A strategic partnership last October connected the biggest name in financial market infrastructure with the prediction market sensation Polymarket. Intercontinental Exchange committed to invest up to $2 billion in a company then valued at $8 billion and now well above $10 billion, as is the valuation of competing prediction platform Kalshi.
“Our investment blends ICE, the owner of the New York Stock Exchange, which was founded in 1792, with a forward-thinking, revolutionary company pioneering change within the decentralized finance (DeFi) space,” said ICE Chair and CEO Jeffrey C. Sprecher. “There are opportunities across markets which ICE together with Polymarket can uniquely serve, and we are excited about where this investment can take us.”
On February 11, ICE unveiled a product of the collaboration: Polymarket Signals and Sentiment, offering “normalized data feeds representing Polymarket’s prediction markets.” In other words, “crowdsourced probability assessments as market signals.”
“It’s so rare for new datasets like this to become available at such a quick pace,” stated Chris Edmonds, president of ICE’s Fixed Income and Data Services. “But with our sophisticated AI and data science experience, we’re able to normalize the data to help our customers convert the wisdom of those markets into signals that they can use to develop alpha generation strategies and manage risk.”
Polymarket data takes its place among Intercontinental Exchange’s new signals and sentiment solutions.
“As prediction markets mature, their value to institutional investors becomes clearer,” said Polymarket founder and CEO Shayne Coplan. “These markets reflect collective expectations on market-moving events in near real time and have quickly emerged as a credible input alongside traditional data sources. Working with ICE helps ensure that those signals can be accessed, interpreted, and applied in a way that can be used as a resource for institutional market participants.”
This intersection of financial and prediction markets is crowding up.
Cboe Global Markets views the prediction space as “a logical extension,” according to one executive. “Cboe Might Challenge Prediction Markets with All-or-Nothing Trades,” the Wall Street Journal headlined on February 2.
Tradeweb CEO Billy Hult
Cboe’s bigger derivatives rival CME Group has forged an alliance with FanDuel, a leader in the adjacent sports betting field, to offer contracts based on benchmarks such as the S&P 500 and Nasdaq 100; on oil, gold commodity and cryptocurrency prices; and on economic indicators. “Our event-based products will appeal to the growing public interest in markets, and we will provide education to attract a new generation of potential traders not active in derivatives today,” said CME Chairman and CEO Terry Duffy.
By February 13, eight weeks after launch, 100 million event contracts had traded over CME.
Also on the bandwagon, Tradeweb Markets made a minority “partnership” investment in Kalshi.
“Prediction markets are increasingly becoming a key part of the trading landscape and have the potential to become an indicator for institutions to dynamically assess macro risk and allocate capital more effectively,” Tradeweb CEO Billy Hult stated on February 19. The e-marketplace operator invested “based on our belief that the institutional trading stack will soon evolve to pair high-quality event data with modern market structure.”
ICE touts its status with Polymarket as “exclusive provider for institutional capital markets.” In another “exclusive partnership,” Dow Jones is making Polymarket’s real-time prediction market data available across platforms including The Wall Street Journal, Barron’s, MarketWatch and Investor’s Business Daily. Kalshi in December announced tie-ins with CNBC and CNN.
These deals are emblematic of a body of opinion that prediction markets are more than a meme or craze inviting speculative bets on politics or sports.
“It’s a rapidly growing source of real-time insight into collective beliefs about future events,” said Dow Jones CEO and WSJ publisher Almar Latour.
“People have more clarity about the world because Polymarket exists,” Coplan tweeted when boasting that 26 of the 28 Golden Globes award winners were correctly predicted on the platform.
Kalshi CEO Tarek Mansour, shown with co-founder Luana Lopes Lara, says his platform has “the scale, breadth of markets, and liquidity” to help institutions manage their risks.
Prediction markets are “the most effective way to aggregate information and the crowd wisdom,” Tarek Mansour, co-founder and CEO of the U.S.-regulated Kalshi, has said.
Like Polymarket, Kalshi gained significant attention and traction with accurate forecasts of the 2024 presidential election. (It has not gone unnoticed that Donald Trump Jr. is an adviser to both Polymarket and Kalshi, while the Trump Media & Technology Group developed its own Truth Predict.)
There are also signs of institutionalization in the market-making sector. Jump Trading was eyeing stakes in both Kalshi and Polymarket, related to establishing itself as a liquidity provider, according to Bloomberg. Citadel Securities CEO Peng Zhao took part in a Kalshi funding round last year.
Before starting Kalshi in 2018, CEO Mansour worked in quantitative trading at Citadel and Goldman Sachs, his co-founder Luana Lopes Lara at Citadel and Bridgewater Associates.
“I witnessed the institutional demand for prediction markets firsthand 10 years ago,” Mansour said when announcing the Tradeweb relationship. “Investors were trying to figure out how to price and manage risks related to Brexit and the upcoming election. Institutional adoption requires scale, regulation, trust, and substantial liquidity. Today, Kalshi has the scale, breadth of markets, and liquidity required to help institutions manage the risks they face.”
