Kalshi's Crypto Push
Kalshi, a prediction market platform, is making a significant move to attract cryptocurrency traders by offering tokenized versions of its betting contracts on the Solana blockchain. This strategic shift, announced exclusively to CNBC, aims to tap into the burgeoning digital asset market and bolster liquidity as the platform seeks to scale its operations.
The introduction of tokenized contracts allows Kalshi users to buy and sell wagers in a digital format, providing a new layer of anonymity compared to trading traditional contracts. This feature aligns Kalshi more closely with its rival, Polymarket, which already allows users to trade directly on-chain.
How Tokenization Works
Tokenization involves creating a digital representation of a real-world asset, in this case, a betting contract. These tokens reside on a decentralized ledger, or blockchain, such as Solana. The tokenized contracts function similarly to their regular counterparts on Kalshi's platform, but trading the tokens themselves offers enhanced privacy.
Bridging to Solana
Kalshi's support for tokenized wagers on Solana is already live, with decentralized finance (DeFi) protocols DFlow and Jupiter playing a key role. These protocols act as institutional clients, bridging Kalshi's off-chain orderbook to the liquidity available on the Solana blockchain. This integration is crucial for ensuring seamless trading and efficient price discovery.
Surging Demand and Market Growth
Kalshi's move comes at a time when demand for event contracts is rapidly increasing. Data from Crypto.com's research arm indicates that combined trading volume in prediction markets approached $28 billion through October of this year, with a peak of $2.3 billion during the week of October 20. This surge in popularity underscores the growing interest in using prediction markets for speculation and hedging.
Tapping into Crypto Liquidity
John Wang, Kalshi's head of crypto, emphasized the importance of tapping into the $3 trillion digital asset market to secure the liquidity needed for scaling. "There's a lot of power users in crypto," Wang told CNBC. "This is about tapping into the billions of dollars of liquidity that crypto has, and then also enabling developers to build third-party front ends that utilize Kalshi's liquidity."
Kalshi's Background and Competition
Founded in 2018, Kalshi gained prominence as the first exchange to offer federally regulated event contracts on U.S. congressional races. This launch followed a lengthy legal battle with the Commodity Futures Trading Commission (CFTC). Since then, Kalshi has expanded its offerings to include approximately 3,500 markets. Last fall, the company raised over $300 million at a $5 billion valuation, with backing from prominent investors like Andreessen Horowitz and Sequoia Capital, and expanded its reach to over 140 countries.
However, Kalshi faces increasing competition, particularly with Polymarket's relaunch in the U.S. To maintain its competitive edge, Kalshi needs to continue growing and securing ample liquidity, which the influx of crypto-native traders could provide.
The Impact of Crypto Traders
According to Wang, digital asset holders tend to be more active on prediction markets, trading at higher volumes compared to non-crypto users. Their presence is expected to significantly boost liquidity across Kalshi's markets, ensuring competitive and accurate pricing. "If you have a market with no liquidity, then you don't really have a market," Wang explained. "People can't really trade size or get the prices that they want."
