Forbes: Why Are Billionaires Flooding into Prediction Markets?

Written by: Alicia Park

Compiled by: Shenchao TechFlow

The smartest billionaire traders are betting on emerging prediction markets.

Kalshi has taken the lead in this potentially trillion-dollar opportunity due to its connections with the Trump camp.

On a cold winter morning in 2023, billionaire Charles Schwab of the discount brokerage firm Schwab visited the SoHo office of the little-known prediction market startup Kalshi.

He held several folders that looked like they were stuffed full of documents, and the actions of this Wall Street legend spending time to thoroughly investigate this small business shocked Kalshi's two 27-year-old co-founders, Tarek Mansour and Luana Lopes Lara.

Two years ago, Schwab and another Wall Street giant, Henry Kravis, made an angel investment in Mansour's company, participating in a round of financing of $30 million, which brought Kalshi's valuation to $120 million.

"A few minutes into my first call with Chuck, he said, 'I want to invest,'" said 29-year-old Mansour. "He said it reminded him of when he founded Charles Schwab; it was the first time in a long time that he saw a company capable of fundamentally changing the financial markets."

Today, Kalshi is one of the largest investments besides the $176 billion brokerage firm named after Chuck Schwab. In June of this year, the startup was valued at $2 billion in a funding round, attracting the attention of another Wall Street billionaire, Citadel Securities' senior CEO, Peng Zhao.

The investments of Schwab, Klavis, and Zhao Peng are not isolated cases. Predictive markets are becoming a hot investment spot for the smartest billionaires in the financial world.

Thomas Peterffy, the founder of Interactive Brokers (with a net worth of $72 billion), told Forbes that he attempted to acquire Kalshi after its angel round of financing in 2021. Although he was rejected, Peterffy did not get discouraged; his Interactive Brokers launched a subsidiary called ForecastEx a year ago to compete with Kalshi, predicting future events ranging from the New York City mayoral election to Bitcoin prices by the end of 2025.

In April 2024, Jeff Yass's $65 billion quantitative trading hedge fund Susquehanna International Group partnered with Kalshi to provide liquidity as one of its main market makers. Recently, Kalshi collaborated with Vlad Tenev's $6.4 billion Robinhood to add event contract trading to its growing retail investment products.

To avoid being surpassed by competitors in the same field, the blockchain-based prediction market Polymarket has attracted investments from numerous billionaires, including Palantir co-founder Peter Thiel ($25.3 billion), Ethereum founder Vitalik Buterin, and Airbnb co-founder Joe Gebbia ($7.7 billion). According to Pitchbook, in August this year, Polymarket reached a valuation of $1 billion after raising $135 million in funding led by Thiel's Founders Fund. Coinbase founder Brian Armstrong ($13.7 billion) also announced in July the upcoming launch of "Everything Exchange," which will provide prediction market services to its millions of customers.

According to The Information, Kalshi and Polymarket are currently seeking a new round of financing, which could raise their valuations to $5 billion and $9 billion, respectively.

Betting on elections and sports events is not new: as early as the 19th century, this form existed in the United States, and modern prediction markets—allowing users to bet on future event outcomes by buying and selling "yes" or "no" contracts—were first proposed at the University of Iowa in 1988.

Early prediction markets, such as Intrade and PredictIt, were publicly launched in the 2010s but were limited due to regulatory issues and lack of appeal. Although Kalshi is not the first of its kind, it made history last October when a federal court ruling authorized Kalshi to offer presidential election contracts, creating a precedent that had been illegal for over a century.

The presidential election changed the game: after obtaining regulatory approval for election betting, Kalshi's user base grew tenfold in less than a month, with user bets exceeding $1 billion and reaching 2 million on the eve of election night. Polymarket users bet as much as $3.6 billion on Trump or Harris. The momentum of the election has made prediction markets culturally relevant, uncovering a range of betting opportunities from next year's Oscar nominees to whether Astronomer CEO will divorce after embracing on the giant electronic screen at the Coldplay concert.

If you ask billionaire traders why they want to enter the prediction market industry, you might receive many noble answers:

"Throughout my entire career, I have been troubled by the fact that people do not think about the future from a probabilistic perspective," said Peterffy. His brokerage firm, which was established in 1977, has grown to a size of $100 billion and aims to enable more people to trade options or bet on stock prices. "In my view, predicting the market is a way to teach the public how to think about the future outcomes of things from a probabilistic perspective."

Jeff Yass runs a hedge fund, and being proficient in poker has almost become a job requirement for him. He sent this message to Forbes: "Forecasting the market allows parties to more effectively share risks based on parameters.

