Wall Street builds prediction-market desks to arbitrage pricing gaps
Wall Street trading firms are creating dedicated prediction-market desks to exploit price differences across platforms such as Polymarket and Kalshi. Firms including DRW, Susquehanna, Tyr Capital, Jump Trading, Flow Traders and others are aggressively hiring traders with arbitrage, event-modeling and quantitative skills — DRW’s listing advertises up to $200,000 base pay. Monthly prediction-market volume surged from under $100 million in early 2024 to over $8 billion by December 2025, driven by sports and election-related contracts. Market participants focus on cross-platform arbitrage and relative-value trades rather than speculative novelty contracts. Market-makers (e.g., Susquehanna) already receive preferential terms from venues like Kalshi. Liquidity remains a constraint: most large hedge funds remain cautious because prediction markets are small relative to traditional markets. Regulatory and integrity concerns have appeared after high-profile suspicious wins (e.g., a $400k windfall on a Nicolás Maduro capture market) and lawmakers have proposed bans on insider trading in prediction markets. Overall, the move signals growing institutionalization and professionalization of prediction-market trading, with implications for liquidity, pricing efficiency and new trading strategies.
Neutral
The news is neutral for crypto markets overall. Positive elements: increased institutional activity and market-making should improve liquidity and pricing efficiency in prediction markets, create arbitrage strategies, and attract professional capital — all of which can support growth in associated crypto platforms and tokens. The rapid volume growth (sub-$100M to $8B monthly) and firms hiring traders signal maturation and possible new revenue streams for venues. Negative/cautionary elements: prediction markets remain small relative to major asset classes, so systemic market-moving capital is limited and most large hedge funds remain sidelined due to liquidity concerns. Integrity and regulatory risks (suspicious profitable trades, proposed insider-trading bans) may dampen enthusiasm or trigger tighter rules, reducing some upside. Short-term impact: greater trading activity and arbitrage could boost volume and volatility on prediction platforms and any tokenized betting markets, creating pockets of opportunity for specialized traders but little effect on major crypto market indices. Long-term impact: institutional involvement and professional market-making could raise liquidity and narrow spreads, making prediction markets more reliable and integrated into hedging/tooling for macro and crypto traders — unless regulatory constraints or fraud concerns slow adoption. Comparable precedents: the gradual institutionalization of crypto derivatives (e.g., futures and options) improved liquidity and product sophistication but required regulatory adjustments and robust market surveillance. Expect incremental, localized benefits rather than a broad bullish shift for core crypto assets.