Thursday, Oct. 10 marked the one-week anniversary of Kalshi’s first presidential election market. At the time, trading volume was just shy of $4 million, despite waiving trade and withdrawal fees to boost participation. However, within the next 24 hours, volume surpassed $5 million, following the platform’s announcement that Kalshi users will begin earning interest on their holdings, a forward-thinking innovation immediately earning praise from traders.
In comparison, Polymarket—an unregulated competitor—surpassed $6 million in trade volume by the first week of launching its presidential market and has now accumulated over $1.6 billion in total trade volume for the same market. With less than a month until the 2024 presidential election, Kalshi‘s efforts to engage bettors have, so far, produced mixed results.
At first glance, it may seem that Kalshi’s regulated status, which differentiates it from Polymarket, has hindered its ability to capitalize on the election betting market. Many early bettors may have already placed their wagers on platforms like Polymarket, unconcerned with regulatory oversight.
Yet, despite the slower start, Kalshi’s commitment to operating within U.S. legal frameworks may prove to be a strategic advantage in the long run.
Positioning for future growth
While Kalshi’s 2024 presidential market might not garnish the astounding number we have seen on Polymarket, the platform’s status as the first fully regulated U.S.-based prediction market could set the stage for future success as one of the top prediction markets.
A day later, not much movement, and Polymarket remains an outlier. Kalshi going 0 to $800k to $2.4M since opening market a couple days ago is impressive. Someone should open a market on how much volume that market ends up at on Election Day. https://t.co/ZwXkKWOe80 pic.twitter.com/kdCI4C0BYl
— Deva Hazarika (@devahaz) October 9, 2024
As the only platform operating with CFTC approval, Kalshi’s legitimacy may allow it to tap into broader market opportunities. The prediction market landscape is vast, from upcoming congressional elections to geopolitical events.
When those events arise, Kalshi will have the distinct advantage of being able to legally promote its markets to a broad audience, free from the regulatory uncertainty that hangs over unregulated platforms like Polymarket.
Broadening the audience
Kalshi’s legitimacy also opens the door to expanding its audience beyond traditional prediction market participants. Unregulated and/or offshore marketplaces, while popular among seasoned bettors, often present legal and technical barriers—such as the need for VPNs—that can deter more casual participants.
Kalshi’s status as a regulated, U.S.-based platform removes these obstacles, allowing Americans who were previously hesitant to engage in prediction markets a clear, legal avenue to participate.
For many individuals, the appeal of a legal platform may outweigh the convenience of using the alternatives, especially as more users look for compliant options.
By lowering the perceived risk associated with betting on political outcomes, Kalshi may be able to draw in a larger, more diverse user base over time.
Liquidity boost
One of Kalshi’s key advantages could lie in its ability to attract institutional investors, a segment that has historically been reluctant to engage with unregulated markets. Kalshi’s regulatory approval paves the way for reputable, traditional financial institutions to explore prediction markets as a new asset class, potentially injecting much-needed liquidity into the space.
Increased participation from institutional players could help address Kalshi’s current challenge of low liquidity. Co-founder Tarek Mansour highlighted this issue earlier in 2024, describing it as a “destructive vicious cycle.”
“It would be incredible… but these markets are not liquid.”
— Tarek Mansour (@mansourtarek_) April 3, 2024
The idea of letting people trade directly on future events is not new. Wall Street has been fantasizing about it for decades. In fact, a large % of trades in traditional assets (e.g. stocks) are driven by a conviction… pic.twitter.com/lGkfvd9oYj
As of now, institutional participants can place election wagers of as large as $100 million on the platform. Kalshi leveraging its regulated status to attract institutional money can result in a liquidity boost that significantly establishes its market dominance, making it more attractive to both retail and institutional traders.
Hurdles ahead
On Polymarket, users only incur gas fees when depositing and withdrawing USDC, which fluctuates based on network traffic. Importantly, there are no transaction fees for trading on the platform. To compete, Kalshi recently announced it would not charge trade or withdrawal fees on its election market.
However, Kalshi’s current fee waiver strategy, while temporarily effective in attracting new users, may not be sustainable in the long term. Trade and withdrawal fees are essential revenue sources for any platform, and Kalshi may eventually need to reintroduce fees to ensure its financial viability. Balancing user growth with profitability will be a key challenge for the platform going forward.
Moreover, Kalshi’s regulatory status, though advantageous, does not come without potential risks. The platform’s operations remain under the scrutiny of the CFTC, which recently lifted a stay on Kalshi’s political markets. While this decision allowed Kalshi to move forward, the possibility of further legal challenges remains. Any renewed action by the CFTC could disrupt Kalshi’s growth and undermine its efforts to solidify its position in the market.
Looking forward
Kalshi’s entry into the presidential election betting market may not match the early results of its biggest competitor, but its long-term prospects remain promising. As the first legal prediction market in the U.S., Kalshi is playing a different game—one focused on regulatory compliance and sustainable growth.
While there are certainly challenges ahead, the platform’s legitimacy could attract new users and institutional investors, positioning it for success in the years to come. As more political events unfold, Kalshi’s legal standing may prove to be its greatest asset in an increasingly competitive market.
