How Kalshi makes money: The sportsbook hiding inside a derivatives exchange

Kalshi is a federally regulated exchange that lets people place bets on nearly anything — Fed rate decisions, weather events, tonight's NBA game. It holds a financial exchange license, speaks the language of derivatives, and positions itself as the future of event-driven finance. Yet over 89% of its estimated $263.5M in 2025 fee revenue came from sports contracts. Strip away the regulatory wrapper, and Kalshi today looks less like the next futures exchange and more like a sports betting company operating under a federal financial license instead of state gambling permits.

The growth trajectory is staggering. Revenue climbed from $1.8M in 2023 to $24M in 2024 to an estimated $260M–$263.5M in 2025, with the company reporting an annualized net revenue run-rate of $600M–$700M by November 2025. A March 2026 funding round reportedly led by Coatue Management valued Kalshi at $22B and involved roughly $1B of new financing.

In this breakdown, we'll unpack how Kalshi's exchange actually works, where its money comes from, and what its major cost centers are. We’ll examine how it stacks up against competitors like Polymarket and Robinhood, and the regulatory and strategic forces that will determine its future. 

Kalshi was founded by Tarek Mansour and Luana Lopes Lara, receiving its Designated Contract Market (DCM) license from the Commodity Futures Trading Commission (CFTC) in 2020. The company's stated mission is to "financialize everything", turning every difference of opinion about real-world outcomes into a tradable asset. 

The core product is the binary event contract — a derivative that settles at exactly $1.00 if a specified outcome occurs and $0.00 if it does not. Contract prices range from $0.01 to $0.99, reflecting the market's collective probability estimate. 

A contract trading at $0.72 implies a 72% likelihood of that outcome. If you buy "Yes" at $0.72 and the event happens, you collect $1.00 at a $0.28 profit. If it doesn't, you lose your $0.72. You can also buy "No" at $0.28 to bet against the outcome, and if the event doesn't happen, you collect $1.00 at a $0.72 profit. And you don't have to wait for settlement as contracts trade continuously, and you can exit early if the odds shift in your favor.

Critically, Kalshi is not a sportsbook. It does not take the opposite side of a user's trade and has no financial stake in any event outcome. Revenue comes from transaction fees, not from betting against customers.

The platform supports two primary use cases. First, speculation, which is trading on sports games, elections, economic indicators, and cultural events. Second, hedging, which is allowing individuals and institutions to offset real-world risks not covered by traditional insurance. A business owner worried about a government shutdown, for example, can buy contracts that pay out if the shutdown occurs. 

The user journey mirrors a brokerage more than a betting app. After completing KYC verification, users deposit USD via ACH, wire, debit card (2% processing fee), PayPal, Venmo, or crypto. Trading occurs on a Central Limit Order Book (CLOB) with price-time priority, supporting market orders (takers who remove liquidity) and limit orders (makers who post liquidity). All trades are 100% cash collateralized and no margin trading is currently permitted for retail users. 

The exchange runs on a high-performance matching engine with a price-time priority algorithm. Kalshi originally cleared through MIAXdx but has since transitioned to its own Kalshi Klear clearinghouse.

Kalshi does not publish audited financial statements, so all revenue figures are estimates derived from fee schedules, published trade data, and media reports. The trajectory is nonetheless clear:

These estimates focus primarily on taker fees — market-maker discounts could make actual trading revenue lower than raw fee-formula estimates. The company reported a $600M–$700M annualized run-rate to investors in November 2025.

The primary revenue stream is the taker fee charged when a user removes liquidity from the order book. Kalshi describes this as a "transaction fee on the expected earnings on the contract."

The fee follows a quadratic formula. Under the February 2026 schedule: fee = ⌈0.07 × C × P × (1 − P)⌉, where C is the number of contracts, P is the contract price in dollars, and the result is rounded up to the nearest cent. Some markets also apply a maker fee using a lower multiplier: fee = ⌈0.0175 × C × P × (1 − P)⌉.

This formula creates an "inverted U" fee curve. Fees peak at P = $0.50 (50/50 odds) and decline toward $0.01 or $0.99. A concrete example: 100 contracts at $0.50 generates a $1.75 taker fee, but the same 100 contracts at $0.10 generates just $0.63 — about two-thirds less. This design prevents fees from eroding the small potential gains on extreme-probability contracts, which is critical for keeping longshot and near-certain markets liquid. 

Kalshi has introduced reduced fees for S&P 500 and Nasdaq markets to compete more directly with CME futures. Across 2025, the effective take-rate was just under 1.2% — $263.5M in fee revenue on $22.88B in volume.

