A viral critique from DraftKings co-founder Matt Kalish has exposed a structural fault line in the prediction market industry that participants had mostly chosen to ignore: who, exactly, is making money, and at whose expense.
Kalish's public broadside targets Kalshi, the leading CFTC-regulated prediction market in the United States. His core accusation is that despite Kalshi's positioning as a financial exchange, the platform functionally operates as a sportsbook that routes retail order flow to institutional market makers.
"You're not trading against me," Kalish wrote on X, pointing to a trade where his odds were significantly diluted by slippage. "We're all trading against Susquehanna and professional Wall Street market makers."
The Exchange Paradox: Liquidity vs. Fairness
The conflict points to a structural tension at the center of the prediction market model. Traditional sportsbooks act as the house, managing risk by limiting winners.
Prediction markets like Kalshi use an order-book model that attracts quantitative trading firms to provide liquidity but also creates what amounts to a shark tank for retail participants.
New research from Citizens JMP Securities gives weight to Kalish's skepticism. Traders with over $500,000 in volume are consistently profitable, with a median ROI of +2.6%. The median return for retail prediction market users is -8%, which is worse than the -5% typical of traditional sportsbooks. Small accounts under $100 are losing 26.8%.
Kalish argues this structure lets Wall Street extract profit from retail losses, effectively making Kalshi a sportsbook that is "2-3 years behind" in consumer product development.
A War for Legitimacy
Kalshi has worked hard to put distance between itself and the gambling label, positioning its event contracts as CFTC-regulated derivatives. To reinforce that framing, the company recently announced a $2 million investment in the National Council on Problem Gambling.
We’re funding a new Financial Trading category within NCPG to advance trader health & safety.
— Tarek Mansour (@mansourtarek_) May 18, 2026
While financial markets have different incentive structures than casinos and sportsbooks, there is still risk of irresponsible trading, whether it’s active stock trading, short-dated… pic.twitter.com/mRGS3UNZ2H
The industry is nonetheless converging. While Kalshi moves toward Wall Street, the major gambling operators are moving into its territory. DraftKings and FanDuel have both launched prediction products — DraftKings Predictions and FanDuel Predicts — using CFTC-linked structures to sidestep state-level betting bans.
Squeezed from both sides, firms like Sporttrade are making more drastic moves: the company recently announced it would exit sports betting entirely and pivot to a regulated exchange model.
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Data Transparency under Scrutiny
The most serious technical allegation concerns how Kalshi handles user data. Kalish accused the platform of sharing user IDs with market makers through its API, which would allow professionals to profile order flow and selectively choose when — or whether — to provide liquidity to specific traders.
Why is it 93-1 if you bet $10 and 38-1 if you bet $1000 on something pic.twitter.com/ZXegUsakEz
— Matt Kalish (@mattkalish) May 15, 2026
That may not be enough going forward. For the B2B brokerage community, the episode signals something broader: the prediction market sector has outgrown its niche status, but its infrastructure is under real pressure.
As the industry pushes toward a $22 billion valuation, questions are growing over whether these platforms operate as neutral marketplaces or disproportionately benefit professional liquidity providers.
