On a frigid winter morning in 2023, discount brokerage firm billionaire Charles Schwab arrived at the SoHo offices of little known prediction market start-up Kalshi. Under his arm were several binders which seemed to be bursting at their seams. The idea that this Wall Street legend had taken the time to thoroughly study their tiny operation shocked Kalshi’s then 27-year old cofounders Tarek Mansour and Luana Lopes Lara. Two years earlier, Schwab and another iconic Wall Streeter, Henry Kravis, had made angel investments in Mansour’s firm in a $30 million funding round that gave Kalshi a $120 million valuation.

“Within a few minutes of my first call with Chuck, he was like ‘I want to invest,’” says 29-year-old Mansour. “He said it reminded him of when he started Charles Schwab, and it was the first time in a while he had seen a company that could fundamentally change financial markets.” Today, Kalshi is one of Chuck Schwab’s largest investments outside of the $176 billion brokerage firm bearing his name. In June, the startup was valued at $2 billion in a funding round that attracted another Wall Street billionaire, Peng Zhao, the veteran CEO of Citadel Securities.

Schwab, Kravis and Zhao are in good company. Prediction markets are hotspots for investments from the smartest billionaires in finance. Interactive Brokers founder Thomas Peterffy (net worth: $72 billion) told Forbes he tried to acquire Kalshi shortly after its angel round in 2021. Spurned, but undeterred, Peterffy’s Interactive Brokers launched a subsidiary called ForecastEx a year ago and is now competing with Kalshi, with future events ranging from the NYC mayoral race to the year-end 2025 price of Bitcoin.

In April 2024, Jeff Yass’s ($65 billion) quantitative trading hedge fund Susquehanna International Group joined forces with Kalshi to provide liquidity as one of its primary market makers. More recently, Kalshi partnered with Vlad Tenev’s ($6.4 billion) Robinhood to add event contracts trading to the firm’s growing retail investment offerings.

Not to be outdone by its crosstown rival, blockchain-based prediction market Polymarket has attracted investments from billionaires including Palantir cofounder Peter Thiel ($25.3 billion), Ethereum founder Vitalik Buterin and Airbnb cofounder Joe Gebbia ($7.7 billion). In August, Polymarket was valued at $1 billion following a $135 million funding round led by Thiel’s Founders Fund, according to Pitchbook. Coinbase’s founder Brian Armstrong ($13.7 billion) also announced in July the upcoming launch of an “Everything Exchange,” which will offer prediction markets to its millions of customers.

Kalshi and Polymarket are both currently eyeing fresh funding rounds that could boost their valuations to $5 billion and $9 billion, respectively, according to The Information.

Betting on elections and sports games is nothing new: It has existed in the U.S. since the 1800s, and the modern prediction market—which allows users to bet on the outcome of future events by buying and selling “Yes” or “No” contracts—was first devised in 1988 at the University of Iowa. Early iterations such as Intrade and PredictIt were publicly available in the 2010s, though they were largely constrained by regulatory issues and lack of traction. Though Kalshi isn’t the first of its kind, it made history last October when a federal court ruling authorized Kalshi to offer presidential election contracts, which had been illegal for over a century.

The presidential election changed the game: After winning regulatory approval for election wagering, Kalshi’s user base grew tenfold in less than a month, culminating in two million users betting more than $1 billion in the lead up to election night. Polymarket users wagered a staggering $3.6 billion on Trump or Harris. Momentum from the election catapulted prediction markets into cultural relevance, unearthing a trove of seemingly limitless betting opportunities, from next year’s Oscar nominees to the chances of Astronomer’s CEO filing for divorce after his Coldplay concert jumbotron embrace.

Ask the billionaire traders why they want into the prediction markets business and you are likely to get a lot of high-minded responses:

“Throughout my career, it bothered me that people did not think of the future in terms of probabilities,” says Peterffy, whose $100 billion brokerage was initially founded in 1977 to allow more people to trade options, or bet on stock prices. “Prediction markets, in my mind, are a way of teaching the public how to think about the future outcome of things in probabilistic terms.”

Jeff Yass, who runs a hedge fund where poker mastery is practically a job requirement, sent Forbes the following: “Prediction markets can allow parties to more efficiently share risk on a parametric basis. Hurricane risk for Florida homeowners is an example. Rather than buying annual insurance policies, homeowners could hedge potential property damage risk as hurricanes approach by purchasing a “Yes” contract that winds will exceed a specified speed in their town, informed by up-to-the-minute meteorological data.”

