Everyone assumed the old infrastructure was permanent
It never is. The sportsbooks spent a decade and a fortune assembling state-by-state licenses, convinced the patchwork itself was the moat. The exchanges assumed event contracts were a novelty act. The regulators assumed they could simply decline to engage. Each was proven wrong on roughly the same timetable, and for the same reason.
A prediction market is a deceptively boring thing: a contract that pays a dollar if something happens and nothing if it doesn’t. Price it between zero and a hundred cents and you have read a probability straight off an order book. That mechanism is older than the people now getting rich from it. What changed in the last two years was not the instrument. It was who was allowed to list it, who decided to clear it, and which regulator was willing to plant a flag.
“The contract didn’t get more sophisticated. The wrapper around it did, and the wrapper is the entire fight.”
This paper does two things. It walks the last two years — the regulatory inversion, the capital flood, the venue scramble, the arrival of the incumbents, participant by participant, because market structure is a story about who occupies which seat. Then it carries the picture three years forward, with the usual caveat that anyone forecasting this industry in 2024 was wrong, and probably modestly so.
Abstract
Between early 2024 and mid-2026, U.S. prediction markets went from a single contested venue trading election contracts to a multi-venue, vertically integrating sector that cleared roughly $44 billion of global volume in 2025 and $29.8 billion in April 2026 alone — with the New York Stock Exchange’s parent, the country’s largest derivatives exchange, both major sportsbooks, and a Coatue-led $22 billion Kalshi round all inside the stack. The decisive variable was never product. It was jurisdiction: the moment the CFTC chose to treat event contracts as its exclusive province, the federal derivatives wrapper became a way to route around fifty separate state gambling regimes with a single license. Institutions remain on the data more than in the book — estimated under 5% of open interest — but the sell side has begun to stir. The fight that remains — federal preemption versus state police power, now across 19 federal lawsuits with a circuit split forming — is the single largest determinant of the structure that exists in 2029. In June 2026 the CFTC made its first concrete move — a proposed rule (RIN 3038-AF65) treating macroeconomic, financial, political, and sports-outcome contracts as presumptively permissible rather than presumptively suspect, the most permissive federal posture in the agency’s history — though it is a proposal still, and it leaves the preemption question itself untouched.
Sources: RiskSmart Intelligence; Dune Analytics/DeFi Rate; WSJ, CoinDesk, PYMNTS; CRS; Holland & Knight; Norton Rose Fulbright; CNBC; Reuters. Figures are point-in-time, updated weekly.
From one courtroom to the whole street
The transformation has a clean arc: a regulator stops fighting, capital notices, the product finds its real demand in sports, the venue licenses become trophies, and the incumbents arrive last — as they always do.
The starting point: a single venue, openly resisted
In the first half of 2024, the sector was essentially one disputed exchange and a crypto platform that claimed to block U.S. users. Kalshi was litigating the CFTC for the right to list election contracts at all — a fight it won in the D.C. Circuit, the foundational federal precedent that election contracts are not “gaming.” The Commission, under its prior leadership, went the other way: in June 2024 it proposed a rule branding political and sports event contracts “contrary to the public interest.” The rule was never finalized. That non-finalization became one of the most consequential events in the sector’s history.
The one early sign of where this was heading came in April 2024, when Susquehanna International Group — one of the largest options market makers in the world, an entire firm built around pricing probabilities — became the first major financial institution to publicly make markets on Kalshi. The mechanics were familiar. The spreads were absurdly wide. There was nobody else there.
The inversion: the regulator changes sides
The 2024 election cycle proved the demand; the change in administration changed the posture. On January 29, 2026, CFTC Chairman Michael Selig withdrew the Biden-era proposed ban, vacated a 2025 staff advisory, and directed new “clear standards” rulemaking — calling the prior posture “a frolic into merit regulation.” By February the Commission had replaced posture with doctrine: event contracts are swaps, swaps are federal, and the states are intruding.
