Long Kalshi, Short Polymarket

Prediction markets have gotten massive attention ever since the 2024 election, where they priced correctly that Trump was the favorite over Kamala Harris. The two biggest exchanges are Kalshi and Polymarket. Kalshi took the long route of becoming regulated prior to launching, while Polymarket gained market share, or a better metric: open interest, which is the real measurement of health in a market.

While I'm extremely bullish about prediction markets in general, as they will become the instrument to price truth and wisdom of the future, I am long Kalshi, short Polymarket. My thesis is that the next phase of prediction markets will be won through regulation, institutional trust, political navigation, liquidity, and product. Not just open interest.

Before starting with my thesis, I will disclose that I have no insider information and that this is only purely observations I have from founders appearing in public. In these public appearances, I have observed quite a difference in behavior, which signaled to me that Kalshi is way more forward-looking, strategic, and knows how to "play the game."

In interviews, Tarek wears a button-down. On the other hand, Shayne Coplan from Polymarket thinks it's cool to show up to these events in pants with rubber strings and Nike Air Force One sneakers. Nothing wrong dressing like that. But there are tradeoffs.

One of the main things necessary in order to scale prediction markets is to get more institutional involvement, which can only be done when things are regulated, either by the CFTC or SEC. I repeat, what you wear is not really that important. However, founder presentation is one signal of whether a company understands the institutional game. Whether you like it or not, there is an element of playing "the game," and sometimes dressing the part is part of the game. Kalshi understands this.

One major moment from these public interactions which I recall is a moment when Andrew Ross Sorkin was asking Shayne Coplan, founder of Polymarket, about what he thought about Kalshi. In the beginning, he was reluctant to reply, evading the question, but after a few more press comments, Shayne seemed to lose control, jump out of his seat, and say, "Kalshi is just a copycat." [link] That is something that should never be seen on live TV. To me, the reaction suggested that Kalshi was getting under Polymarket's skin.

There were a million better answers to reply to the question, such as, "They were an incredible competitor, and we look forward to growing the pie together." Again, this is just part of the game. I actually think that reaction demonstrated that Kalshi was getting under his skin and that he was feeling the pressure of a diminishing market share of prediction markets. As regulation within the U.S. strengthens, Kalshi's moat inside the country strengthens.

One more thing that I recently learned is that Kalshi changed from "predict anything" to "we want to build the largest exchange in the world." I have no information, but this is pure speculation. My bet is that this only means that they will launch perpetual futures at some point.

Another interesting observation I did was that after Donald Trump got elected, Kalshi named Donald Trump Jr. as a Strategic Advisor. This is a savvy move to ensure that they continue to have a favorable position with the White House and with regulation. This gives them access, some information, and a relationship with someone who understands the administration and can help them navigate the political and regulatory landscape.

Funny enough, around seven months later, the same person, Donald Trump Jr., joined Polymarket's advisory board after 1789 Capital, where he is a partner, made a strategic investment in the company. [link] This, to me, again shows that Kalshi is ahead of the curve, thinking more creatively, and just thinking ahead.

Another example that I have found is that Kalshi created a viral ad campaign for it called "history is written by the underdogs," where it depicts the story of David versus Goliath, amongst many other historical moments where the underdog persevered. This campaign was notable because it was extremely cheap and AI-generated. As a result, then Polymarket proceeded to create their own campaign that is AI-generated.

I have seen a million instances where I can confidently say that Kalshi has done something and then Polymarket just proceeded to copy it. I wonder if Shayne's comments about Kalshi being a copycat have been flipped. Now he's copying everything Kalshi does.

Polymarket deserves enormous credit for making prediction markets culturally relevant and proving demand at scale. They built a good product and have done amazingly well in expanding the prediction markets industry and in growing it by being the first mover.

However, in my opinion, Tarek and Luana have executed way better, have developed a regulatory moat, a better product, a more scalable product that can reach more people, and overall are the superior prediction market that will win the race. Kalshi is Uber. Polymarket is Lyft.