Tenev christened Robinhood’s March 2024 partnership with Kalshi with this note on X: “At the most fundamental level, [prediction markets] are the application of capitalism to the pursuit of truth. Market incentives and the wisdom of the crowds sift through all the information out there to determine answers to well-specified questions and outcomes to important events.” A month prior, Coinbase’s Armstrong told CNBC that prediction markets could one day serve as an alternative to The New York Times.

Mansour, an MIT-trained engineer with experience trading equity options at Goldman Sachs and Citadel Securities, cuts to the chase. “If you are a trader on Wall Street, prediction markets have been a holy grail for a long time,” says Mansour, referring to a business with an infinite number of tradable products. “We want to build the largest commercial market on the planet.”

Today, New York City’s Kalshi has 75 employees—nearly double what it had prior to the November 2024 election—and offers around 2,000 live markets at any given time.

From a financial services perspective, it makes money the old-fashioned way, by taking a commission or fee from every contract bought or sold. The price of a contract is tied to the market’s perceived probability of an event, ranging between one and 99 cents. Buy one 10 cent contract, predicting that Peter Hegseth will be the first to leave the Trump cabinet, and the fee is a penny, or a 10% fee. Pay $50 for 100 “Yes” contracts wagering that the U.S. government will shut down in 2026, and Kalshi will pocket $1.75, or a 3.5% fee, based on the company’s sliding fee formula. Kalshi also charges 2% on all debt card deposits and a $2 flat fee to withdraw your winnings from your account.

But variable fees aren’t the only reason Kalshi is attracting billionaire backers. Unlike stocks, which are fungible, and can be traded and settled on any number of brokerages, contracts in prediction markets are proprietary, effectively creating a proverbial moat and locking users into the marketplace the markets were created on.

With approximately $1 billion in current monthly volume, Kalshi has processed $6.9 billion in total volume since inception—$6.4 billion of which has come since October 2024. And the startup not only attracts speculators directly on its website and mobile app, but also white labels its markets to brokers like Robinhood and Webull, adding liquidity and scale. Mansour says the firm will be adding more than a dozen brokers in the next year.

“One of the things that we’ve found is prediction markets are a very good engagement tool,” says JB Mackenzie, head of futures at Robinhood, which has 27 million customers and is fixated on being a one-stop money firm for the next generation. “It helps cross pollinate to other businesses we have within the firm.”

Matt Huang, founding partner of crypto venture capital firm Paradigm that led Kalshi’s $185 million fundraise in June, believes low operating costs could help pave the way for prediction markets to effectively cannibalize other established markets. “Prediction markets are a superset of every other market: You can reclassify sports betting, stock markets and almost every other market as prediction markets,” Huang says. “In some sense, prediction markets could grow to be as big as the biggest financial markets—maybe even bigger. I truly think they are uncapped.” For Mansour, the size of the opportunity is “hundreds of trillions of dollars.”

If more gasoline can be thrown on prediction markets mania, it will likely be coming from Trumpworld. President Trump’s eldest son, Donald Trump Jr., joined Kalshi as a strategic advisor in January, as Eliezer Mishory, who had served as Kalshi’s chief regulatory officer for four years, was tapped to lead Trump’s Department of Government Efficiency. Kalshi board member Brian Quintenz, a former CFTC commissioner during Trump’s first administration, was tapped by Trump to lead the CFTC earlier this year.

In an application submitted to Forbes for his 30 Under 30 nomination in 2022, Mansour listed Kalshi angel investor Emil Michael, Trump’s nominated pick for the Department of Defense’s chief technology officer position, as his only professional reference. There’s more. Charles Schwab’s granddaughter Samantha Schwab, whose only other professional work experience has been with the Trump administration, had a yearlong stint on Kalshi’s business development team before joining the U.S. Department of Treasury as deputy chief of staff in January, according to her LinkedIn page.

Though Kalshi has the pole position among prediction marketplaces, the race has many laps to go. In late August, Donald Trump Jr. invested in Kalshi’s rival Polymarket and joined its advisory board. A few days later, Polymarket won approval from the CFTC to launch in the U.S., putting it on par with Kalshi in its ability to penetrate Wall Street. The nation’s largest sports betting platforms, Fanduel and Draftkings, are also pursuing their own prediction markets, while state regulators continue to sue Kalshi over the legality of its sports events contracts—by far the company’s largest markets. Stay tuned.

Update: The article was updated to include Kalshi and Polymarket’s reported funding rounds.

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