“Truth machines. They create accountability, transparency, and information.”
CFTC Chairman Michael Selig · FIA Boca · March 10, 2026
The classification that did the work
If a sports event contract is a “swap” under the Commodity Exchange Act, it is federally regulated and — the CFTC argues — shielded from state gambling law by preemption. That single classification lets a platform offer what looks, smells, and pays out like a sports bet in states that never legalized sports betting, under one federal license instead of forty separate state ones. The entire 2025–26 scramble is downstream of that sentence.
The capital flood
Once the legal ambiguity began to clear, the money arrived at a pace that embarrassed every prior estimate.
Signal from the field
The shift from retail experimentation toward institutional relevance is now a topic on the volatility podcasts the buyside actually listens to. On Dean Curnutt’s Alpha Exchange (May 11, 2026), the conversation turned to prediction markets tied to elections, Fed policy, GDP, inflation, and geopolitical outcomes — framed explicitly as moving from retail experimentation toward institutional relevance, with Kalshi as the reference venue and the discussion’s sentiment on the category running net positive.
That is the tell: prediction markets have migrated from the gambling press into cross-asset volatility conversations among risk professionals. The retail plumbing already exists; the institutional analytical layer — mapping event probabilities into pricing, risk, and reset workflows — is the part that still doesn’t exist at scale. That gap is the opportunity.
The shape that emerged
By spring 2026 the sector had four things it lacked two years earlier: a federal regulator actively defending it in court, an incumbent exchange complex (ICE, CME, now Cboe and Nasdaq) inside the tent, a retail distribution layer reaching tens of millions of accounts, and a structural enemy — the states, the sports leagues, the tribes, federal prosecutors, and a growing bipartisan bloc in Congress — large enough to put the whole thing at risk. That tension is the market structure. Everything below is who sits where inside it.
This stopped being about election betting
Before the history, the question every institutional reader is entitled to ask: why should an exchange, a bank, an asset manager, or a risk desk care about a market that still trades mostly Super Bowl contracts?
Because what is actually being built here is a new financial function, and it has a name now — information finance: the business of turning information into a priced, tradeable, hedgeable instrument. Susquehanna and DRW already staff desks under that banner; what the category lacks is not participants but a definition. Prediction markets are simply its first liquid instrument. Seen that way, the contract is quietly becoming four things at once, only one of which is entertainment:
- A real-time probability feed. A continuously-priced, skin-in-the-game estimate of discrete events — now Fed-validated as competitive with consensus forecasts and fed funds futures.
- A new derivatives asset class. Binary, exchange-listed, centrally cleared, and increasingly wrapped into structured notes a dealer can sell.
- A macroeconomic signal. A faster, sharper read on rate decisions, elections, and geopolitical risk than the surveys and wires it competes with.
- A future input into pricing, risk, margin, and portfolio construction. The day a desk hedges a discrete-outcome exposure with an event contract, it becomes plumbing — not a curiosity.
That is the lens for everything that follows. The history matters because it explains how a fringe instrument acquired federal infrastructure; the infrastructure is why the instrument now lands on the desks of people who have never placed a bet in their lives.
What event contracts measure that options can’t
The fair challenge: we already have futures, options, CDS, fed funds futures, election ETFs, and structured products. What does a binary event contract measure that those don’t?
The distinction is the whole pitch for information finance: options give you volatility; information finance gives you the probability itself. Explicit probability, cleanly, on events the existing toolkit prices only indirectly or not at all. An option encodes a probability distribution over a continuous price, entangled with volatility, time, and rates — you can back out an implied probability, but you are inferring it, not reading it. A prediction contract is the probability: a price of 38 cents is a 38% chance, full stop. And it extends to exogenous, non-financial events — a specific election outcome, a rate decision on a named date, a geopolitical trigger — that no clean listed instrument covers.
| Instrument | What it actually measures |
|---|---|
| Polls / surveys | Stated opinion, no money at risk, slow to update |
| Futures | Directional economic exposure to a continuous price |
| Options | Volatility and a distribution — probability only by inference |
| CDS | Default probability, but only for credit events |
| Prediction / event contracts | Explicit probability of a discrete, named outcome — including non-financial ones |
That is the intellectual foundation for institutional interest. Not that event contracts replace the derivatives complex, they fill a specific hole in it: a clean, tradeable, centrally-cleared probability on the discrete events that move portfolios but resist the continuous-payoff instruments built for prices.
