👋 Welcome to Predicted, the newsletter covering the business of prediction markets.
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Before we get into it, if you haven't read our Q2 2026 report yet, it's over 70 pages, and it's free.
Discussed in this piece:
Which firms are already supplying liquidity, infrastructure and distribution
Which institutions may use prediction markets to trade, hedge or source information
Why the market is becoming more investable now
What still has to improve before participation can scale
Written and researched by Omar El Safy, edited by Pet Berisha.
A decade ago, institutional adoption was a pipe dream for crypto. Now it's the north star. Every project is pivoting toward it, because that is where the money is.
Prediction markets moved faster. Kalshi got its CFTC designation in 2020. Susquehanna became its first institutional liquidity provider in April 2024.
On 19 August 2026, Cantor Fitzgerald began brokering institutional block trades in Kalshi contracts. Six years, start to finish.
Hedge funds have not flooded in yet. But the route is taking shape. Some institutions are building and supplying the market. Others want to trade it.
That is two constituencies, not one.
Supply quotes prices, provides depth, and builds the rails around them. Demand trades, hedges, or speculates on top of them.
In April, we mapped the demand side in Who Is the Customer? This series widens the frame. Who is building the institutional stack? Who is using it? What is still missing?
01 — Who's actually here?
We've been covering prediction markets since November 2025, across three data-backed reports. All of them point the same way. Uncharted growth, with new waves of institutions circling.
Our 2025 report tracked the first moves. iGaming and trading giants, acquiring their way in.
By Q1 2026, that activity had accelerated. Acquisitions stopped being speculative bets on the category. Firms started integrating prediction-market products into what they already ran.
Our Q2 report caught the early signs of real product-market fit, at Robinhood and DraftKings especially, with other large platforms starting to take notice.
Predicted Q2 Report
By the end of Q2, the ambition had shifted again. Firms stopped just participating. They started buying the stack itself. Licences. Clearing. Liquidity. Distribution. Eventually, the customer relationship.
On the supply side, Susquehanna, Jump Trading, DRW, Clear Street, Marex, River and AQR have all arrived in the past eighteen months. Most are on the sell side. They quote prices, supply depth, and take the other side of customer flow.
On the platform side, the trend is to own the rails, not rent them. The M&A activity makes the point on its own.
Robinhood and Susquehanna built Rothera, a joint venture that has cleared more than 3.5 billion contracts since June.
Kraken agreed to pay up to $550 million for Bitnomial, an exchange, a clearinghouse and a broker in one deal.
Coinbase is acquiring The Clearing Company, and folding prediction markets into its own trading app at the same time.
Those are hard assets to replicate. They decide who can list contracts, clear trades, manage collateral, reach customers, and keep the economics of every trade that runs through them.
Predicted Q1 2026 Report
AQR's quant team is already building trading strategies across financial, economic, sports, political, cultural and crypto event contracts.
But institutions are not arriving for the same reason.
Prop and quant firms need speed, APIs, and enough depth to trade a view.
Market makers need efficient collateral, netting, and balance-sheet support.
Platforms need licenses, clearing, and distribution they can control.
Corporate hedgers need contracts that match real exposures, alongside clarity on tax and hedge accounting.
The demand side is starting to open too. Cantor began offering block trading in Kalshi contracts to roughly 3,000 institutional clients this month, with Susquehanna providing the liquidity behind it.
02 — Why now?
One thing is volume. Prediction markets are no longer a niche corner of crypto. They are mainstream.
Predicted Q2 report.
But volume alone does not bring institutions in.
Institutions are coming now because prediction markets are emerging as useful in three ways at once.
As Information.
As a financial instrument.
And as a hedging tool.
The clearest signal is ICE.
ICE, which owns the New York Stock Exchange, pledged up to $2B for Polymarket in October 2025, at a valuation of roughly $8B before the money went in, and completed it with a further $600M in March.
It invested because, in large part, prediction-market prices can be sold as data.
In February, it launched Polymarket Signals and Sentiment, calling itself the exclusive provider of that data for institutional capital markets. It runs through the ICE Consolidated Feed, the same pipe ICE sells its other market data on.
Keyrock’s research supports this and finds prediction-market prices are more accurate than polls, expert forecasts, and weather models. Its average Brier score sits near 0.09 (where lower is better).
That is useful even if you never place a trade. It is a live, crowd-priced view of what happens next.
Say a market puts a 70% chance on a rate cut, an earnings beat, or a hurricane making landfall. A portfolio manager can watch that number move, then compare it with what is already priced into stocks, futures, options, or swaps.
As a financial instrument.
Keyrock calls event contracts the simplest form of derivative exposure.
The contract itself is simple, too. Buy YES if you think it happens. Buy NO if you think it does not. When the event resolves, the winning side gets paid.
Then there is the newest category, private markets. We noted this in our 2025 state of prediction market report: enterprise and private could have the highest growth potential of anything we have covered. In Q2, we noted that Polymarket started to price pre IPO markets for Anthropic at $1.74T and OpenAI at $1.36T, both above their last rounds. So there is some inaccuracy now, but no doubt these things, with enough activity, could provide excellent exposure management.
As a hedging tool.
Weather derivatives have existed since 1997, but they were mostly bespoke products for large firms. Now an ice-cream shop can cover 43% of its rent with $20-a-day weather contracts, while through intermediaries a La Liga club has hedged relegation and a New York bar has hedged the cost of a free-drinks promotion.
