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Prediction markets planted their flag on Main Street. Now they're targeting Wall Street.
Yesterday afternoon, I spoke with Andy Ross, Kalshi's head of institutional, about the platform's push to get institutional investors on board.
The 40-minute conversation covered how Ross is trying to woo bigger players onto the platform, the impact it can have on their businesses, and how he navigates concerns about prediction markets. I think it's worth a watch, but I'm biased.
In the meantime, here are some of the big takeaways.
Same platform, new pitch: Kalshi isn't going after Wall Street because it thinks finance firms want to place wagers on the NFL or NBA. The value prop for institutions is about creating an easier way to hedge themselves.
Helping companies and investors offload risk has been a staple of the financial markets forever. But Kalshi's pitch is that traditional hedges aren't always direct. The customizable nature of the contracts means prediction markets can offer a more direct line to the risk you're trying to protect against.
A new data source: Kalshi's current relevance to Wall Street is arguably more as a data source than a trading venue. With millions of users weighing in on a wide range of topics, there's a lot of valuable information to digest.
The crowdsourced approach to markets also yields highly accurate data, according to Ross. He cited an internal analysis that found some of Kalshi's markets were right 93% of the time a week out from an event.
It's also a great way to get a foot in the door for Ross.
"I can't tell you the number of conversations that I've had, which is, 'Give me the data. Great, right, wow, that's amazing. Explain how I can trade now tomorrow please,'" he told me.
Liquidity is key: Kalshi doesn't take a side in any of its markets, meaning it needs to constantly find buyers and sellers of an outcome. That gets harder as trades get larger and more customized.
These days, the process can be a bit manual. Ross told me about how he personally called a market maker to help a hedge fund set up a trade on US CPI. But he's confident the liquidity will come as Kalshi continues to build out all the "pipes and plumbing."
The key benchmark he's watching: banks coming on the platform.
"They're doing it because their clients want to. There's palpable demand around that. That's the thing that I think is the key sort of trigger point that I'm looking at," he said.
Addressing criticism: Gambling. Insider trading. A regulatory gray area. These are some of the common criticisms levied against prediction markets. They're also things Wall Street typically tries to avoid.
Ross said those questions come up a lot on the Street, but his response is direct.
"If you want to try and do some market manipulation, insider trading on Kalshi, we will find you. We know where you are, and you'll go to jail," he said.
(I told Ross he was giving off Liam Neeson "Taken" vibes. We'll see if Kalshi books Neeson for its next ad campaign.)
Sports: The biggest driver of Kalshi's business is sports. Meanwhile, Wall Street is plowing money into sports ownership. So, as Kalshi looks to grow its institutional base, is there a good fit on the field (or the owners' box)?
In some ways, sports owners using Kalshi makes a lot of sense. Sports are big business, with their media rights fetching top dollar. Having a channel to hedge risk could give owners more flexibility.
Ross said he's not personally had conversations with officials at professional leagues. He also acknowledged that the incentives can be tricky.
"Neither do you want to be able to say, right, I'm going to put a hedge on that I'm going to get relegated, and then you sell all your players, right? That's the concern," Ross said.
Are you an executive interested in joining a BI Live Q&A? Drop me a line at [email protected].
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