Prediction market platforms such as Kalshi are positioning themselves to move beyond retail wagering on sports and politics, with ambitions to attract hedge funds, brokerages and other institutional investors seeking new ways to hedge risk, according to a report by the New York Times.
While the platforms have built their popularity on speculative contracts tied to events ranging from elections to entertainment outcomes, operators now argue they can evolve into a broader financial infrastructure layer for institutional trading.
Kalshi, which processed $17.9bn in trading volume last month and recently raised $1bn at a $22bn valuation, is central to this shift. The company is increasingly focused on expanding use cases for businesses and professional investors, alongside its existing retail base.
Early adoption has already emerged among small businesses and niche financial operators. A New York bar used the platform to hedge against customer promotions tied to an NBA playoff outcome, while specialist insurers have used event contracts to offset exposure to performance-related payouts.
Game Point Capital, which structures insurance products for sports organisations, has also begun using prediction markets to hedge contractual risks, including athlete bonus payouts linked to tournament results. In some cases, executives say these contracts offer a cheaper and more flexible alternative to traditional insurance and derivatives markets.
Market participants such as Susquehanna International Group have also played a key role in developing liquidity and market structure. The trading firm became Kalshi’s first official market maker in 2024 and has been actively promoting the potential for prediction markets to evolve into a meaningful institutional asset class.
Industry executives argue that the next stage of growth could involve hedging broader macroeconomic and political risks, alongside more specialised exposures such as commodity prices or supply chain costs.
Kalshi has also begun testing more sophisticated instruments, including block trades between institutions and perpetual futures-style contracts. These “perps”, introduced in May, allow leveraged exposure to underlying event-driven markets and have already generated billions in trading activity, though they are currently limited to crypto-linked contracts.
Despite growing institutional engagement, prediction markets still face structural and regulatory hurdles. Legal challenges from US states continue over whether such platforms fall within sports betting frameworks, while regulatory scrutiny has centred on whether they can be used for genuine hedging rather than pure speculation.
Questions also remain over liquidity, market depth and whether prediction markets can scale to support large institutional flows in the same way as established derivatives markets.
Kalshi and its backers argue that increasing institutional participation, alongside rapid growth in trading volumes, is laying the groundwork for a new category of financial market — one that blends traditional derivatives with event-driven wagering.
For now, however, most activity remains retail-driven, with institutional adoption still in its early stages.
