FULL TRANSCRIPT

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Slava Rubin (00:00)

Welcome to the latest conversation from Vincent. My name is Slava Rubin. I'm one of the founders here at Vincent. We have with us Jan-Erik from Sacra Jan, say hi.

Jan-Erik Asplund (00:10)

Hello, and thank you for having me again. Slava as always.

Slava Rubin (00:13)

Absolutely. So today we're having a conversation which is Predicting Profits: The Rise of Prediction Markets. I'm sure many of you, if not all of you, have sat at the bar or at the dining room table, had a debate with one of your friends and I said, I bet you X, Y or Z. And there's actually not a place exactly to bet, but it's hard to have a market for that. And these prediction markets are really turning that into a whole different story, allowing you

to really take one or the other side on many different ideas. This could be in politics and sports or really eventually anything. So we have a couple of unicorns to talk about, Kalshi and Polymarket. We have Jan-Erik here to really dive into the details. So I'm very excited for this conversation because many of you have asked to talk about this market and potentially these companies. They've been growing quite rapidly. We're excited that for this episode we have

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So feel free to sign up at augment.market to start trading in just minutes and of course, tell them Vincent, we sent you. With that said, let's dive in with a word from our legal department. Nothing in this presentation should be construed as an offer to sell securities or solicitation of an offer to buy securities. All investments involve risk and the possibility of loss, including loss of principle and neither past performance nor forward-looking information is a guarantee of future results. All right, Jan-Erik.

What are prediction markets and how did we get here?

Jan-Erik Asplund (02:09)

Yeah, I think you gave a good summary, but you know, prediction markets are fundamentally kind of like stock markets, right? Where you could buy and sell shares. But instead of buying, selling shares of a company or ETF, you're buying and selling shares on the future outcome of some event. Right. And so let's say you can buy shares of, you know, Trump ending the Ukraine war in his first 90 days and it's priced at 51%. That means there's a, you know, 51 %

crowd estimated probability that that will happen and 49 that it won't. And you could buy a share of it if you're a believer. And if it is resolved as true, if the event happens, then you get paid $1 and those who lost who are on the losing side end up with zero. So it resolves, it's a binary event contract. And really important is to note that these are not sports books.

or sort of a casino-like thing where you have a house edge or the house is setting the odds as with a sports book. This is completely peer-to-peer between people who want to take one side of the bed and people who want to take the other side, which is important for making this work in a regulatory, in a regulated manner right now.

Slava Rubin (03:23)

Yeah, I want to double click on that for just a second. So from a regulation perspective, this helps for them to be able to exist. But let's just double click on the odds there. So for those that don't gamble on sports gambling, like on the Super Bowl, typically what would happen is there's odds for potentially the Giants to win or the Patriots to win. But the odds are set in a way that the house is making money.

right, because it's not exactly adding up to be 100%. So that's kind of their spread where they have the house edge. Here, there is no house edge because you're literally taking up 100 % all of the potential win or loss. Is that correct?

Jan-Erik Asplund (04:08)

Exactly. to go further, connected to the revenue model of these companies, sportsbooks operate with a, the way that they set the odds with respect to the probability of an event is designed to generate this like four to 5 % take rate for the sportsbook or the house, which you call the VIG. And these platforms that we're talking about today, Kalshi PolyMarket don't do that. They do, or Kalshi generates revenue, but not

not through ⁓ setting the odds.

Slava Rubin (04:36)

Perfect.

Jan-Erik Asplund (04:36)

Great, and it's worth noting that this is not a new concept, right? There's been sort of event betting since papal elections 500 years ago, there's been several attempts in the 2000s that mostly ended in kind of regulatory pressure shutting them out of the US market with mainly the CFTC suing them because of the perception that this was sort of these unregulated event-based contracts.

You had some that were able to operate in Europe and elsewhere, but it didn't actually really become feasible to run a prediction market at scale until the late 2010s easing up on that regulatory pressure and then also the advent of crypto, which is really big. But now from where we are sitting here,

it's quickly become perceived that this is a very large potential market because we've seen a huge retail push to get involved in this. Whereas like a decade ago, it was very niche, very academic in some contexts. We're now seeing it on Robinhood, for example. We're seeing sports betting taking off or should I say sports event contracts taking off also in retail. And then we're also seeing these kind of

corporate B2B enterprise use cases taking off around forecasting events in the future or hedging events. yeah, people are sort of very excited about this space for those reasons.

