The price-setting power of prediction markets, Wall Street earning 100 million annually, takes control

Finally, a turning point has arrived. Once dominated by political supporters, speculative small investors, and airdrop hunters, prediction markets are now welcoming the intimidating newcomers of professional institutions in silence. According to a report by the UK Financial Times, major trading firms such as DRW, Susquehanna, and Tyr Capital are actively establishing dedicated prediction market teams.

This is supported by an explosive increase in monthly trading volume. In early 2024, monthly volume was under $100 million, but by December 2025, it surged to over $8 billion, with recent data on January 12 showing daily trading volume exceeding $700 million. As the market size rapidly grows, the full-scale entry of Wall Street has become inevitable.

Arbitrage Strategies and Conditional Probability Utilization by Institutional Traders

In prediction markets, individual traders and institutional investors are playing entirely different games. Individuals rely on fragmented information to predict single events, while institutions exploit cross-platform arbitrage and structural market opportunities.

In October 2025, Boaz Weinstein, founder of Saba Capital Management, explained specifically how prediction markets provide value to portfolio managers. Consider his example: on Polymarket, the probability of a recession is set at 50%, but in the credit market, it is estimated at just around 2%.

Here, institutions utilize advanced conditional probability analysis. They calculate the “probability of bond collapse if a recession occurs” versus the “probability of no recession,” then buy “no recession” contracts on Polymarket and short bonds in the credit market. They profit from the price differences in both markets regardless of whether a recession occurs.

This is not mere gambling but a strategy based on mathematical precision. Shayne Coplan, CEO of Polymarket, also acknowledged this shift, stating that institutional entry has transformed prediction markets into a completely new “price discovery mechanism” within traditional finance.

Privileges of Market Makers and Changes in Industry Structure

Regulatory privileges are tipping the game further. Susquehanna, as the first market maker on Kalshi, enjoys special benefits such as lower fees, exclusive trading limits, and convenient trading channels.

The entry of market makers drastically changes the trading environment. Previously, low liquidity allowed individual traders to seize basic arbitrage opportunities—for example, exploiting the difference between a 60% chance of Trump winning on Polymarket and 55% on Kalshi.

However, when highly qualified professionals with PhDs and annual salaries exceeding $100 million are involved, these obvious pricing inefficiencies vanish in an instant. Markets become more efficient, but at the same time, barriers for individual traders rise sharply.

The Future of Prediction Markets: An Era of High-Dimensional Derivatives

Institutional entry will build a much more complex ecosystem of derivatives beyond simple binary contracts.

1. Multi-Event Combination Contracts: Probabilities of multiple conditions being met simultaneously, like parlay bets in sports
2. Time-Series Conditional Contracts: Calculations of event probabilities within specific periods and their conditional probabilities
3. Conditional Probability-Based Derivatives: Highly mathematical structures such as “If A occurs, what is the probability that B will occur?”

Looking at the development patterns of financial firms, from forex to futures and cryptocurrencies, all emerging markets follow the same trajectory: individuals ignite the spark, but ultimately, institutions lead the entire ecosystem.

When technological advantages, capital scale, and regulatory privileges combine, it seems the final winner of this probability game has already been decided. While niche markets or long-term predictions may still offer some opportunities for individual traders, the reality must be faced. Once Wall Street’s precision machinery starts operating at full speed, the happy era of easily profiting from information gaps will not return.