Polymarket and Kalshi:
Financial Tools or Casinos?
Let's say, hypothetically, you're having dinner with a few Grammy voters. They're candid about who they voted for Album of the Year and who their friends voted for, too. This crew always has its finger on the pulse. They called Jon Batiste's ‘We Are’ the winner in 2022, when most oddsmakers didn't. They weren't surprised when The Weeknd's After Hours wasn’t nominated for any major categories in 2021.
After dinner, you check Polymarket. The album they mentioned is still an underdog. You're not a Grammy voter, but you now have non-public information you could use to make money. Is that insider trading? It's a gray area, and a fairly benign one compared to prediction markets on Fed decisions, elections, and geopolitical conflicts.
If you want to listen to my full episode on prediction markets and why they’re having a moment now, click here or keep reading for more on what regulation may look like.
The central debate is whether platforms like Polymarket and Kalshi are financial exchanges or gambling platforms. Structurally, users don't place bets on lines set by oddsmakers. They sign event contracts based on the outcome of future events. The CEOs argue their platforms should be viewed like Nasdaq, facilitating price discovery through market participation rather than house odds.
But from a behavior perspective, it's hard to distinguish one from the other. In October, 90% of Kalshi’s trading volume was from sports. On both Kalshi and FanDuel, I can put $500 on the Los Angeles Rams to win the Super Bowl. Was it an event contract? A bet? The difference is quite semantic. Sports, pop culture, and entertainment markets will struggle to prove they deserve different treatment from gambling. State attorneys general in several states are already pushing to classify them as sportsbooks.
The financial, policy, and macroeconomic markets have a stronger case to make to be treated differently. These products’ function can be closer to risk management tools that can hedge exposure. If your business relies on weather, inflation, or the consumer price index, prediction markets can work like commodity futures to minimize downside. Critics will argue that most users are retail speculators, not corporations hedging risk, and they're right. But the theoretical use case exists, which matters for regulatory classification. Futures markets have long been defended on hedging grounds, even when speculation dominates volume.
When regulation comes, I expect it will be segmented. Sports and entertainment markets will be treated like sportsbooks because the "event contracts aren't bets" argument doesn't hold under scrutiny. The macroeconomic markets will likely remain as is because their economic rationale is stronger, even if the actual use case of hedging for risk management is few and far between.
You should listen to my solo episode breakdown on Polymarket and Kalshi: Financial Tools or Casinos? It goes deeper into the history of prediction markets with platforms like Iowa Electronic Markets and Hollywood Stock Exchange, and where things could go from here.
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