Slava Rubin (06:04)

We already have a question from the audience. the prediction markets are not setting the odds. So there's no real spread that they're making money off with the house edge. But are they making money? Like, is there a commission?

Jan-Erik Asplund (06:17)

Yeah, exactly. So Kalshi takes a fee, is different based on the amount that you're, often people who are buying shares on Kalshi, it's a fee that nets out to approximately 1.5 % of the total transaction amount.

Slava Rubin (06:36)

And Polymarket is considerably less, is that right?

Jan-Erik Asplund (06:39)

Polymarket currently isn't charging any fee, although they are launching in the US soon and they've said that there will be a fee in the future.

Slava Rubin (06:48)

Great. This is just a great reminder for anybody that has questions, feel free to go to the Q &A ⁓ and ask any questions. Obviously, we want to have this as interactive as possible. I have a quick question, which is you mentioned Predict It. I actually remember Predict It. Why, in your opinion, is prediction markets, are prediction markets taking off now versus a decade ago? Because I recall a lot of hype in prediction markets a decade ago, and that kind of floundered.

Jan-Erik Asplund (07:17)

Yeah, from what I've seen of PredictIt, there was a very different amount of liquidity. So there wasn't as many categories to trade in. There wasn't as many opportunities to trade in or out because of that lack of liquidity. you also, I I think a huge factor in the explosion of Kalshi in Polymarket has been the sort of

elections that we've had, the last few elections that we've had, which have been, you know, these extremely potent moments for their growth and explosion in the sort of mainstream, which I don't think predicted or any of the other ones like in trade, trade sports ever were able to sort of break. was always kind of more of a niche, you know, asset class.

Slava Rubin (08:03)

I mean, what I would argue is the convergence of a few things, which is one, you have those that were native to crypto and trading crypto continuing to get more mature and older. You had the meme stocks with COVID and you had the Robinhoodisation. of trading and going after vol volatility. And you had all the legalization of all the sports gambling that was going across the entire United States.

So those are just a few trends that I would argue as to how we got this special moment. You gotta give credit to PolyMarket and Kalshi for being the right product at the right time, executing well. But I do think ⁓ there's a lot of that momentum happening outside of the companies.

Jan-Erik Asplund (08:47)

Yeah, it's a point. Mobile native, mobile native especially. also yes, this Robinhoodisation. Yeah, much better answer than mine actually.

Slava Rubin (08:55)

That's why we're a team. It'd be great to dive into each one of the companies. Can you give us an overview on Calisthenics first?

Jan-Erik Asplund (08:57)

That's right.

Yeah, so Kalshi I would say is kind of the example of doing this with institutions, right? So Kalshi spent several years getting a CFTC approval to launch as this kind of contract options exchange. They ended up launching in 2021. And yeah, like, know, they've obviously become sort of the biggest player in the US because Polymarket can't legally be used in the US. Value of 5 billion.

as of their last series D. And we've done some revenue modeling based on what we know of their transaction volume and take rate. It comes out to roughly, you know, that they made 24 million in 2024, which is, you know, obviously a huge jump. Much of that, you know, via the election from 2023. You know, I think right now, if you sort of take a forward looking annualized approach and look at their volume, which is about a billion dollars a month in trading.

⁓ at a roughly 1 % take rate, you get about 120 million a year. So that's where we would of estimate maybe a little higher ⁓ is what their sort of recurring revenue or annualized revenue right now would be.

Slava Rubin (10:12)

Amazing.

Jan-Erik Asplund (10:12)

Yeah, exactly. So to go a little bit more into the way that this works, sort of, you know, who to graph for Kalshi has been sports betting, which has rapidly overtaken every other category and has become the main use case for Kalshi So there's obviously laws about sports betting, sports gambling across the United States. However, there's mostly, those are mostly state by state. You know, as you alluded to, there was a

federal change in the law that made sports betting legal. so it's all these sports state by state laws that exist and Kalshi's federal designation and license as a contract market is what has allowed it to operate basically as if those state by state rules don't exist. And so, roughly 100X cheaper if you sort of look at the take rates versus the house edge at sports books, that's been a huge

attractive thing for folks who are dabbling in sports betting to go try this on Kalshi instead of DraftKings or FanDuel. And we are starting to see the regulatory battles across different states where Kalshi is sort of hauled out for maybe sort of circumventing state betting laws, but that's sort of been the main story of their growth this year.