Tradeweb’s Hult added that with Kalshi, “we’re positioned to deliver prediction markets intelligence to clients and, over time, build the prediction-markets trading infrastructure that meets the standards of our institutional community.”
Prediction markets are reported to be the fastest-growing product on Robinhood and a component of its “financial super app” vision. Crypto exchange Coinbase, like Robinhood, is a Kalshi partner, and Gemini Space Station, though cutting staff and international activities, is not retreating from prediction markets after recently being licensed by the Commodity Futures Trading Commission (CFTC).
Interactive Brokers Group’s founder and chairman, Thomas Peterffy, revealed that the firm had been “working on and experimenting with [a prediction market] for nearly 10 years” prior to the launch of its ForecastEx subsidiary in June 2024. By October it was offering contracts on the presidential race and a number of down-ballot outcomes, and was planning to expand “globally, covering a broader range of election events and other major issues.”
IBKR’s Thomas Peterffy
“Planning for the future is the ultimate task for any business leader, government official or individual,” Peterffy said. “For those plans to work according to expectations, they must fit into unfolding conditions resulting from all our actions. The more perfect information we have about the state of the world, the more perfectly we can plan and coordinate our actions.
“Markets are the most direct ways of expressing our unbiased expectations, and market prices tell us the prevailing consensus. We may adjust our plans based on consensus forecasts or express our disagreement to earn a profit or hedge our exposures.”
“Economists have noticed that betting markets like Kalshi and Polymarket are pretty good at predicting not just political events but economic data, too,” according to a February 11 New York Times article.
These markets’ executives resist the “betting” label. It places them at the center of legal and regulatory-jurisdiction debates.
“Prediction market platforms are offering contracts that mirror sportsbook wagers and, in some cases, contracts tied to war and armed conflict,” Senator Adam Schiff of California and 22 Democratic colleagues contended in a February 13 letter to CFTC Chairman Michael Selig, who defends CFTC oversight of event contracts. “These products evade state and tribal consumer protections, generate no public revenue, and undermine sovereign regulatory regimes.”
To Selig, event contracts are derivatives and useful for price discovery and risk hedging. Senator Elizabeth Warren of Massachusetts (who did not sign the Schiff letter) denounced Selig for wanting to encroach on states’ regulation of gambling and said “the CFTC should focus on ensuring our derivatives markets don’t blow up the economy again.”
In “The Super Bowl of Prediction Markets”, posted February 8 on Andreessen Horowitz’s a16zcrypto, Harvard Business School economist Scott Duke Kominers wrote, “Over the past year, prediction markets in the United States have generated at least $27.9 billion in trading volume, tracking everything from sporting events and economic policy decisions to new product launches . . . Prediction markets are markets, and markets are a fundamental tool for allocating resources and aggregating information. They harness this power by introducing an event-specific asset that pays off if a given outcome occurs, allowing people to place trades based on their own beliefs about what will happen.”
Cristian deRitis of Moody’s
As Moody’s Analytics deputy chief economist and GARP Risk Insights featured columnist Cristian deRitis lays it out, “The market price of these contracts reflects the collective probability that participants assign to different outcomes. If a contract pays $1 if an event occurs and $0 if it doesn't, a price of $0.65 suggests the market believes there’s a 65% chance the event will occur.”
What began centering on election results – a university project, Iowa Electronic Markets, is regarded as having planted the seed in 1988 – has widened to include “geopolitical events, technology trends, and, increasingly, economic indicators and policy decisions,” deRitis points out.
Amid the buzz about prediction markets, hyped up by projections like that of Eilers & Krejcik that annual trading volume could hit $1 trillion by 2030, deRitis says clients are asking whether they should factor the data into investment and risk outlooks.
“The answer is increasingly ‘yes, but thoughtfully,’” he says. “These markets represent a valuable source of real-time probability assessments that can complement traditional risk analysis.” It is important to understand their limitations; they can contribute to judgment, not replace it.
In an environment of unprecedented uncertainty, “including geopolitical volatility, rapid policy shifts, and technological disruption, having multiple lenses through which to assess probability and risk is essential,” deRitis continues. “Prediction markets offer one such lens, and they're becoming too significant to ignore.
“The question isn’t whether or not to pay attention to them, but how to incorporate them thoughtfully into existing risk management frameworks.”
DeRitis still leans heavily on “hard data and econometric models,” and on the Superforecasters of Good Judgment. Philip Tetlock, a University of Pennsylvania professor and co-author of “Superforecasting: The Art and Science of Prediction”, recently joined the board of Interactive Brokers’ ForecastEx.
Scott Duke Kominers
A study comparing Kalshi data with more traditional surveys and forecasts, published in the Federal Reserve Board’s Finance and Economics Discussion Series, suggested “that Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.”