Watch the plumbing re-route
Everything above is described in prose; here it is as flow. Read left to right — who is trading, how they reach the book, who is on the other side. Today it is almost one color: retail, through direct accounts and brokerage apps, matched by market makers. Press play, and watch the ribbons that barely exist today — FCM connectivity, RFQ and block, dealer liquidity — widen year by year. Toggle Notional $ to see the second truth: even as retail’s share falls, the book grows, so retail flow keeps rising while the pie expands around it.
Interactive Exhibit
An animated flow diagram showing how order flow shifts from 2025 to 2029 — who trades, how they access the book, and who is on the other side. Toggle between share % and notional $ to see both dimensions of the migration.
“Market makers don’t lose the book. They stop being the whole book.”
Who occupies which seat.
Market structure is seating. A prediction-market trade now passes through a layered stack — a venue to list it, a clearinghouse to guarantee it, a broker to access it, a market maker to price it, demand to take it, and vendors to wire it together. The defining move of 2025–26 was firms racing to own more than one layer at once.
Interactive Exhibit
See the full six-layer stack — trader, broker, venue, clearing, settlement, and data distribution — and filter by layer to see who occupies each seat.
The land-grab, measured in license applications
The clearest gauge of the rush isn’t the valuations — it’s the queue at the regulator. Since early 2025 the CFTC has taken in 17 applications for new designated contract markets; roughly seven were approved and about ten are still pending as of March 2026, with review now running up to six months. And the line keeps lengthening — Smarkets (the UK betting exchange), Bullish (the NYSE-listed digital-asset platform, filing for a clearinghouse alongside), and DimeTrades all filed fresh DCM applications in the weeks after that count. A federal exchange license — once a rarity held by a handful of incumbents — is now something dozens of firms are queuing for, because it is the single key that unlocks fifty states at once.
Robinhood × Susquehanna × Rothera
The most complete vertical integration in the sector, and the one to watch. The distributor and its own market maker jointly own the venue — so a single contract can be sourced, matched, and quoted inside one cap table. This is the Coinbase-style stack assembled not by one firm, but by a three-party alliance.
The closed loop: Robinhood routes the flow it owns into a venue it co-owns, where SIG — its own market-making partner — provides the liquidity. Source → match → make markets, all inside one tent — and it lets Robinhood stop renting Kalshi’s rails and capture the venue economics itself. June 10 tailwind: the CFTC’s NPRM names Rothera’s self-certified macro contracts — weekly jobless claims and core PCE — as falling outside the Special Rule entirely, confirming the book it launched into sits on the safe side of the line.
The CFTC-regulated incumbent. Won the election-contracts fight, pioneered legal sports event contracts, and is now the litigation lightning rod and volume leader.
Status: $22B Series F closed May 7 (Coatue, Sequoia, a16z, IVP, Paradigm, Morgan Stanley) · ~87% sports · ~$52B cumulative contracts · 19 federal suits · 200+ internal investigations, two insider-trading referrals.
The crypto-native challenger. Large offshore order book plus an acquired CFTC-registered exchange (QCX) for compliant U.S. re-entry — a deliberate dual onshore/offshore design. Palantir partnership for sports-betting surveillance.
Status: ICE ~$600M of a $2B sector commitment · reportedly raising near $15B · counter-sued Massachusetts on preemption Feb 10.
The only platform holding the complete regulatory stack — exchange, clearing, and brokerage. Sells that infrastructure to others rather than only trading on it.
