Introduction
Prediction markets have been booming lately, from betting on what tie Jerome Powell will wear to whether Jesus Christ will return this year; hyperfinancialization is at our doorstep and growing rapidly. Kalshi and Polymarket represent the two leaders in this sphere, yet they differ in their offerings and structure. Kalshi is a CFTC-licensed and regulated event contracts exchange, which means it’s a prediction market where people can trade on the outcomes of events. Polymarket, by contrast, leverages blockchain technology to run a fully decentralized prediction market on-chain. The following report will not take a stance on which of the two applications will “win,” but rather provide a comprehensive comparison of the two, examining their history, design, mission, business models, strengths and weaknesses, and regulatory statuses. With Polymarket raising at a 1 billion valuation from Founders Fund, and Kalshi raising at a 2 billion dollar valuation from Paradigm, this sector and these application have only begun their journey.
Founding and Mission
Kalshi
Kalshi was founded in 2018 by two recent MIT graduates, Tarek Mansour and Luana Lopes Lara, both former Bridgewater associates and Goldman Sachs analysts. Both founders were frustrated by the lack of legal methods to hedge real-world risks in a regulated environment; as such, they created Kalshi (which means “everything” in Arabic). Their design reflects their mission of allowing users to trade “everything,” functioning as a yes/no exchange where every event project is simply priced at $1 if the predicted outcome occurs. Contract prices fluctuate directly with odds, as prices range between $0.01 and $0.99 to indicate their probability. Kalshi officially launched in 2021 only after gaining its CFTC license to ensure they were fully regulatory compliant.
Polymarket
Polymarket took the opposite approach, being founded by Shane Coplan’s bathroom office during the 2020 pandemic. The 26-year-old Coplan, who invested in Ethereum’s ICO at just 16, built a blockchain-based platform fully inspired by economist Friedrich Hayek’s theories on decentralized information systems as well as Robin Hanson’s concept of Futarchy. The creation of Polymarket was rooted in the belief that financial upside and crowdthink can yield more accurate predictions than any model or single expert. Polymarket reflects the early ethos of crypto, being fully decentralized and founded without a license. It lever
...