The landscape of global finance is undergoing a structural transformation as the boundaries between speculative betting and institutional trading continue to blur. As of January 2026, the entry of Wall Street heavyweights Susquehanna International Group (SIG) and DRW into the prediction market space has signaled the end of the "retail-only" era. These firms are not just participating; they are pioneering dedicated "Information Finance" desks, treating the probability of real-world events with the same mathematical rigor once reserved for high-frequency equity trading.
Currently, monthly notional volume across the prediction market sector has surged past $8.5 billion, driven by a record single-day trading volume of $701.7 million on January 12, 2026. This surge was catalyzed by geopolitical volatility in South America and a series of high-stakes macroeconomic shifts in the U.S. The arrival of institutional liquidity has compressed bid-ask spreads on major event contracts from 10% in the early 2020s to less than 0.5% today, effectively turning these markets into the world’s most efficient "truth engines."
The Market: What's Being Predicted
While prediction markets once focused on niche election outcomes, the modern "InfoFi" (Information Finance) ecosystem covers everything from the timing of Federal Reserve rate cuts to scientific breakthroughs and geopolitical conflicts. These contracts are primarily traded on two powerhouse platforms: the CFTC-regulated Kalshi and the decentralized giant Polymarket. By early 2026, the valuation of these platforms has reached atmospheric heights, with Kalshi valued at $11 billion and Polymarket at $9 billion following a landmark investment from the Intercontinental Exchange (NYSE: ICE).
The market is no longer just a haven for political junkies. Major retail brokerages like Robinhood Markets, Inc. (NASDAQ: HOOD) and Webull have integrated "Prediction Market Hubs" directly into their apps, allowing millions of retail investors to trade event outcomes alongside their stock portfolios. This influx of retail "noise" has created a fertile environment for institutional market makers like SIG and DRW to provide liquidity, capture the "edge" in pricing, and ensure that contracts accurately reflect the aggregate sum of available human information.
Trading volume is now concentrated in "Macro Truth" contracts. For instance, the market for the next FOMC interest rate decision currently processes billions in volume, with odds shifting in real-time as economic data is released. Unlike traditional polling, these markets require traders to put "skin in the game," a mechanism that has historically made them more accurate than expert forecasts or media sentiment analysis.
Why Traders Are Betting
The primary driver for institutional entry into prediction markets is the pursuit of "alpha" through sophisticated arbitrage and hedging strategies. Firms like Susquehanna and DRW have built specialized desks to exploit the discrepancies between prediction markets and traditional financial instruments. This is often referred to as "TradFi-Event Arbitrage." For example, if S&P 500 futures drop following a leaked news report while a related "Presidential Policy" contract on Kalshi remains stagnant, HFT algorithms can trade the lead-lag relationship between the two in milliseconds.
Another key strategy is asset-class hedging. Institutional traders are increasingly using event contracts as a "pure" hedge against systemic risks. Rather than buying gold or defensive stocks to hedge against inflation, a fund might buy a "CPI exceeds 3.1%" contract. This provides a direct payout that is uncoupled from the volatility of the equity or bond markets, offering a cleaner way to manage specific macro exposures.
Furthermore, the concept of "Information Finance," popularized by Ethereum co-founder Vitalik Buterin, has taken hold. Traders are betting because they believe these markets are the ultimate tool for truth aggregation. As SIG recruiting documents for their "Event Trading" teams suggest, the goal is to detect "incorrect fair values" in public sentiment. By identifying where the public consensus deviates from the mathematical probability of an outcome, these firms can harvest significant profits while simultaneously correcting the market price toward reality.
Broader Context and Implications
The professionalization of prediction markets carries profound implications for society and the financial system. We are witnessing the birth of a "Truth Layer" for the internet. When major news breaks, such as the capture of Nicolás Maduro in early January 2026—an event known as the "Maduro Trade"—the odds on Polymarket moved hours before official government confirmation. This has led many to view prediction markets as a more reliable source of breaking news than traditional journalism.
However, this rapid growth has caught the attention of regulators. The "Maduro Trade" sparked allegations of insider trading by individuals with non-public information, leading to the introduction of the Public Integrity in Financial Prediction Markets Act of 2026 (H.R. 7004) by Rep. Ritchie Torres. This bill seeks to prohibit government officials from trading on event contracts tied to their own policy areas. The market currently prices the likelihood of this bill passing at 15%, reflecting the ongoing tension between innovation and regulation.
At the regulatory level, the CFTC, under the leadership of Chairman Mike Selig, has moved toward a "future-proof" framework. Selig has explicitly stated that prediction markets should be distinguished from gambling, treating them instead as vital tools for price discovery in the "Information Economy." This regulatory clarity has been a green light for firms like SIG and DRW to expand their operations, provided they maintain high levels of collateralization.
What to Watch Next
As we move deeper into 2026, all eyes are on the upcoming U.S. Midterm Elections. This will be the first major political cycle where institutional liquidity providers like SIG and DRW are fully integrated into the market. Observers will be watching to see if this professionalization prevents the wild price swings and "fat-finger" errors that plagued thinner markets in the 2020 and 2024 cycles.
Another critical milestone is the potential approval of "Exchange Traded Prediction Funds" (ETPFs). Several asset managers have already filed applications to launch these funds, which would allow retail investors to hold diversified baskets of event outcomes in their retirement accounts. If approved, the influx of 401(k) capital could push prediction market liquidity into the trillions, making "Information Finance" as common as index fund investing.
Finally, the resolution of the legal "checkerboard" in the United States remains a key factor. While federal rulings have favored exchanges like Kalshi, individual states like Massachusetts have attempted to ban specific types of event contracts. The outcome of these jurisdictional battles will determine whether prediction markets can truly operate as a unified, global liquidity pool or remain fragmented by local regulations.
Bottom Line
The entry of Susquehanna and DRW marks a turning point where prediction markets have graduated from a curiosity into a core component of the global financial architecture. By treating information as a tradable commodity, "Information Finance" is professionalizing the search for truth, providing a hedge against uncertainty, and creating a new frontier for quantitative alpha.
As prediction markets continue to outperform traditional polling and media analysis, they are becoming the definitive "source of truth" for the 21st century. For the first time, we have a financial incentive for accuracy in public discourse. While regulatory hurdles and ethical questions about insider information remain, the momentum behind "InfoFi" suggests that the market-driven aggregation of human knowledge is here to stay.
The next few months will be a "trial by fire" for the industry. If prediction markets can navigate the volatility of the midterms and the scrutiny of Congress, they will solidify their role as the world’s most powerful forecasting tool. In the world of Information Finance, the most valuable asset isn't gold or oil—it's the truth.
This article is for informational purposes only and does not constitute financial or betting advice. Prediction market participation may be subject to legal restrictions in your jurisdiction.
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