The hurricane risk faced by homeowners in Florida is one example. Rather than purchasing annual insurance, it is better to buy a "fixed" contract when a hurricane is approaching, predicting that the wind speed in the town will exceed the specified value based on the latest meteorological data, thus hedging against the potential risk of property loss.

Tenev wrote on X about the partnership between Robinhood and Kalshi that will be established in March 2024: "At its most fundamental level, [prediction markets] are an application of capitalism in the pursuit of truth. Market incentives and collective intelligence sift through all information to determine the answers to specific questions and the outcomes of important events." A month ago, Coinbase's Armstrong told CNBC that prediction markets could one day become a substitute for The New York Times.

Mansour is an engineer who graduated from MIT and has worked in stock options trading at Goldman Sachs and Citadel Securities. He stated plainly:

"If you are a Wall Street trader, predicting the market has long been your holy grail."

Speaking of this industry with unlimited tradable products, "We want to create the largest commercial market in the world."

Today, Kalshi in New York City has 75 employees, almost double the number before the November 2024 election, and offers around 2,000 active markets at any given time.

From a financial services perspective, it makes money in a traditional way, by charging commissions or fees on each contract bought or sold. The price of the contract is tied to the perceived probability of an event in the market, with prices ranging from 1 cent to 99 cents. For example, buying a 10-cent contract predicting that Peter Hegseth will be the first to leave the Trump cabinet incurs a fee of 1 cent, which amounts to a 10% commission. If you buy 100 contracts of "yes" betting that the U.S. government will shut down in 2026, Kalshi will earn $1.75, which is a 3.5% commission, based on the company's floating fee formula. Kalshi also charges a 2% fee on all debit card deposits and a fixed fee of $2 for withdrawing bonuses from your account.

But floating fees are not the only reason Kalshi attracts billionaire supporters. Unlike alternative stocks (which can be traded and settled at any number of brokerage firms), contracts in prediction markets are proprietary, effectively creating a moat that locks users into the platform that created the market.

Kalshi currently has a monthly trading volume of approximately $1 billion and has processed a total trading volume of $6.9 billion since its inception, with $6.4 billion coming from October 2024. This startup not only attracts speculators directly on its website and mobile app but also white-labels the market to brokers like Robinhood and Webull, thereby increasing liquidity and scale. Mansour stated that the company will add a dozen more brokers next year.

"We found that prediction markets are a very good interactive tool," said JB Mackenzie, head of futures at Robinhood. Robinhood has 27 million customers and aims to become the next generation of all-in-one financial services company. "It helps cross-promote other businesses within our company."

Matt Huang, co-founder of the cryptocurrency venture capital firm Paradigm, led a $185 million funding round for Kalshi this June. He believes that low operational costs could help predictive markets effectively erode other mature markets. "Predictive markets are a superset of all other markets: you can reclassify sports betting, the stock market, and almost any other market as predictive markets," Huang said. "In a sense, predictive markets could grow to be as large as, or even larger than, the largest financial markets. I truly believe their potential is limitless." For Mansour, the scale of this opportunity is "hundreds of billions of dollars."

If the prediction market trend can gain more support, it is likely to come from the Trump camp. Donald Trump Jr., the son of President Trump, joined Kalshi as a strategic advisor in January this year. Eliezer Mishory, who previously served as Kalshi's Chief Regulatory Officer for four years, has been appointed as the head of the Trump administration's Efficiency Department. Kalshi board member Brian Quintenz served as a commissioner of the Commodity Futures Trading Commission (CFTC) during Trump's first administration and was appointed by Trump as the head of the CFTC earlier this year.

In the application submitted to Forbes' 2022 "30 Under 30" nominations, Mansour listed Kalshi angel investor Emil Michael (the former CTO of the Department of Defense nominated by Trump) as his only professional reference. In addition, Samantha Schwab, the granddaughter of Charles Schwab, has no other professional work experience aside from her time working in the Trump administration. According to her LinkedIn page, she worked on Kalshi's business development team for a year before joining the U.S. Department of the Treasury as Deputy Chief of Staff this January.

Although Kalshi holds a leading position in the prediction market, this competition still needs to continue.

At the end of August, Donald Trump Jr. ( invested in Polymarket, a competitor of Kalshi, and joined its advisory board. A few days later, Polymarket received approval from the Commodity Futures Trading Commission )CFTC( to launch in the United States, making its ability to penetrate Wall Street comparable to Kalshi. The largest sports betting platforms in the U.S., Fanduel and Draftkings, are also developing their own prediction markets, while state regulators are still pursuing litigation regarding the legality of Kalshi's sports event contracts—this is the company's largest market to date. Stay tuned.