And yeah, this is a good sort of illustration here of the overall volume. Polymarket really dominated the sort of election period. And after that as well, you know, they had global reach, whereas Kalshi was in the U.S. But things have really gone neck and neck in the last several months. You know, re the explosion of sports betting, which is now 75 % of their volume.

plus these partnerships they've formed. So the biggest one is Robinhood, which launched prediction markets. Those are being done in partnership with Kalshi, but also Forex.com, Interactive Brokers, and the NHL. So these are obviously really big as well.

Slava Rubin (12:14)

So, Kalshi's volume is now bigger than Polymarket's

Jan-Erik Asplund (12:18)

Yeah, so this graph is from a few weeks ago and it's kind of like up and down the last few weeks. So they're very much neck and neck, but I do think Kalshi slightly ekes it out.

Slava Rubin (12:29)

It's interesting because I know I'm getting ahead of myself here, but isn't polymarkets valuation in the market significantly lower? They're both very large.

Jan-Erik Asplund (12:40)

Yeah.

Our Polymarket is higher than calc sheet. Yeah, despite this recent flip.

Slava Rubin (12:46)

It's interesting because Polymarket is not really monetizing and Kalshi is. Kalshi is now seemingly crossing it for the moment. Why do you think the, why do you the investor, institutional investor base out there is giving Polymarket kind of the greater valuation?

Jan-Erik Asplund (13:06)

Yeah, it's a good question. I can sort of, you know, speculate. think like one aspect is the global, know, Kalshi has sort of dominated in the U.S. Polymarket has yet to open in the U.S., but they're in the works. It's in the works. They're already testing it with some folks. So I think there's a fair amount of pricing in of that future growth for Polymarket as they're coming in to the U.S. I also think, you know, more diversity in sort of the key markets like

Kalshi is very heavy on sports betting, or potentially there's concern that that goes away or that that gets somehow, know, hamstrung by, you know, state regulators or the government, potentially, but I'm not sure.

Slava Rubin (13:42)

All right, great. Carry on. Let's talk about Polymarket.

Jan-Erik Asplund (13:46)

Great. So Polymarket on the flip side, instead of trying to make this happen through partnering with regulators, they decided to go crypto, ⁓ crypto native, and they built the Polygon blockchain. Users are trading in ⁓ USDC rather than US dollars, which means anywhere around the world you can trade using the US dollar denominated stable coin. Anywhere in the world except the United States ⁓ where you can't. And they were sort of hit with the same thing as

predicted in others, operating and unlicensed options exchange, but that hasn't slowed down. Obviously the excitement around the company being sort of the OG prediction market and being greater in volume than Kalshi until fairly recently. They hit 9 billion in trading volume in 2024, which was a lot more than Kalshi. And yeah, they're valued at 9 billion. I think if you were to take their volume and say,

their revenue would be sort of like what's the imaginary revenue it would be over Kalshi maybe like 180 million a year. Although, know, obviously with a take rate that revenue might be lower volume might be lower.

Right. Yeah. The main sort of big event happening with Polymarket right now is going live in the U.S. So they spent 100 million acquiring a existing CFTC license exchange in order to open up in the U.S. They are doing so in the process right now. The first vertical they're launching is Polymarket Sports, which obviously at this point has become the number one use case for prediction markets. And there will be a fee.

on that, although worth noting they've said it's going to be significantly lower than even Kalshi's fee. So they're still trying to go undercut Kalshi on price in a big way.

Slava Rubin (15:32)

Why, just to ask again, because I think a lot of people are going to be like, why is this allowed? But it wasn't allowed before. is this all, does this all have to do with the fact that it's the house edge for the bookies, meaning the gambling sites and here there's no house edge? Is that really the differentiation?

Jan-Erik Asplund (15:54)

Yeah, legally, I don't know that it's the core principle on which this become allowed. think it's also kind of like, you know, the administration that we have now is very friendly to these kinds of companies and to this kind of innovation happening in fintech. So I think that with more pressure, things might have looked different. But I do think that that's that house edge part is really core because they're not a sports book. You know, if you were if they were

changing the odds to sort of generate a VIG, then yeah, it would have been very short-lived.

