Introduction
US Regulated Event Exchange Kalshi Captures Prediction Market Dominance Amid Legal Disputes By BBC News Technology and Finance Desk Kalshi, the US-based financial exchange that allows trading on the outcomes of real-world events, has dramatically surged to become the dominant platform in the burgeoning prediction market sector, surpassing rivals with a volume boom largely driven by sports contracts. The firm’s rapid growth, underpinned by its status as a regulated Designated Contract Market (DCM), has simultaneously triggered a fierce legal and competitive backlash from traditional US sports betting operators and state regulators concerned that Kalshi’s offerings operate as illegal gambling. The company, founded in 2019, has seen its monthly trading volume eclipse the $1 billion mark, solidifying its position ahead of decentralised, crypto-native competitors like Polymarket. This remarkable shift in market share, which some data suggests puts Kalshi in control of up to 66% of the prediction market volume, is attributed to a successful strategy focused on regulatory compliance within the United States. Kalshi’s exchange status, granted by the Commodity Futures Trading Commission (CFTC), provides a level of certainty and institutional confidence unavailable to unregulated platforms. The Role of Regulatory Clearance Kalshi’s regulatory journey has been complex but ultimately advantageous. The company scored a pivotal legal victory earlier this year when a US district court ruled in its favour, challenging a CFTC decision that had prevented the listing of political election-related event contracts. Following that ruling, the CFTC dropped its appeal in May, effectively legalising a new category of trading activity on the platform just ahead of a major election cycle. The Head of Crypto for Kalshi, John Wang, stated that the company’s adherence to the lengthy regulatory process was a deliberate choice that is now yielding results.
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“We played the long game and we were able to legalize right before the election, we seized the opportunity and did the best we could,” Mr Wang told reporters at a recent industry event. “Prediction markets and event contracts are now being held at the same level as normal derivatives and stocks — this is genuinely like the new world’s newest asset class. ” Sports Contracts Drive Record Volume While the political contracts garner attention, the true catalyst for Kalshi’s recent record-breaking trading volumes has been the aggressive expansion of its sports-related offerings. Data reveals that during recent peak activity periods, nearly all volume—sometimes as high as 98%—involved contracts related to major sporting leagues, particularly the US National Football League (NFL). This rapid acceleration saw the platform process over $500 million in weekly trading volume in September alone. This reliance on sports, however, is the core of Kalshi’s legal uncertainty. While Kalshi maintains that its event contracts are federally regulated financial instruments used for hedging or expressing specific market opinions—much like other derivatives—critics, including state attorneys general and various tribal gaming organizations, argue they function identically to sports betting, which is typically regulated at the state or tribal level. Market Shockwaves and Legal Conflict The controversy intensified when Kalshi introduced same-game parlay products, allowing traders to combine the outcomes of multiple events within a single contest. The move sent shockwaves through the established US online sports betting sector, with major industry players like DraftKings and Flutter Entertainment (owner of FanDuel) experiencing significant drops in share value as investors reassessed the competitive threat.
Paul Leyland, a partner at Regulus Partners and industry analyst, warned that Kalshi’s pricing flexibility, derived from its non-gambling regulatory structure, could fundamentally alter the competitive landscape. “More sophisticated customers who are also very high value and potentially VIPs may only be doing two or three-leg parlays quite often, and in that case therein lies the risk,” Mr Leyland suggested. “You move the VIPs, you pull the liquidity out of the sports betting market. ” This view is echoed by legal experts who believe the introduction of products closely resembling traditional wagers complicates Kalshi’s defence. One legal expert, speaking anonymously due to ongoing professional involvement in related matters, commented that these new offerings “completely shatter the fiction that sports-event contracts do not constitute ‘gaming’ for purposes of the Special Rule and related CFTC regulatory prohibition. ” They added that courts may soon “connect all the obvious dots and see these products for what they really are — illegal sports bets, not financial instruments. ” Kalshi is currently defending lawsuits filed by various tribal groups in California and facing legal action from state regulators in jurisdictions like Massachusetts. Strategic Crypto Integration and Outlook Despite the legal battles, Kalshi is pressing forward with a two-pronged strategy: solidifying its regulated footing while simultaneously embracing the crypto and blockchain ecosystems. The company recently announced partnerships with major blockchain networks like Solana and Base, aiming to integrate its platform into major crypto applications within the next year.
Mr Wang framed this initiative as a way to engage with sophisticated traders and developers, viewing prediction markets as an entry point for wider digital asset adoption. “Prediction markets are like the Trojan Horse for [people] to enter crypto,” he said, asserting that the regulated nature of the exchange provides a secure bridge for new audiences. The company plans to use the blockchain to push real-time event data for developers to build new tools and venues for informational arbitrage. The future of Kalshi, and the prediction market sector as a whole, now hangs on the outcome of the numerous legal challenges currently pending across the United States. Should the courts affirm Kalshi’s right to operate its contracts under the exclusive jurisdiction of the CFTC, the platform is positioned to reshape the market for information and risk transfer on a vast array of real-world events. Conversely, an adverse ruling that classifies key contracts as state-regulated gambling could severely restrict the platform’s geographical reach and slow its momentum against traditional bookmakers. The convergence of financial derivatives, technology, and wagering remains a defining battleground for regulators.
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