Kominers underscores the difference between sportsbooks, which adjust odds based on betting action in order to encourage bets on long shots, and prediction markets where people “trade based on what they truly believe.
“Prediction markets also make it easier to extract signals from the noise. If you want to estimate the likelihood of new tariffs, you could try to infer beliefs about the answer indirectly from the price of soybean futures, whose value reflects many forces at once. But it’s much more direct to pose the question through a prediction market.”
“People don’t lie when money’s involved,” Kalshi’s Mansour maintained. “You want to be right about your predictions so you don’t lose money.”
“You’re incentivizing people not to give you their bias but to give you their informed opinion,” J. Christopher Giancarlo, ex-CFTC chairman, digital dollar advocate, and Willkie Farr & Gallagher senior counsel, said in a Crypto Briefing podcast.
Patrick L. Young, a veteran markets executive and commentator who publishes the Exchange Invest daily newsletter, has long believed in the value of prediction markets. He argues that they should not be regarded as merely a speculative game and that they have institutional potential on top of the retail appeal that captures most headlines.
“Beyond the vital specialist fervor of professional financiers, we must be sanguine about how much 'hoi polloi' truly think about markets,” Young says. “Ask a corner of Main Street USA their outlook for Treasury bonds and a couple of folks might outline a coherent answer. Move to the stock market, and even in heady bull markets such as the present, barely five in 10 truly muster an informed opinion.”
Source: Coalition Greenwich flash study, 53 responding market-structure specialists.
A plurality of market-structure specialists in a Crisil Coalition Greenwich survey had a positive view of “wisdom of the crowd” prediction markets as “a novel alternative and supplementary dataset that can help separate signals from noise.” “New speculation vehicles” and hedging were among the mentioned uses. (See graphs above and below.)
“Prediction markets are more than a fun game or a joke on ‘South Park’,” remarks Diane Dye, CEO, People Risk Consulting. “They are live app mechanisms that show not only what people think moment by moment, but how they put their money where their mouth is. They change real-time beliefs into the potential for probability-based forecasts.
“It’s an emerging, yet underutilized, data source that has been around for decades, but many companies are not leveraging.”
* Other includes market sentiment data, information value only, a new source of uninformed investors for sophisticated investors to profit from. Source: Coalition Greenwich flash study.
Duncan (DJ) Hennes, managing director in KPMG’s Financial Services Risk, Regulatory, and Compliance Advisory practice, identifies several growth-enhancing trends:
“These trends are driven by strong retail consumer demand, a search for new growth opportunities by the gaming and financial industries, and a more permissive regulatory environment,” Hennes summarizes.
Even as prediction markets gain institutional credibility, full-scale adoption remains some distance away, in the view of Braden Perry, co-founder and partner – litigation, regulatory and government investment, Kennyhertz Perry.
“The biggest gating issue hasn't been demand, but regulatory certainty and coherence,” Perry says. These markets reside “at the intersection of derivatives law, gaming regulation, and financial market structure. Until there's a clear regulatory framework, platform growth will be uneven. As with emerging markets before, the regulations lag the innovation, and those currently in the game are facing uncertain risks.”
DeRitis of Moody’s sees the lines blurring between prediction markets and sports betting, both now clearly on the upswing.
“Many platforms, technologies and participants now move fluidly between betting on sporting events and forecasting political or economic outcomes,” deRitis explains. “This convergence raises important questions about the nature of these markets. Are they information aggregators or gambling venues? The answer increasingly seems to be both.”
In an X post reported February 14 by Cointelegraph, Ethereum co-founder Vitalik Buterin, who was an early investor in Polymarket, decried prediction markets’ “over-converging” toward short-term betting that lacks “any kind of long-term fulfillment or societal information value.” He’d prefer to see “a totally different use case: hedging, in a very generalized sense.”
KPMG’s DJ Hennes
In Buterin’s view there are “two types of actors: ‘smart traders’ who provide information to the market and earn money; and necessarily some kind of actor who loses money.”
DeRitis notes that event-contract approvals by the CFTC are contributing to the legitimacy. But there remains ambiguity as some markets are obviously gambling and others present themselves as forecasting tools.
“Regulations on insider trading and other, permissible actions can differ greatly across jurisdictions and platforms, which complicates interpreting their outcomes,” deRitis adds.
Lower barriers to entry, aided by technology, are stimulating growth, and the popularity and ease-of-use of sports betting is raising those users’ interest in and comfort with event-based wagering. Regulatory clarity will draw the attention of institutional firms “interested in brokering contracts or engaging in them for speculation or hedging,” deRitis says.
Variances or conflicts between CFTC and state-level regulation (see, for example, Prediction Markets v. State Gaming Laws) have to be navigated and are “being contested in all three branches of the federal government,” KPMG’s Hennes observes. “The ultimate outcome, which may eventually be decided by the Supreme Court, will be critical in determining the trajectory of this industry.”