Exclusive: Paradigm, a major investor in Kalshi, is building its own prediction markets trading terminal, say sources

Paradigm is developing a prediction-markets trading terminal (led by partner Arjun Balaji, with involvement from managing partner Matt Huang) and has explored an internal market-making desk and tradeable prediction-market indices. Kalshi — a Paradigm-backed platform — raised at least $1B in a round valuing it at $22B (it had been valued at $11B in December), while rival Polymarket is in talks at ~ $20B; Paradigm is also raising up to $1.5B for a new crypto/AI/robotics fund. The firm has begun aggregating prediction-market data publicly, signaling a strategic push into professional trading infrastructure in the prediction-markets niche.

Analysis

As prediction markets mature, the clearest structural winner will be entities that internalize low-latency, high-turnover order flow — market makers and regulated execution venues capture the lion’s share of per-trade economics once spreads tighten. If liquidity migrates from retail-led pools to professional terminals, expect revenue mix to shift: execution/clearing fees and data licensing replace UX-driven taker fees, compressing margins for retail-first platforms by an estimated 30–60% of current per-trade revenues over 12–24 months.

Indexation of event contracts is a force-multiplier for institutional adoption: bundled products lower per-contract trading friction and create scaleable underlyings for listed derivatives and OTC hedges. Within 18–36 months that can unlock secondary markets (futures, swaps, options) whose notional could be 5–10x the current spot activity, but only if robust settlement/clearing and standardized contract definitions are enforced.

Regulatory and liquidity risks are the principal catalysts to monitor. A classification shift toward regulated gambling or a demand for centralized clearing could either entrench regulated incumbents or abruptly raise capital requirements for new entrants, flipping the economics within quarters. Conversely, if index products and professional tooling reach critical mass, expect a multi-year runway of new institutional revenues, data sales, and prime-broker services — but timeline and magnitude are binary and dependent on regulatory clarity and intermediation economics.

Key Decisions for Investors

• Pair trade (6–12 months): Long Virtu Financial (VIRT) shares / Short Robinhood Markets (HOOD) shares — express capture of professional order flow and compression of retail taker margins. Target: 20–40% upside on VIRT if market-making revenues rise; hedge HOOD exposure for a 15–25% downside case. Risk: macro market sell-off reducing trading volumes (stop-loss 12%).
• Income-style play (9–18 months): Buy CME Group (CME) 12-month call spread (e.g., buy ATM call, sell 1.2x strike) to express higher demand for cleared derivatives and institutional venue fees. Reward: asymmetric upside as new index derivatives launch; Risk: limited to premium paid for the spread.
• Event-driven tactical (3–9 months): Buy CBOE Global Markets (CBOE) or Intercontinental Exchange (ICE) single-name options ahead of expected product standardization/regulatory decisions — implied volatility cheapens on certainty. Rationale: incumbents win if clearing/standardization trend favours regulated infrastructure. Risk: regulatory outcomes could take longer; cap exposure to 2% portfolio.
• Data/infra exposure (12–24 months): Accumulate Coinbase Global (COIN) on pullbacks as a hedge to platform fragmentation — if retail loses market share, COIN’s custody, staking, and institutional product lines cushion revenue. Expect 25–40% downside protection via diversification; downside risk tied to crypto price moves and regulatory actions.