In a significant move to differentiate itself in the crowded prediction market space, Kalshi, the U.S.-regulated prediction platform, has introduced a new initiative offering participants 4.05% annual percentage yield (APY) on both cash balances and open positions.
Co-founder Tarek Mansour made the announcement Thursday on X, marking a first-of-its-kind offering that combines financial incentives with the ability to participate in prediction markets.
Starting today: Kalshi will pay you 4.05% interest on both your cash and open positions.
— Tarek Mansour (@mansourtarek_) October 10, 2024
Get paid for your predictions while you sleep. pic.twitter.com/bu9D1qciHQ
Traditionally, participants in prediction markets allocate their funds to specific positions, often in long-term markets. While these markets offer lucrative opportunities, they have historically been seen as a “zero-sum game,” where money tied up in long-term predictions could have been invested elsewhere.
Kalshi’s introduction of APY changes the equation by turning prediction markets into an attractive proposition for both short-term traders and those holding long-term positions.
How Kalshi's APY incentive works
The new APY structure will pay investors based on the value of their positions at the end of each day. In a tweet thread explaining the mechanics, Mansour shared an example to illustrate:
If a participant buys a $5,000 position on a market at 50% probability, and the probability rises to 60% within a week, interest will be paid on the new $6,000 value—not just the original $5,000 invested. This dynamic adds another layer of potential earnings for investors, making long-term positions much more appealing.
Kalshi’s interest payment on cash deposits sets it apart from traditional financial institutions, like banks, which offer high-yield savings accounts or certificates of deposit (CDs). While these products offer competitive interest rates as well, they come with the caveat that the funds are locked in for a set period, and early withdrawal penalties may apply.
Kalshi, on the other hand, allows users to move their money freely between event markets without penalties, as long as it stays on the platform, offering greater liquidity and flexibility.
The APY rate, which will fluctuate in response to Federal Reserve interest rate changes, will be calculated daily (based on the net value of your portfolio at the close of the exchange each day) and paid monthly. This approach incentivizes continuous participation in the platform, attracting both seasoned traders and newcomers interested in passive income through their predictions.
You can find more information from Kalshi here.
Kalshi's innovation earns praise from traders
In an environment where prediction markets are gaining traction but still face stiff competition from traditional financial markets, Kalshi’s offering represents a bold innovation.
This initiative signals a new era in prediction markets, where investors not only make money from accurate predictions but also from holding and managing their market positions wisely, all while earning interest on their investments.
Unsurprisingly, the innovation quickly garnered praise from traders, with many sharing their thoughts on how the new incentive will positively impact prediction markets.
Total game changer for Kalshi and prediction market traders. No more “why would I buy at 99 when I can earn 4% on treasuries?” Longer term markets now make a lot more sense to invest in and hopefully more fiscally conservative traders will come on board. Huge day! https://t.co/bym90iQf1B
— Zub (@ZubbyBadger) October 10, 2024
Cannot stress how big the news is for this. Long-term bets on prediction markets have always paid the holders nothing meaning accuracy decays with time. Kalshi has found a way to ameliorate at least a portion of that and that's huge for the industry. https://t.co/Vy1UCGdIeT
— Adam Sherman 🔸 (@Squee451) October 10, 2024
Interesting news from @Kalshi. This reduces Kalshi's margin of inefficiency for next month's election by about 0.33%. https://t.co/o5g37jKotO
— Harry Crane (@HarryDCrane) October 10, 2024