Slava Rubin (16:27)

Yeah, and then I think it was like a year ago, just before the election or ⁓ a little while before the presidential election, wasn't even the CEO of Polymarket under the previous administration, like his home was raided and his phone was taken. Like the previous administration, like, I'm not sure if this momentum would have been as obvious. Is that fair?

Jan-Erik Asplund (16:51)

Yeah, that was a really weird chapter where bets were coming in on Donald Trump to win the election. yeah, Kalshi was definitely sort of you know, the more smiled upon of the prediction markets. But I definitely think, yeah, the election going that way was definitely a win for the polling market long term.

Slava Rubin (17:10)

In more of a tactical question, asking a little bit further on this whole house sides versus house edge versus not peer to peer. So when it's actually a peer to peer contract here between the two individuals who are agreeing on what they're disagreeing on, the two sides, how does this work without a market maker? Meaning typically in the stock market or in these gambling houses, they're kind of brokering it in the middle.

Do you have a sense of how this tactically is working?

Jan-Erik Asplund (17:41)

Yeah, so Kalshi does work with a market maker. They have sort of institutional partners and then they also have their own entity. And Polymarket as of somewhat recently also has their own entity that does some of this market making. And they also have a program where kind of like, if you are holding, if you are holding, think the Polymarket token,

in crypto, then you can receive certain rewards, know, kind of APR on your deposits by agreeing to, you know, kind of act as a market maker. So they had kind of a more crypto decentralized system for it. I don't know about it as much as I want to, but ⁓ that's roughly the split. Both are kind of moving towards traditional market maker model.

Slava Rubin (18:23)

I'll ask one more question around this and feel free to punt if there's too much detail. So is there an order book like a market maker or how does a platform find a counterparty for my position if I have like a really large position I want to put?

Jan-Erik Asplund (18:37)

Yeah, there is an order book and I'm definitely on Kalshi and I'm pretty sure there's on Pauli Market as well. So yeah, there's a lot of different sort of views into the apps these days and there's very pro trader setups that you can see the order book and then there's very simplified version. But yeah, that's what I know.

Slava Rubin (18:55)

Okay, great.

Jan-Erik Asplund (18:58)

Awesome. Yeah. Like I said, Polly market launching in the U S operating at a 0.01 % fee. So Kalshi is a hundred X more expensive. 400 X cheaper than a sports book. And yeah, as you can see from the graph here that while sports has really taken off on Kalshi, you know, Polly market for politics and some other categories has really dominated as more of an overall options market. Whereas Kalshi is kind of slightly more of a

Sportsbook replacement or cheaper sportsbook.

Cool. And then just to sort of bring it all together, I think, Kalshi on the left kind of this regulated, licensed exchange in the US kind of worked closely with regulators to launch and take a traditional kind of take rate on transaction volume. On the right, you kind of have the crypto upstart in Polymarket. The valuation is about twice as high.

trading volume is about four times as high, but things are a little more neck and neck right now. Both have great partnerships, obviously, Kalshi on the left slightly more, kind of a consumer focus. On the right, have Polymarket. So Polymarket just raised from the Intercontinental Exchange, which owns New York Stock Exchange. And a big part of that is going to be a data partnership where odds on events

happening or not are going to be used and sold as part of a B2B revenue line and also lends some credibility to Polymarket in the United States as being partnered up with a big financial institution.

Slava Rubin (20:48)

mean, they both seem very interesting and they obviously have some differences, but at the highest level, they're kind of the same competing against these house gambling sites sort of thing like DraftKings, FanDuel, etc. If you were going to pick one, do you pick one that you're more long versus the other or do you see it as like their quote unquote an equivalent basket that you just would want to have both and ride the market?

Jan-Erik Asplund (21:19)

⁓ I think, mean, ideally, I think both, think right now, given the lag, you know, Kalshi's valuation being significantly lower. I Kalshi looks a little more. Attractive at this exact moment. ⁓ although, you know, Kalshi is from reports, you know, talking to folks about, ⁓ about, over $10 billion valuation. so if you think about them as roughly equivalent in valuation, which they might be within a few weeks.

then I think the argument for sort of a basket looks a little more compelling.