Sports contracts generated approximately $234.6M in transaction fee revenue in 2025, accounting for 89% of the total. In the final four months of the year, sports exceeded 90% of all platform activity.

The NFL is the primary catalyst. The September–November 2025 window alone produced $138M in sports fee revenue. Super Bowl Sunday set a daily peak of $381.7M in trading volume and generated more activity than entire months of political or economic trading.

The unit economics advantage is structural. Sports trades have high velocity — many transactions occur within a single game — generating continuous fee income that vastly outpaces the slower-moving economic or political markets. This makes sports Kalshi's best segment for fee generation per unit of time.

Here lies the central tension of Kalshi's identity: a financial exchange by regulation, a sports betting platform by revenue.

"Build Your Combo" parlays launched in September 2025, letting users combine multiple predictions into a single bet. All outcomes must hit for it to pay out, but the potential payout is higher. If any leg loses, the whole combo pays $0.

The volume-to-revenue disconnect is stark. Q4 2025 parlays generated roughly $948M in volume but only $3.7M in fees, just 2% of Q4 fee revenue. This is high-volume, low-margin by design.

Unlike DraftKings or FanDuel, where parlays are often the most profitable product (contributing over 50% of revenue thanks to high house edges), Kalshi's exchange-based parlays have no built-in house margin. The strategic value lies elsewhere: parlays drive user retention and generate secondary liquidity across multiple markets, indirectly supporting the broader fee ecosystem.

Real-time probability data generated by Kalshi's traders has become a standalone financial product. Institutional investors, hedge funds, and media organizations use Kalshi prices as leading indicators for macroeconomic trends like inflation expectations and Federal Reserve policy moves.

Institutional-grade API access — including historical datasets and lower-latency connectivity — can command annual fees exceeding $50,000 per seat. Basic market data remains public. Federal Reserve research has highlighted Kalshi's data as "distributionally rich" and "rapidly updating," superior to Bloomberg consensus or Fed surveys for certain economic variables.

As a regulated clearinghouse, Kalshi holds substantial customer deposits. By late 2025, open interest reached $225M, a significant pool of capital sitting on the exchange at any given time.

Kalshi earns interest on these aggregated deposits held at federally regulated clearing banks. It offers users up to 4.05% APY on idle cash balances but retains a portion of total interest earned. Kalshi's own language frames this as "pass-through" interest from banking partners.

Elevated interest rates through 2025 made this a stable, low-cost income source complementing the more volatile transaction fees. The net margin Kalshi retains — the spread between what it earns from banks and what it pays users — is not publicly disclosed.

Kalshi runs its own market-making operation called "Kalshi Trading." Its revenue is unknown, and a co-founder has reportedly said the unit isn't profitable. A market maker is essentially a standing counterparty — it continuously posts buy and sell orders on both sides of a contract so that regular traders always have someone to trade against. Without one, markets can sit idle, with no one on the other side of a trade.

But the unit's profitability isn't really the point. Without an active market maker, a user wanting to buy a "Will the Fed cut rates in June?" contract might find no sellers, or face a spread so wide it's not worth the trade. With Kalshi's market maker actively quoting prices, that same contract has tight spreads and near-instant fills. More people trade as a result, and Kalshi collects a fee on every transaction. 

Kalshi's cost structure reflects the unusual combination of building a consumer-facing trading app while simultaneously operating a full exchange and clearinghouse stack with surveillance, compliance, and legal risk management. The company benefits from near-zero marginal costs on incremental trading volume but requires massive fixed investments to maintain its CFTC-designated status. 

Legal and regulatory battles are by far the largest and most volatile cost center. Kalshi has adopted an aggressive "offensive" legal posture, filing suits to establish federal preemption over state gambling laws.

The legal front spans multiple theaters:

Beyond direct legal costs, the litigation imposes indirect costs: engineering time for geofencing, product restrictions in certain states, and slower market launches.

As a DCM, Kalshi is subject to 23 "Core Principles" mandating rigorous market oversight. CFTC Regulation 40.11 prohibits contracts involving terrorism, assassination, war, "gaming," or unlawful activity. 

This translates into specialized trade surveillance staff and software monitoring every transaction for wash trading, spoofing, and insider trading — both in-house and through third-party integrity vendor partnerships. KYC/AML infrastructure to verify millions of users and file Suspicious Activity Reports adds further cost. Quarterly reporting to prove Kalshi maintains financial resources exceeding one year of operating costs rounds out the compliance burden.

Kalshi runs a high-performance matching engine that fills orders based on price and time priority. Building and maintaining this system requires a large investment in specialized engineering talent and physical infrastructure. 

