Since the US election, prediction markets have become popular due to their ability to "beat the pollsters." Compared to traditional news, prediction markets require participants to wager real money, earning them a reputation as a higher-quality and more authentic source of information. They have gradually replaced media and institutional surveys as the new barometer of public opinion. Capital has also quickly followed suit: Polymarket not only secured tens of millions of dollars in investment from former President Trump's son, Donald Trump Jr., but he himself will also join Polymarket's advisory board; while Kalshi completed a $185 million Series C funding round led by Paradigm in June, skyrocketing to a $2 billion valuation, becoming synonymous with institutional trust.

Against this backdrop, on August 27, The Clearing Company announced the completion of a $15 million seed funding round led by USV, with participation from notable institutions like Coinbase Ventures. What's more striking is that its core team members come from Kalshi and Polymarket—CEO Toni Gemayel previously served as the growth lead at both platforms, which were once rivals. The Clearing Company's goal is to merge decentralization with regulatory compliance to create a new generation prediction market that is both retail-friendly and regulatory-friendly.

Polymarket vs. Kalshi: Decentralized "Gray Player" vs. Institutional "Gold Standard"

In the prediction market race, Polymarket and Kalshi represent two fundamentally opposed paths.

Polymarket is the most prominent contradiction in the prediction market: it is both the leader of the race and the "gray player" with the deepest compliance dilemma. In terms of scale and popularity, it is undoubtedly a platform phenomenon. The platform's TVL has reached $140 million, surpassing the total of the top ten platforms in the race; during the 2024 US election, Polymarket's total trading volume reached $3 billion, with bets exceeding $4 billion, far outpacing Kalshi. Even in daily trading data, it remains at the top: over the past three months, Polymarket's average daily trading volume is around $40 million, while Kalshi has only $20 million, although the gap has narrowed, its leading position remains solid. With its highly open architecture and global expansion efforts (such as markets in Singapore, UAE, etc.), Polymarket has established a significant lead in user base and market depth.

However, its biggest weakness is regulatory scrutiny. As early as 2022, Polymarket was sued by the CFTC for offering unregistered over-the-counter binary options, resulting in a $1.4 million fine and a "commitment" to exit the U.S. market. However, on-chain data shows that about 25% of the platform's traffic still comes from U.S. users, indicating that circumventing the restriction has become the norm. Following the 2024 election, the trouble escalated as the U.S. Department of Justice and FBI directly intervened, even raiding founder Shayne Coplan's residence on suspicions of market manipulation and guiding U.S. users' bets. Despite acquiring the derivatives exchange QCEX holding a CFTC license and attempting to re-enter the U.S. market in a compliant manner, it continues to face regulatory friction at the state level (e.g., Nevada, New Jersey). Moreover, while the DAO governance model ensures democracy, it also raises concerns among institutional investors about institutional instability.

In stark contrast, there is Kalshi. It chose a radically different path—a direct confrontation with regulatory barriers. In 2023, Kalshi caught the attention of the U.S. Commodity Futures Trading Commission (CFTC) by introducing election contracts. Within a few short months, it went from being "self-certified" to "suspected of illegal gambling" and was continually rejected. However, Kalshi did not stop there but instead engaged in a prolonged legal battle with regulators. Finally, in October 2024, it won a ruling from the Washington D.C. Circuit Court of Appeals, becoming the first prediction market in the U.S. to receive legalization for election contracts. This victory not only granted Kalshi a compliance "ticket" but also earned it the trust of institutions and mainstream public opinion in the U.S. market.

With this breakthrough, Kalshi became an officially approved prediction platform by the CFTC and partnered with Nasdaq for market surveillance to ensure transparent and compliant trading. Its operational model leans toward centralization: all contract creation and rule adjustments are decided by the core team. This model sacrifices some of the decentralization flexibility but greatly reassures institutional investors. The platform uses the U.S. dollar as the primary trading currency, lowering the barrier for traditional investors and further solidifying its "gold standard" status on Wall Street.