Slava Rubin (21:52)

Got it. I have a tactical question again. So just if you could walk the audience through how one of these markets gets set up. the fact that you showed us, you know, like will the Fed drop rates in December or will the Ukraine war end by the end of the year? These are kind of already there. What if I wanted to add one now, which is, you know, will this session be done by 1145 Eastern?

If I wanted to add that right now, or if somebody else wanted to add that who's listening, how does that happen that they can add it? And then more importantly, how does that opening market get set in terms of what are the preliminary odds on yes or no on that?

Jan-Erik Asplund (22:39)

Great. Yeah, so let's say that it's very open to user requests. think Polymarket is slightly more open to user requests. You would want an event that's concrete, objectively measurable, with some kind of clear resolution source, which I think this event ending at 11.45 would have. You sort of have to build a rule set around it, like what exactly is predicted, when does it happen?

and then what data source is gonna determine the outcome. So a popular one is inflation, ⁓ whether inflation will be below or above 3 % on a particular day and the source might be a piece of government, a government publication. And then you have a sort of, know, either a binary event or a spread, you need to sort of define all the edge cases. And then with Kalshi, there's a sort of

regulated, you know, there's a, there's a, because they're a regulated exchange, they have to certify the market. The CFTC can sort of object to it. So there's a bit more of an approval process there. Polymarket doesn't have that. And then before you can actually launch it, like you sort of alluded to, there needs to be one sort of market maker to provide the initial liquidity. Can have an empty order book kind of at launch. And that market maker might get some kind of rebate on their fees.

or some kind of incentive, they set it up and then once the market opens for trading, that's all done, then people can start coming in, placing orders in either direction and with market makers in play, it kind of makes sure that the price relatively quickly converges on to some kind of, it's the crowd estimated probability of the event happening or not.

Slava Rubin (24:20)

For example, that one about this ending by 11.45, let's say that was approved, or in Polymarket didn't have to be approved. So there's market makers on their side, there's maybe one, three, or five of them, and they're saying, oh, I'll grab that one, I'll take that one. Is that how it works, and then I'll set the

Jan-Erik Asplund (24:39)

Exactly. Exactly.

Slava Rubin (24:41)

Okay, great. Do you think either one of these companies is better set up to own the whole stack as opposed to kind of have to give off part of their revenues for distribution or customers? example, Kalshi is partnered with like Robinhood or with Interactive Brokers. You know, on the other side PolyMark is partnered with ICE.

like some of that revenue I imagine is getting siphoned off to these partners. Who do you think in the long run is better set up to own a majority of the stack and have to give away less of their, let's call it margin? Or are they the same?

Jan-Erik Asplund (25:20)

I think roughly the same. think there's maybe some arguments being made about being crypto native, putting it in one direction or another for Polymarket. I mean, from where we're looking, know, Polymarket is coming in, buying a CFTC exchange, introducing trading fees. They're converging on the same kind of model. And so I don't see any super compelling reason at this stage for my research to say one is like drastically better positioned than the other.

Slava Rubin (25:46)

I'm gonna do a completely one-off that's never been done. I want everybody who's listening, if they just wanna give me a quick, in the Q &A, you could frame it as a question, but it really just give me a, do you prefer PolyMarket or Kalshi right now? Or if you're not sure, just say both. And I don't have a proper poll going, but I'd love to see what comes in. So just go to the chat, to the Q &A.

Sorry to the Q &A and feel free to, okay, I see some preferences coming in. So this is great, great. Okay, we'll revert back to that. Thank you for showing that you actually exist on the other side of the internet. Okay, where do you see this headed? What's the future of all this?

Jan-Erik Asplund (26:32)

Yeah. uh, well, if you've seen the news over the last few months, as Kalshi pie market had taken off, there's been an explosion of people who are saying that they're launching prediction markets. Um, you know, we, at Sacra we actually did an interview with the former, uh, CEO, uh, co-founder of underdog fantasy. And we asked him about prediction markets. This was about five, six, seven months ago. And he said, it is too much of a regulatory gray area.

