significant legal victory in October when a U.S. federal appeals court upheld a decision allowing the platform to list event contracts that let Americans bet on election outcomes. The court ruled that the Commodity Futures Trading Commission (CFTC) had failed to demonstrate any irreparable harm to itself or the public.
In light of changing regulatory interpretations, Polymarket announced plans to resume operations in the U.S. On election day, both platforms experienced significant user engagement. Polymarket became the second most popular free app globally among international bettors, while Kalshi secured the top spot on Apple’s list of free finance apps in the U.S., reflecting its legal accessibility to American users.
The election process in comparison to previous ones has evolved as our technology supporting campaigns has changed. Back when Barack was first elected it was clear that social media now played a stakeholder position in the electoral outcome. Then came Cambridge Analytica which encouraged social media algorithms to amplify Donald’s message onto undecided voters creating an echo chamber of content. Now prediction markets are next and individual investors are partaking in the capital gain that is to be made off of an outcome coming into fruition.
Kalshi is well positioned to be a leader in the polling and betting market space as Trump returns to office. While it’s still not entirely understood why traditional polls understated a Trump presidency, it’s clear that when the average consumer has capital on the line whatever perceptual discrepancies existed previously quickly evaporate in favor of securing a positive return.
This leads me to question: will interested investors and parties start betting over and under on this administration's proposed policies i.e. tariffs, key foreign policy decisions and immigration? Will it be as popular during the midterms? All in all, the uncertainty of the future would make a repeat gambler foam at the mouth. Kalshi is singular in its ability to capitalize on the instability of the 21st century, however how will this affect the greater good and increase standards of living for all, if we’re praying some outcomes aren’t favorable to another.