However, this highly compliant and centralized path also presents Kalshi with another challenge: how to attract native crypto users while maintaining stability. To address this, they recently appointed crypto influencer John Wang as the "Head of Crypto," attempting to bridge the gap with the Web3 community. Yet, the success of this endeavor remains uncertain. In a sense, Kalshi represents the "institutionalist" faction, leveraging compliance and institutional trust as core strengths. However, in terms of flexible innovation and decentralized community development, it currently lags behind Polymarket.

The Clearing Company: A Hybrid Between Compliance and Decentralization

If Polymarket represents the epitome of decentralization and Kalshi embodies the institutionalist "gold standard," then The Clearing Company has found a "hybrid path" between the two.

This company, founded by core members who previously worked at Polymarket and Kalshi, can be said to understand the strengths, weaknesses, and pain points of both platforms. Therefore, its core strategy is "compliance-by-design" — embedding compliance requirements at the protocol architecture level rather than patching vulnerabilities afterwards. As users permissionlessly create prediction markets on-chain, smart contracts automatically run KYC/AML processes, ensuring all fund flows are auditable and comply with anti-money laundering regulations. While ensuring transparency, it also provides an interface for regulation. For example, at the outcome verification level, Polymarket relies on UMA's Optimistic Oracle to verify prediction results, whereas The Clearing Company directly binds the oracle to the compliance framework, integrating outcome verification into audit and regulatory interfaces, thus reducing the friction cost for institutional entry. In contrast to Polymarket's approach of "act first, deal with regulators later," The Clearing Company proactively mitigates legal risks from the start; and unlike Kalshi's high centralization, it still preserves the openness and user innovation space of the blockchain.

In terms of liquidity mechanisms, The Clearing Company has also chosen a middle path. It does not adhere strictly to the order book model or entirely to AMMs but introduces algorithmic market-making to enhance liquidity. This approach makes it easier for institutional investors to participate while maintaining the liquidity flexibility required by decentralized markets. In other words, it considers both the stability needs of the compliant market and the flexibility of the native crypto ecosystem.

Most importantly, it emerged at an institutional inflection point. In 2025, the United States passed the CLARITY Act, categorizing cryptocurrencies as commodities, laying a legal foundation for the legalization of prediction markets; at the same time, the GENIUS Act provided a clear payment and settlement framework for stablecoins, allowing The Clearing Company to settle directly in compliant stablecoins. This "regulatory dividend," combined with its design, enables it to attract institutional capital, reduce retail barriers, and provide a standardized template for market creation.

This is exactly where The Clearing Company's true value lies: it not only meets institutions' compliance demands but also does not sacrifice the decentralized nature. For the prediction market, this may be the "hybrid solution" needed for the next stage of expansion—finding a balance between compliance and innovation to propel the entire industry into a new growth cycle.

Summary

The race of the prediction market is entering a white-hot stage. In addition to established players like Polymarket and Kalshi, new players are emerging at a rapid pace. After completing a $18 million Series A funding round, Novig has claimed the title of the "first U.S. sports prediction market" and circumvented gambling regulations through a lottery, seizing the sports market. FanDuel has partnered with the Chicago Mercantile Exchange Group (CME) to make a strong entry, bringing a cross-disciplinary integration of traditional finance and the prediction market. Meanwhile, blockchain-based projects like Flipr and Hedgemony are also emerging, with the former embedding prediction trading directly into X (Twitter) timelines in an attempt to create "social prediction," and the latter taking an AI-driven algorithmic approach, focusing on global news and political sentiment, taking a differentiated path.

With more funding, compliance benefits, and innovative models pouring in, the prediction market is at a turning point: it must win regulatory trust in the competition, firmly grasp the mindset of crypto-native users, and continuously expand into mainstream markets. The next round of competition may determine who can truly cross the boundary of a "niche product" and grow into the new infrastructure of the global financial market.

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