Wall Street is interested in prediction markets — but the rules are still being written

Fast-moving startup Kalshi just gave Wall Street another reason to eye prediction markets.

The federally regulated platform that lets users bet on the outcome of almost everything recently said its crypto derivatives product crossed $1 billion in notional volume less than a week after launch.

The milestone comes as Kalshi and rival Polymarket are actively making moves to cater to Wall Street customers. They're pitching that they are growing into a broader platform for finance where businesses, investment funds, and everyday investors can hedge some of their risks.

The New York Knicks helped Kalshi put the business case on display last week. A Manhattan sports bar, The Jeffrey, offered customers a free bar tab of $100 each if the Knicks won game one of the NBA Finals. To hedge their risk, the bar also placed a bet on the Knicks winning on Kalshi.

The Knicks victory brought in a little under $13,000 to the sports bar, "just about covering the entirety of the discounts," owner Andrew Freedman told Yahoo Finance, calling the publicity stunt a "dream scenario all around."

Polymarket last week announced it had completed its first block trade aimed at helping a trading firm hedge exposure to GPU compute. Similarly, Kalshi notched its first block trade between a Texas hedge fund and market maker on carbon allowances in April.

Despite the speed of growth, prediction platforms are running into an age-old problem for big Wall Street institutions: The rules are still being written.

The Commodity Futures Trading Commission (CFTC) on Wednesday proposed new rules for prediction markets, laying out a framework for determining which events contracts can trade on federally regulated platforms and which can be blocked.