Prediction markets have spent the past two years trying to prove they belong. This week, the establishment responded.
The developments were more than symbolic: investment, integration, lawsuits, enforcement actions, academic scrutiny, and even the first serious attempts to wrap event contracts inside ETFs. Once tolerated as an experiment at the edge of crypto and betting culture, prediction markets are now being tested politically, legally, and institutionally. In other words, the system is striking back.
Wall Street Cracks the Door Open
The most significant signal came from the institutional universe. Tradeweb Markets announced a partnership with Kalshi, alongside a minority investment. Initially, Kalshi’s real-time event probabilities feed into Tradeweb’s institutional workflows and then eventually extend to trading access via an institutional-facing portal.
That is not a fringe endorsement. Tradeweb is a core electronic marketplace operator in rates and credit. When a firm of that scale starts experimenting with event probabilities as inputs for macro risk assessment and capital allocation, prediction markets stop being a curiosity.
The logic is straightforward. If bond desks already trade around policy expectations and macro releases, why not integrate crowd-implied probabilities directly into pricing and analytics?
The infrastructure is there; the data just needed a distributor. Liquidity is following the same path. Jump Trading is set to take minority stakes in both Kalshi and Polymarket in exchange for providing liquidity.
These arrangements resemble venture-style deals, but the strategic message is clearer: event contracts are liquid enough, and scalable enough, to justify serious market-making capital. The establishment is not dismissing prediction markets. It is wiring them in.The growth narrative is compelling. Capital is flowing. Platforms are scaling. Volume is accelerating.
Sports: From Episodic Bets to Continuous Flow
If Wall Street is testing the macro use case, sports may be where scale truly lies. Startup Pred, a peer-to-peer sports prediction exchange, raised $2.5 million in funding led by Accel, with participation from Coinbase Ventures. It promises 200-millisecond execution, spreads under 2%, and an exchange model where traders face each other rather than a house.
The pitch is telling. Elections and macro events are episodic. Sports are continuous, global, and high-frequency. A $500 billion global sports betting economy already exists — mostly controlled by sportsbooks that manage risk internally and limit winners. Pred’s model reframes sports prediction as a trader-driven marketplace.
Whether it succeeds is secondary to what it represents. Capital is now funding purpose-built exchange infrastructure for sports predictions, not merely retrofitting general-purpose crypto tools. At the same time, the Super Bowl narrative continues to reverberate.
Analysts estimate prediction markets captured roughly 80% of year-on-year wagering growth around the event, leveraging federal CFTC oversight rather than state gambling licenses. That “regulatory flank” has not gone unnoticed. And it has consequences.
The Courts Push Back
While institutional platforms integrate and startups raise funding, regulators are drawing harder lines. In the Netherlands, the Dutch Gaming Authority ordered Polymarket to cease operations for offering unlicensed games of chance, threatening weekly fines of €420,000.
The regulator rejected the platform’s argument that prediction markets are not gambling and warned of social risks, including election-related concerns. In the United States, state-level enforcement continues. Nevada regulators scored a procedural win when a federal appeals court rejected Kalshi’s emergency request to pause enforcement.
Meanwhile, nearly 50 active legal cases are unfolding across jurisdictions. The most forceful response, however, came from the federal side. Commodity Futures Trading Commission Chairman Michael Selig filed an amicus brief asserting the agency’s exclusive jurisdiction over event contracts and warning that it “will no longer sit idly by” while states attempt to block them.
“We will see you in court,” Selig said. This is no longer a question of product positioning. It is a jurisdictional fight over who governs a fast-growing derivatives category. Prediction markets are entering the establishment — and the establishment is answering in courtrooms.
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Do the Markets Actually Work?
As capital flows in and regulators push back, a more fundamental question emerges: do prediction markets actually function the way their advocates claim? The academic case remains strong — at least on the surface. A recent study analysing more than 300,000 contracts on Kalshi finds that prices broadly track realised outcomes. Contracts priced at 50 cents win roughly half the time, and accuracy improves as expiration approaches. [Insert Figure 1: Win Percentages Sorted by Price] The pattern is hard to dismiss. As events draw closer, information accumulates and prices converge toward actual probabilities. On that front, prediction markets behave as advertised: they aggregate dispersed information into a single number. But pricing accuracy is not the same as economic fairness. [Insert Figure 2: Post-Fee Return Across Price Ranges]
As capital flows and legal battles intensify, academics are quietly dissecting the economics. A recent study analysing over 300,000 contracts on Kalshi found that prices broadly reflect probabilities and improve as expiry approaches.
In that sense, prediction markets are informative. Contracts priced at 50 cents win roughly half the time, and accuracy improves as expiration approaches.
But they also display a classic favourite-longshot bias. Low-priced contracts win less often than required to break even, while higher-priced contracts win slightly more often, resulting in strongly negative returns for those buying cheap “lottery-like” outcomes. The average pre-fee return across contracts was estimated at-20%. The implication is uncomfortable but important.
Prediction markets may be good at aggregating information. They are not necessarily good at distributing profits evenly. If event contracts are to become embedded in institutional workflows and ETF wrappers — and several issuers are now seeking election-linked funds — their economic mechanics will face more scrutiny. Legitimacy invites analysis.
Bottom Line
This week was not about hype. It was about resistance. Tradeweb integrates. Jump provides liquidity. Startups build exchange-grade sports infrastructure. ETF issuers prepare political funds. Regulators fine, litigate, and assert jurisdiction. Academics test the model. Prediction markets are no longer asking whether they belong.
They are behaving as if they do. The establishment, for its part, is no longer ignoring them. It is investing, regulating, and, when necessary, pushing back. If the past two years were about expansion, this phase is about consolidation.
The next chapter will not be written solely by traders or founders, but by exchanges, courts, regulators, and institutional allocators. The least predictable outcome may not be the result of the next election or sporting event. It may be who ultimately controls the markets that sets their prices.