Powers: Fanatics, Truth Predict, Hollywood.com; added DraftKings player props Feb 2026. The “exchange-as-a-service” play.
The world’s largest derivatives exchange, repositioned as the neutral venue behind the sportsbooks. Self-certified election contracts in March 2026 — reversing CEO Terry Duffy’s earlier resistance.
Backs: FanDuel Predicts, DraftKings Predictions. Crossed $100M in eight weeks. Piper Sandler: the FanDuel JV alone could exceed $300M revenue at scale.
The exchanges that stopped mimicking the format and started innovating on it. Cboe filed a patent-pending three-outcome contract; Nasdaq filed with the SEC for Nasdaq-100 binaries; Eurex is reportedly weighing entry — which would be Europe’s first major exchange treating event contracts as derivatives.
Read: the incumbent complex now competes on contract design, not just distribution. The category has graduated.
Small DCM (and often DCO) approvals that became prized acquisition targets. Sporttrade is abandoning state sportsbook licenses to become a federal exchange and clearinghouse outright.
Acquired: QCX→Polymarket, Railbird→DraftKings, Aristotle→Underdog. The license itself is now the asset.
Event contracts on DCMs clear through DCOs; access runs through FCMs and introducing brokers. The 2025–26 pattern was vertical integration — buyers acquiring DCM and DCO together to own exchange and clearing in one move.
Open gap: the large traditional FCMs — bank-owned clearers, StoneX and peers — have mostly not stepped in to clear retail event flow at scale. Marex is the exception (see sell side). A structural vacancy.
First major financial firm to make markets on Kalshi (April 2024). An options house treating event contracts as familiar probability-pricing with anomalous spreads. Standing up dedicated “Information Finance” desks in Philadelphia and Dublin.
Now: 45% co-owner of Rothera (see the vertical above) — SIG both makes the markets and owns the venue it makes them on.
The quant and HFT cohort. Jump reportedly took stakes in both Kalshi and Polymarket for liquidity; DRW is standing up an Information Finance desk alongside SIG’s, treating event probability with HFT rigor. Hunting cross-venue arbitrage, not directional bets.
Edge: siloed venues, fragmented liquidity — arbitrage everywhere, near-zero competition from equities-trained algos. For now.
Rather than build a retail exchange, Flutter monetizes its pricing infrastructure as a market maker across third-party platforms — selling the one thing sportsbooks are genuinely good at: setting odds.
Model: pricing engine for hire, not a standalone venue. A hedge against its own disruption.
Present but quiet. Saba’s Boaz Weinstein frames event contracts as a precise hedging tool — offsetting discrete-outcome risk to size other positions more confidently. Most use the data as a laboratory more than a venue.
Constraint: liquidity ceiling. A $100M hedge can move a contract 20–50%. Institutional share of open interest is estimated under 5%.
The dog has begun to bark. Marex issued the first prediction-market bond — a $10M structured note paying 7% if Nvidia stays #1 by market cap, principal-protected, hedged via Kalshi — and is building a PM structured-products line. Goldman’s CEO confirmed the bank is exploring the space; its research desk already used Polymarket to model Strait of Hormuz closure odds. Morgan Stanley sits in Kalshi’s Series F.
Still missing: a bulge-bracket principal desk or client-facing event-contract franchise. The first one is the signal the category has entered core capital markets.
The mass-market on-ramp, and now a venue owner. Robinhood began by featuring Kalshi contracts on a revenue split, then co-built Rothera with SIG and MIAX (45/45/10; see the vertical above) — capturing venue economics and cutting its dependence on the rails it helped popularize.
Scale: 2.5B event contracts in Oct 2025 alone; Kalshi once 25–35% of volume. Interactive Brokers and DriveWealth also embedding event contracts.
June 10 tailwind: the CFTC’s NPRM names Rothera’s self-certified macro contracts — weekly jobless claims and core PCE — as falling outside the Special Rule entirely, confirming the book it launched into sits on the safe side of the line.