The desire to look beyond sports.
Predicted Q2 Report
Sports is 80 to 90% of Kalshi's volume. In August 2026, a Connecticut judge ruled those contracts are not swaps. His reasoning: the event is the game itself, not who wins it. If they are not swaps, the federal shield against state gambling law gets thinner.
Growing into macro, weather, and earnings is not just upside for Kalshi and Polymarket. It is the legal argument, and where the demand is from institutions.
As previously mentioned, Cantor opened block trading to roughly 3,000 clients this month. The funds told the Wall Street Journal what they wanted. Weather. Commodity prices. Corporate earnings. iPhone sales. Not necessarily sports.
Susquehanna's Joe Grubb has said the next area of material growth is large institutional risk transfer, tailored contracts for hedging bespoke industry risk that traditional insurance does not serve.
03 — What do institutions need?
Six things stand between institutions and full participation. Solid economics. A menu worth trading. Liquidity outside sports. Size. An exit. And regulatory sign-off.
First, the economics.
If you see prediction markets and see gambling, here is a good counterargument to that.
Michael Mauboussin, of Morgan Stanley, takes the other side. In The Wisdom of Crowds in Markets, he puts prediction markets in the same bucket as sports betting and parimutuel pools, and notes the three have converged further since prediction markets began listing sports.
All of them are zero-sum before costs. Every dollar won is a dollar someone else has not, and the venue takes a fee. The stock market is different, in his words, because "the values of businesses tend to grow over time."
The scale of that difference.
American gamblers lost $5.8T in today's money between 1929 and 2025.
Over the hundred years to 2025, the US stock market created $91T of wealth.
That matters to an institution because it is a market that compounds; you can earn a return simply by being present. In a zero-sum one, every dollar you make comes off somebody else at the same table.
So firstly, it matters which side of the trade you are on:
You can post a price and wait for someone to trade against it, which makes you the maker.
You can take a price already sitting there, which makes you the taker. Most people take, because waiting is slow and you might never get filled.
An analysis of millions of Kalshi trades, cited in Mauboussin's report, sorted the results by which side of the trade the person was on. Makers, the ones posting prices, came out ahead by 112 basis points, a little over 1% of what they traded, a big number when you are turning over millions of dollars a day. Takers came out behind by the same amount.
Secondly, the menu. In Q2 2026, sports was 86% of Kalshi's notional volume, and Kalshi is most of the volume in this sector. Strip sports out, and what is left politics, weather, macro, corporate outcomes- is thin.
Thirdly, liquidity. Nobody quotes the thin part. In late May, the research shop Oddpool fired 96 requests for quotes into Kalshi's non-sports markets. Fed funds, CPI, GDP, hurricane categorisation among them. Zero came back. Sports told a different story. 13 makers answered in the same window, split 8 on singles and 5 on combos, no overlap between the two groups. Even there it thins fast. At $2,000 a ticket on the deepest sportsbook on the exchange, only 2 of them were still quoting.
Fourthly, size. blocmates, working from 476 million trades, found a $10,000 order moved the price by 10 cents in early 2024. By late 2025, thousands of markets absorbed that same order within a penny. Cantor's block desk moves multiples of that clip, and nobody has published a depth number at that size.
Fifth, an exit. A hedge you cannot unwind is not a hedge; it is a bet. Nobody publishes how spreads behave as a market nears resolution, the moment a hedger needs out. The 112 basis points above point the same way.
Sixth, sign-off. Kalshi bought Nasdaq's surveillance stack this month, the same system running under more than 50 exchanges and 20 regulators, and hired Jeff Bandman, a former CFTC official, to run Kalshi Prime. This is essentially a compliance stack that helps position toward institutions in a much more pointed way.
Clearing is the one piece that already works. A clearinghouse stands between both sides so neither carries the other's credit risk. Kalshi Klear has been running since August 2024. It's a large part of why Susquehanna can quote at all.
This is Part One of a series on institutions in prediction markets.
Part Two asks what institutions could actually trade, and at what size.
Subsrcibe to get the rest!
Disclaimers
This newsletter is for informational purposes only and is not financial, business or legal advice. These are the author's thoughts & opinions and do not represent the opinions of any other person, business, entity or sponsor. Any companies, platforms, markets or projects mentioned are for illustrative purposes unless specified.
The contents of this newsletter should not be used in any public or private domain without the express permission of the author.
The contents of this newsletter should not be used for any commercial activity, for example, research reports, consultancy activity, or paywalled article without the express permission of the author.
Please note, the services and products advertised by our sponsors (by use of terminology such as but not limited to; supported by, sponsored by or brought to you by) in this newsletter carry inherent risks and should not be regarded as completely safe or risk-free. Third-party entities provide these services and products, and we do not control, endorse, or guarantee the accuracy, efficacy, or safety of their offerings.
When you trade on prediction markets (including event contracts, opinion markets and other speculative instruments) your capital is at risk. Risks include price volatility, loss of capital, illiquidity, complexity, evolving regulation and lack of protection. Many prediction market operators do not currently operate in a fully regulated industry, and availability varies by jurisdiction. You may not be protected under financial compensation schemes typically afforded to investors dealing with regulated entities. Nothing in this newsletter constitutes a recommendation to place, hold, or close any position on any market.
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