⁓ for any of the sports books or daily fantasy platforms to get into. A few months ago, ⁓ I looked at Bloomberg and it was reported that Underdog was going to be starting their own prediction market in partnership with crypto.com. DraftKings acquired a company called Railbird and they are launching DraftKings predictions. Robinhood has a prediction market that is using Kalshi on the backend, but they frame it as the Robinhood prediction market.

Coinbase is launching Kraken, is sort of putting themselves in a position to launch this. So it appears in general that this pattern of product market fit around the prediction market. Other folks have clearly noticed and taken stock of what, there's a lot of people that want to trade in volume on events and anyone who's putting money into a prediction market

is a potential customer for an underdog or crypto.com, Coinbase or DraftKings or FanDuel. And what all of these places wanna do that sort of unifies them is they want to own all of that trading activity. They wanna own as much of that trading activity as they can because if they get you for prediction market trading, then they can cross sell you over into buying crypto or other kinds of...

investments that you might want to, other kinds of trading that you might want to do. And so I think what we're seeing and will continue to see is sort of prediction markets becoming a feature of roughly every trading, investing or betting platform that's out there. And a lot of that will happen in partnership with Kalshi and Polymarket, which currently have the best, they have the most. ⁓

liquidity, the most usage, the most open markets to trade on. And so they are key infrastructure for that at the moment.

Great.

Slava Rubin (28:55)

quickly, do you think this is like, it seems like everybody is getting prediction markets in due time. Like by the end of 26, it seems like there's gonna be a lot more prediction markets. Like you said, it might be a feature inside of another other robust platform as opposed to the entire platform. As that happens, I imagine prices will come down in terms of what different folks can charge because they'll try to acquire folks with low

early fees. So is this a race to bottom? Is this all going to get commoditized?

Jan-Erik Asplund (29:31)

Yeah, I think there's definitely a possibility. I think Polymarket is kind of maybe more preparing for that with their 0.01 % fee, which I don't think you can start paying people to do this. So I agree. And I think that is also an interesting conflict for FanDuel DraftKings who, I don't know, I don't know how it's going to work when you have a four to 5 % take rate on transactions here.

And then are you going to introduce a predictions market with, you know, almost zero, you know, zero take rate ⁓ and cannibalize that incredible business that you have on the sports book side. think that will make it very difficult for them to compete, you know, fully with Polymarket and Kalshi as, you know, standalone prediction markets. And I do think, yeah, the prices are just going to come down and Polymarket is sort of setting the pace there, I think.

Slava Rubin (30:22)

So just to echo what you just said, so DraftKings has today the Chargers against the Lions football game. And on that game, it allows you to take either side and chances are with the house edge, they're probably gonna make like 5 % on all the money, the volume that goes through those trades. But they're saying they're coming out with DraftKings predictions, right? So will there be the Lions against the Chargers as a DraftKings predictions game, right?

where on that they probably are not gonna be able to charge 5%. It's probably gonna be much closer to what Kalashii and PolyMarket are charging, which is 1 % or way lower. So that's where you're arguing it could be really difficult for the gambling houses. So yeah, I think it's gonna really interesting. Do they not allow those games that they already have on their sports board as prediction opportunities? That's probably my guess. That's probably gonna be my guess, where if it's sports related.

It'll stay as the Gamley house, but that would be tricky to navigate.

Jan-Erik Asplund (31:24)

Yeah, agreed. think that there are definitely products that DraftKings and FanDuel have that are for a sports gambler preferable. For example, parlays are sort of the biggest, more like contemporary way to bet on games where you bet on several different games or events happening and them all happening. So, Kalshi has launched their own version of parlays, but

And DraftKings stock went down in the double digits that day, but nowhere near the level of depth or sort of options for setting up a parlay. there's DraftKings and FanDuel's volume, transaction volume and liquidity is definitely far superior, but it's still a problem. think the other thing to note is that, yeah, interestingly, the Polymarket is going to be the clearinghouse for DraftKings' prediction market. So yeah, that will be the

It's interesting because you can sort of see DraftKings versus Kalshi as the most salient competitive dynamic there and Pauline Market teaming up with DraftKings I think is really interesting.

Slava Rubin (32:27)

So there's quite a few of these gambling sites that are on public exchanges right now. So you can go long or short those companies right now. Do you see this as definitely a trade to go short because the fees are gonna get compressed and there's a lot more competition? Or do you see the opposite? This is an opportunity to go long because gambling is becoming much more culturally accepted.

and these organizations are going to find ways to layer in these new innovations and it's just going to expand the market and the customer base.

