Here’s a riddle: Two startups are competing to win a hot new sector. How can it be that Startup A, which appears to have the early lead in the market, is valued at $5 billion, while Startup B—which is not even available in the U.S. Right now—is worth nearly twice that? The answer probably has something to do with crypto.
The scenario above describes the race between Kalshi and Polymarket to dominate prediction markets, a field that has been around for years but only took off in 2024 thanks to a more permissive regulatory environment. Right now, Kalshi is racking up new U.S. Users, who are betting on everything from sports to political events, while Polymarket is still getting its paperwork in order to operate legally in this country. Both firms announced new funding rounds last week, but Polymarket made the bigger splash with a valuation of $9 billion.
The offerings from the two startups are as similar as those from Uber and Lyft. The only significant difference, aside from Kalshi’s head start in the regulatory process, is that Polymarket is built on blockchain rails. Kalshi is scrambling to add crypto capacity, but it will be hard-pressed to catch its rival, which has been clearing transactions on the Polygon layer 2 network since it began, and has a founder who participated in the Ethereum crowdsale while still in high school. Critics can find plenty to fault with Polymarket but no one can doubt its crypto bona fides.
The more challenging query is why Polymarket's cryptocurrency background grants it significantly greater value compared to its competitor. This is particularly true given Kalshi's current success in capturing substantial portions of the U.S. Sports betting industry, and its superior performance over Polymarket regarding app installations and engaged users. The explanation for this disparity can probably be condensed into a pair of words: token drop.
Last week, Polymarket CEO Shayne Coplan released a post that listed cryptocurrencies, placing a yet-to-exist token named POLY in the fifth spot, just after Solana and Ethereum. The firm suggested elsewhere that this token is expected to decline next year, and should that occur, Coplan and Polymarket’s investors could stand to gain significantly.
The founders of Kalshi will likely need to accumulate wealth through traditional means: developing the most widely used platform and striving to grow and protect their significant early lead within the U.S. This endeavor won't be simplified by the fact that rapidly evolving major players such as Robinhood and Coinbase are also showing considerable interest in the burgeoning prediction market sector.
A significant variable in this situation is the fact that both Polymarket and Kalshi are led by imperfect CEOs. As I previously detailed in a recent magazine feature, concerns exist regarding Coplan's readiness to guide a rapidly evolving startup to full success. In parallel, Kalshi's CEO, Tarek Mansour, has a tendency for deceptive methods that have damaged his company's standing.
Finally, there is the matter of which startup can execute better in a controversial and highly regulated new industry. Right now, Kalshi has an edge here thanks to its buttoned-up legal approach towards issues like dispute resolution and ethical controls. Polymarket, on the other hand, has a murky process for disputes that is controlled by owners of an obscure cryptocurrency. The company also has a hands-off attitude to approving contracts, which has led to controversy over the listing of “arson market” bets like those on President Donald Trump’s demise, and a history of wash trading on its platform. These are challenges that a token drop alone will not solve.
Jeff John Roberts
[email protected]
@jeffjohnroberts
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MEME O' THE MOMENT
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