The incumbents most exposed to disruption, hedging by becoming participants. Both launched CFTC-regulated prediction products (via CME, then CDNA), reaching states where sports betting was never legalized.
DraftKings: own exchange via Railbird + CME + CDNA player props. FanDuel: CME JV (“Predicts”). Underdog: bought Aristotle.
The legitimizing layer. Event probabilities now sit on the Bloomberg Terminal and Google Finance beside the VIX and the yield curve — and the Federal Reserve’s own staff have validated the data’s forecasting quality.
Effect: event-contract prices treated as a macro feed — faster than wires, increasingly arbitraged against CME FedWatch and rate futures.
The unglamorous middle. Exchange tech, settlement oracles (who decides what actually happened), market-surveillance and integrity tooling (Polymarket’s Palantir tie-up; Kalshi’s 200+ internal investigations), KYC, and the routing that lets a brokerage front a third-party venue.
Pressure point: resolution & integrity. Disputed settlements and insider-trading concerns are the operational risk that scales fastest.
Firms and tooling that treat the order book as a calibration surface — empirical Kelly sizing, bias detection, order-flow analysis — to inform positions in far larger traditional markets.
Thesis: the prediction market is the lab, not the trade. The value is the signal extracted, not the contract held.
The dealer economics
Banks do not enter markets because they are interesting. They enter because there is revenue, and the revenue case has now appeared in pieces. The event-contract stack offers a dealer at least five identifiable fee pools, several already live:
This is where Goldman (confirmed exploring), Morgan Stanley (on Kalshi’s cap table), Marex (already issuing), and eventually BNP, Jefferies and BofA become part of the story — not as enthusiasts, but as desks chasing identifiable fee pools. The sell side enters when the spreadsheet works, and the spreadsheet is starting to.
Five places where the structure could crack
A market structure is defined as much by its unresolved questions as by its participants. These are the five that will decide which 2029 actually arrives.
Three things that could kill the thesis
Those are the existential ones. The five fault lines below are the structural pressures that determine which 2029 arrives short of outright death:
Calibrating the binary: where the desk economics actually live
Risk management here is not a configuration change to the options stack; it is a different methodology, because the payoff is binary and the question shifts from “how wide is the spread” to “how accurate is the price.” Two features of these markets are, properly handled, profit centers rather than hazards.
The spread benchmark. Execution cost stratifies cleanly by liquidity, and a desk needs to price the tier it is actually trading: roughly 1–2¢ on flagship high-profile contracts (major elections, marquee sports), 3–5¢ on moderate markets (a specific Fed decision, mid-cap crypto levels), and 10¢+ on thin or stale books where the midpoint is an unreliable signal. The trap is confusing quoted with effective spread: in a thin book a large order sweeps levels, so the cost of size runs well above the screen. This is the same block-versus-CLOB problem from the scale exhibit, priced.
The favorite-longshot bias. Prediction markets inherit a systematic, well-documented mispricing from a century of betting-market data: longshots (around 5¢) are chronically overpriced and heavy favorites (around 95¢) chronically underpriced, because retail overpays for tail lottery tickets. For a calibrated desk this is not noise — it is harvestable edge: sell the overpriced tails, hold the mathematically superior side, and treat calibration accuracy itself as the product. It is the clearest example of why information finance rewards a pricing discipline the retail order book does not have.
The sportsbooks once believed the state-by-state moat protected them. It turns out the moat was a map of exactly where the federal wrapper could route around them.
2026 → 2029, in three colors
Forecasting this sector is a humbling exercise; the people who tried in 2024 undershot reality. So this is framed as three states of the world rather than a point estimate, with the honest admission that the probabilities below are judgment, not measurement.