Jan-Erik Asplund (33:01)

Yeah, it's hard because I know that, I don't know as much about sports books and where they're sort of at, but I would look at it basically like you, where I can see both very clearly. I can see that potentially the disruptive narrative, but at the same time, I think we've seen such a huge explosion of bedding over the last few years. And if you watch sports these days, it's like,

all gambling all the time. The normalization of it has been really rapid. Fanduel is like a $35 billion market cap. Draftking is like a 14. These are like two, three X sales multiples. So they don't seem drastically overpriced, just to me. And I think there's definitely possibilities where they end up owning this and using Kalshi or Polymarket as kind of their underlying rails.

But they still sort of eat the vast majority of the upside, I think, potentially. So I would be hesitant to sort of take either side of that events contract, that these companies go to zero.

Slava Rubin (34:07)

Nice. And in regards to our quick one-off survey, it's actually interesting. It was quite balanced. So we got quite a few both and we got quite a bit of love for Polymarket as well as I prefer Kalshi's. So pretty interesting, pretty even.

Jan-Erik Asplund (34:25)

little Vincent prediction market. I like it.

Slava Rubin (34:28)

Right, that's right.

So yeah, what are your thoughts on kind of this prediction market? How could this play out over the next five years?

Jan-Erik Asplund (34:34)

Yeah, I think there's kind of, to look at it in bare base and bull case, I think there's a world where this whole industry kind of gets hamstrung by the administration. Maybe people sort of lose interest in this ⁓ and what you end up with is kind of more of a predicted, but upgraded for mobile consumer, Wall Street bets kind of audience.

you know, maybe you end up making 500 million, 700 million a year in revenue in 2030. You know, this is still growing from where it is today, but growing more at the 5, 10 % range and now generating meaningful, you know, extra revenue from anything besides trading and settlement fees. I think there's kind of a base case where, you know, options or contracts on events and outcomes

are here to stay and we continue to see sports taking off, sports winning, we continue to see political events, maybe new categories. And that's a world where maybe these kinds of platforms are making in the range of 1.5 billion a year by 2030, maybe worth 15 billion, maybe more than that 20 billion. And then I think the goal case is that this

not only continues to be popular, that events become sort of underlying infrastructure for Robinhood, Coinbase, Draftings, FanDuel. All of these platforms end up using these high liquidity marketplaces to run their own prediction markets. And I think that's a world where there's that take rate, but then there's also all these giant enterprise deals. And we could see either Polymarket or Kalshi or both doing four billion a year in revenue.

And that's in five years from now, that's that 40 % sort of year over year growth every year. At which case you would see, I think the sort of the ceiling I would imagine is kind of like a 30, 45 billion valuation at that time, which would from here is about 4X, 3, 4X.

Slava Rubin (36:36)

Sorry, when you say 30 billion valuation, you're referring to the market or one of the companies because if there's three and a half to four and a half billion of revenue in 2030, are you putting a 10x multiple on revenue to get to like 35, 40 billion dollars of enterprise?

Jan-Erik Asplund (36:54)

Exactly.

Slava Rubin (36:55)

So, and that's for the market, not for our company, right?

Jan-Erik Asplund (36:59)

I think it's possible you could see this from a company, from either Kalshi or Polymarket

Slava Rubin (37:04)

So does that mean either one of the companies can have three and half so the market can have double that amount of revenue in the market?

Jan-Erik Asplund (37:13)

I think if it really takes off and we do see all these prediction markets emerge, think at that point it becomes possible, yeah.

Slava Rubin (37:22)

Got it. Meaning maybe it's a 20x revenue or maybe the revenue is doubled and it's a 10x.

I mean, that's a lot of revenue. Imagine that just a few years ago, or a couple years ago, this was like a zero revenue in the industry. And now we're talking about billions. I mean, this is what VCs drool after going, trying to find this type of revenue. So super interesting. What other thoughts do you have about the potential for the future here?

