Prediction Markets

I have been tracking the dynamics between Kalshi and Polymarket, and something interesting is happening. Kalshi should actually be happy about Polymarket gaining traction. Competition strengthens legitimacy, encourages clearer regulation, and expands the number of people who become aware of event markets. You can already see this in the numbers. Kalshi’s site traffic recently reached an all time high right after Polymarket announced its acquisition of QCX, the derivatives exchange. In a space this early, success on one platform can help lift interest across the entire category. All of this makes me very bullish on Kalshi and the momentum it is building.

While thinking about the broader landscape, I had a conversation with an NEA investor who mentioned The Clearing Company, which recently raised capital to let people create smaller prediction markets more easily. On paper, it is an interesting wedge because it aims to make market creation more accessible.

My view on this model is not very optimistic. Prediction markets only become useful when there is strong liquidity, and liquidity depends on concentrated participation, solid incentives, and steady information flow. Splitting attention across many small markets weakens the information discovery that gives prediction markets their value. Without volume, the signals produced by these markets lose strength. There is also the fact that Kalshi could move into this area if it ever chose to, and its regulatory position and existing user base would give it a much stronger starting point.

Regulation creates another significant challenge. Every Kalshi contract needs approval from the CFTC. That process is a bit cumbersome, and it does not match well with fast or user generated market creation (ideally, if someone wants to make a custom market with their friends, there would be no delay in getting that market functional...this ignores the whole issue of a market being only 10 people). This raises a question about how The Clearing Company plans to scale. They can remain outside the regulated environment, which limits the kinds of markets they can support, or they can pursue approvals that slow down iteration to a crawl.

All of this only makes me more confident in Kalshi as the platform with the strongest long term trajectory. It has legitimacy, growing liquidity, increasing awareness, and a clear regulatory foundation. Its momentum is building, and the broader trends in the ecosystem seem to be working in its favor. I will be keeping a close eye on Polymarket, though.

As a side note, I have also been questioning the ethics around certain types of companies and investments. It feels like the industry encourages investors to back anything if the upside looks attractive enough. I am not convinced that betting on everything is good for society. Yet this hesitation does not seem to slow down many firms, which makes me wonder what assumptions drive that mindset and what it says about the broader culture of venture investing. As another example, look at the types of companies that fill a YC batch now. For one, I'm thinking of that brainrot IDE. I find no meaningfulness in this other than short-lived novelty. I read something 2 weeks ago about how YC used to headline how they created 1 million jobs, or something to that effect, and now they use "$100M ARR, 10 people." Interesting...