Prediction Market Sector Fractures into Liquidity Platforms and Distribution Channels

The prediction market sector is undergoing a rapid transformation as major fintech players like Robinhood and Coinbase prepare to expand their footholds, according to Bernstein analysts. Robinhood, which already dominates over 50% of Kalshi's trading volume through an existing partnership, aims to leverage its distribution edge to capture a larger share of the market revenue pool by launching its own CFTC-regulated derivatives exchange according to Bernstein analysts. This move positions Robinhood to directly compete with platforms like Kalshi and Polymarket, which have seen explosive growth in 2025 as investors bet on everything from political outcomes to crypto price movements.

Kalshi, the CFTC-regulated platform, recently raised $1 billion at an $11 billion valuation, bringing it closer to rival Polymarket's reported $12–$15 billion valuation target. Kalshi's regulated structure offers legal clarity and fiat onramps, contrasting with Polymarket's decentralized, crypto-native model. However, regulatory challenges persist, particularly in Nevada, where a judge ruled the platform subject to state gaming regulations, potentially disrupting $650 million in derivatives contracts. Meanwhile, Robinhood's joint venture with Susquehanna to acquire MIAXdx-a CFTC-licensed derivatives exchange-signals a strategic shift toward institutional-grade liquidity infrastructure according to Bernstein analysts.

Coinbase is also entering the fray, with leaked app code and screenshots suggesting it will unveil a Kalshi-powered prediction market at its December 17 event. The platform will allow users to trade binary contracts on events ranging from elections to crypto milestones, with outcomes determined by trusted data sources according to reports. This follows a broader industry trend: Yahoo Finance now partners with Polymarket, while Gemini and Trump Media & Technology Group are developing federally regulated prediction markets. The sector's total trading volume has surged to $17 billion for Kalshi and $34.39 billion for Polymarket, reflecting growing mainstream adoption.

Regulatory arbitrage is narrowing as compliance becomes a critical differentiator. Polymarket's recent CFTC approval and data partnership with Intercontinental Exchange highlight the importance of aligning with regulatory frameworks. For Robinhood, Bernstein analysts project annualized prediction market revenues exceeding $300 million by 2025, driven by its 14 million active traders and aggressive distribution strategy. However, integrity risks remain: 2025's sports-betting scandals underscore the need for governance and transparency to avoid reputational and regulatory fallout according to reports.

The prediction market landscape is fracturing into liquidity platforms (Kalshi, Polymarket) and distribution channels (Robinhood, Coinbase). As Robinhood and Coinbase integrate regulated infrastructure, the sector's growth will hinge on balancing innovation with compliance. Bernstein maintains an "outperform" rating for Robinhood, targeting $160 per share, while predicting Coinbase's prediction market could redefine how users engage with event-based trading.