Before the scenarios, a discipline worth stating plainly, separating what is observed from what is reasoned from what is wagered:
| Bucket | Example from this paper |
|---|---|
| Observable | $29.8B traded in April 2026; 17 DCM applications filed since early 2025; ICE’s $2B commitment |
| Inference | Sports likely remains the dominant category through 2028; institutional share stays sub-10% until depth arrives |
| Scenario | A full-stack market could exceed $2T of annual volume by 2030 — a conditional path, not a forecast |
The scenarios below are the third bucket. They are deliberately framed as states of the world, with probabilities that are judgment, not measurement.
Base Case · ~50% — most likely
Managed federalization
Preemption broadly holds but messily. The Supreme Court eventually clarifies that CFTC-registered event contracts are federal instruments, while carving room for state consumer-protection and integrity overlays. The June 2026 CFTC NPRM is the opening move — macro, financial, political and sports-outcome contracts treated as presumptively permissible, prohibitions bounded around violence and integrity — and Congress later codifies the narrow carve-outs while the rest is legitimized. The sector consolidates into a handful of vertically integrated stacks.
Bull Case · ~25% — upside
Information finance goes mainstream
Preemption is affirmed cleanly and early. A favorable framework passes — the June 2026 NPRM (RIN 3038-AF65) is finalized largely intact and codified. Depth arrives, the liquidity ceiling lifts, and event contracts become a normal line item in institutional risk management. The “truth machine” thesis is realized: prediction prices are a primary macro signal across the street.
Bear Case · ~25% — downside
Re-fragmentation
The Supreme Court declines preemption, or Congress legislates a hard line, or the insider-trading and integrity scandals poison the politics. Sports contracts get pushed back into the state gambling perimeter. The federal-wrapper advantage collapses, the sector re-fragments, valuations reset hard, and the incumbents quietly write down their positions.
The variable that dominates all three scenarios
Every branch hinges on one node: whether a sports event contract is, finally and durably, a federal swap. Get that right and the rest of the forecast is detail. Get it wrong and no amount of capital, liquidity, or incumbency matters. The market is, fittingly, pricing the answer in real time — which is the most prediction-market thing about the entire situation.
Winners and losers
Every market-structure shift is a transfer. The federal wrapper expands the pie for some participants and quietly erodes the ground under others. Where the value moves:
| Winner | Why |
|---|---|
| Exchanges & clearers | The federal wrapper expands addressable market to fifty states under one license; clearing is the layer hardest to disintermediate |
| Market makers | A brand-new volatility and probability surface with wide early spreads and cross-venue arbitrage |
| Brokerages | A high-engagement product that monetizes distribution they already own |
| Data vendors | A new signal stream to normalize, distribute, and sell across fragmented venues |
| Risk & infrastructure vendors | A new asset class that needs instrument representation, margining, and lifecycle tooling |
| Loser | Why |
|---|---|
| State sportsbooks | Federal preemption routes around the state licenses that were their moat |
| State regulators & tax bases | Jurisdiction — and gaming-tax revenue — erodes toward a federal regime |
| Traditional polling | A faster, money-backed probability signal competes with the survey |
| Sports-data monopolies | Pressure on data-licensing economics as a parallel venue prices the same outcomes |
What it means for the people running the plumbing
Set aside whether you want to trade a Super Bowl contract. The structural story matters to anyone who builds or runs institutional capital-markets infrastructure, for three concrete reasons.
The instrument that pays a dollar if you’re right is teaching a fifty-state industry that being licensed everywhere is not the same as being protected anywhere.
Two years ago this was a courtroom curiosity. Three years from now it is either a normal corner of the derivatives market or a cautionary tale about jurisdiction. The contracts, naturally, are already trading on which.
RiskSmart Intelligence
Read the full interactive paper
The complete YES/NO paper, including all five interactive exhibits, the scenario projector, the participant stack, and the liquidity migration, is available on the RiskSmart Intelligence platform.
RiskSmart Intelligence is a research series by TS Imagine. All figures are point-in-time as of late May 2026 and sourced from public reporting, regulatory filings, and RiskSmart Intelligence tracking. This is not investment advice.