Jan-Erik Asplund (37:55)

Yeah, I think, you know, from folks that we've spoken to, I think the biggest risk or biggest kind of coming hurdle will be this federal versus state war, especially over sports, which, you know, every state, you know, regulator of gambling is annoyed that there's these giant players now, Kalshi, student Polymarket that are not paying

these massive tax liabilities that sports books are. And so folks we've talked to say this is really the key thing to look at because these states are not happy about this, a lot of this tax revenue is being lost to what they see as sports betting or sports gambling, even if there's kind of a, maybe pedantic explanation for why it's not. yeah, beyond that, do think prediction is gonna be a feature.

everywhere in every app. And then I think we'll see a lot more M &A and folks buying this functionality. So, you know, there are some smaller prediction market startups out there that I think will be interesting pickups for sports books, other exchanges, crypto companies, that kind of thing.

Slava Rubin (39:04)

Interesting. So just kind of like blue sky thinking, obviously the New York Stock Exchange and the NASDAQ has like a massive ecosystem around it, right? There's hedge funds. There's all these businesses that are built around just trying to find alpha and finding ways to trade or to make a lot of money or to put a lot of money into various investments.

Do you see that sort of ecosystem of infrastructure happening around potentially Polymarket or Kalshi around these organizations? Like, you see, know, in three years from now, are we going to be talking about that amazing quote unquote hedge fund? But it's not a hedge fund, it's a prediction fund, where it's just investing large amounts of LP money into Polymarket as an example.

Jan-Erik Asplund (39:55)

Yeah, I definitely think so. You know, what we've seen so far is really remarkable stories of individuals. Like you can go on Kalshi and sort all traders by profit. And I would pull it up right now. I probably can't do it in time, but there's a guy, you know, a French guy who put a ton of money on Trump to win the election. And he was, you know, sort of, you know, examined in the news. People were trying to understand how he did this.

But we've had, I haven't seen personally any funds set up yet around this, but I think it's just the natural kind of next step given the amount of money on these platforms. And also I think the amount of potential for, you know, sort of marginal strategies or new ways of trading on the market. think it's very unoptimized, right? It's like the stock exchange in its first couple of decades, because folks haven't fully figured it out, even if these things get figured out faster.

I definitely think so. And both are kind of going for this New York Stock Exchange like, you know, status.

Slava Rubin (40:59)

Do you predict that prediction markets are gonna be added as a feature to pretty much every venue around you, i.e. well, Facebook, Instagram, Twitter, X, whatever, all these social media, Spotify, et cetera, are they all going to have YouTube? Are they all gonna have prediction markets layered in as a monetization tool slash an engagement tool?

Jan-Erik Asplund (41:28)

I definitely possible. think there was already talk this summer of so Twitter or X as Polymarket as its official prediction market partner. think anything like that where I think the concept of a prediction market ties in really well to any kind of social media that's event driven. I think it's a natural tie in and will drive engagement plus new revenue. So I would be, I would bank on it happening more often than not with social media and news platforms.

Slava Rubin (41:56)

Here's a fun one. Maybe your last question in case anybody else has any more questions. Do you predict that prediction markets could create parallel access as a way for investors like the crowd to decide where they want to invest into future rounds at certain valuations based on the predictions that they then support?

Jan-Erik Asplund (42:18)

Sorry, so like secondary stock trading. ⁓

Slava Rubin (42:21)

Basically

saying like, hey, you know, let's pick a company, whatever. Should Anthropic be worth 400 billion and how many people go long on it? And then that actually aggregates all the people that want to come in at 400 billion. Then that becomes the round.

Jan-Erik Asplund (42:37)

Yeah, I think that's possible. I think there's a lot of really interesting potential stuff to do with private companies, startups, pre-IPO stock with prediction markets. And I'm sure someone will try something around that. I've actually seen a prediction market around what Sacra would publish as the revenue number for OpenAI at the end of the year, which I was like, why are people doing this? This is insane.

Slava Rubin (43:02)

Excellent, excellent. Well, hopefully you're not easily influenced like, you know, the pitchers in Major League Baseball to throw a bad pitch at the wrong time. So anyway, with that, there you go. With that last poor joke, this has been a great conversation. Thank you, Jan-Erik for joining. Thank you, Augment for partnering with us. Obviously, if you are looking for any pre-IPO, check out Augment.

And that concludes this session. We were talking predicting profits, the rise of prediction markets. I just learned a ton about prediction markets and always love these conversations. thank you very much. Have a good rest of your day.

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