The company pays for colocation space in high-security data centers, where server clusters are housed to make sure all participants have the same network speed when accessing the exchange. As a designated contract market, Kalshi is required by DCM rules to publish market data, including settlement prices, trading volume, and open interest. This means the company needs to build and maintain data pipelines, storage systems, and reliability infrastructure to keep that information flowing.

On the development side, the company continues to invest in R&D. This includes building new contract types, creating multivariate engines that can handle complex parlays and combination trades, and launching equity index markets that come with fee multipliers cut in half compared to standard rates.

Kalshi runs several programs that function as a "liquidity budget":

These programs materially reduce net fee capture but increase trading activity and gross fees. 

Kalshi competes for attention against the massive marketing budgets of DraftKings and FanDuel. Its approach leans on high-impact campaigns: the $1 billion March Madness bracket challenge served as a headline-grabbing user acquisition tool. 

The company also uses generative AI models to produce ads for major sporting events like the NBA Finals. The multi-year CNBC data integration deal functions as both a cost and a demand-generation channel.

The prediction market industry has transitioned from a niche academic sector to a high-stakes battlefield where regulatory status, fee structures, and distribution are the primary competitive weapons. Kalshi's landscape spans three tiers: regulated fiat exchanges, decentralized crypto protocols, and vertically integrated brokerages. 

Polymarket is a crypto-native prediction market that historically operated internationally using USDC. In late 2025, it re-entered the U.S. market by acquiring CFTC-regulated exchange QCEX for $112M.

The fee model contrast is sharp. The "vast majority" of Polymarket markets have no trading fees. A subset of markets — crypto, certain sports leagues — charge taker fees to fund maker rebates. Its flat 0.10% taker fee, where applied, is significantly lower than Kalshi's quadratic formula for most transactions. This is a "liquidity-first" model versus Kalshi's "fee-extraction" model.

Polymarket's strengths include a wider variety of markets, including controversial geopolitical events (Gaza war, assassination predictions) that Kalshi cannot list due to CFTC Regulation 40.11 restrictions. MLB signed a multi-year deal naming Polymarket an official prediction market partner. Its weaknesses: reliance on crypto and external wallets creates friction for mainstream U.S. users, it lacks 1099 tax reporting infrastructure, and it must still solve for sustainable monetization.

ForecastEx is a regulated venue for probability trading accessed through Interactive Brokers' brokerage interface, targeting sophisticated, yield-conscious traders. Its fee is a simple, flat $0.01 per contract or pair, included in pricing — zero commissions for Forecast Contracts at IBKR. The unique selling proposition: an "incentive coupon" feature that pays interest-like returns on positions, tracking approximately 0.5% below the Fed Funds rate, effectively subsidizing long-term hedging trades.

This makes ForecastEx preferred for institutional users and long-duration hedges. But it has a much smaller variety of markets — focusing on headline economic and climate indicators, not the high-volume sports and culture markets that drive Kalshi's revenue. It looks more like "event contracts as a macro investing tool" than a high-velocity trading venue.

Robinhood began as Kalshi's most important distribution partner, integrating event contracts directly into the Robinhood interface. Over one million Robinhood customers have already traded 9 billion contracts through this integration. Prediction markets have been described as Robinhood's fastest-growing product line.

The threat is now existential. In early 2026, Robinhood closed its acquisition of MIAXdx, a fully licensed CFTC exchange and clearinghouse. This allows Robinhood to vertically integrate the entire stack — capturing 100% of the fees it currently splits with Kalshi, potentially halving Kalshi's core revenue from its most productive distribution channel.

"Partner cannibalization" is the primary risk to Kalshi's financial outlook. Kalshi is mitigating by diversifying toward institutional data sales, international expansion, and proprietary complex products like combos and equity index markets that are harder for new competitors to replicate.

In March 2026, the CFTC began a formal rulemaking process for prediction markets, covering manipulation protections, margin trading, and which contracts should be prohibited. The outcome will determine whether Kalshi's sports-driven revenue model is permanently validated or constrained. That model already faces acute state-level legal risk — Nevada's restraining order, Arizona's criminal misdemeanor charges, and active litigation across at least seven states plus tribal disputes in California and Wisconsin all threaten sports volume.

International expansion is underway. The March 2026 partnership with XP International, Brazil's largest brokerage, serves as a template: providing back-end infrastructure and regulatory technology to established local institutions rather than launching standalone apps. Kalshi aims to eventually operate in over 140 countries through a unified global liquidity pool.

Robinhood's acquisition of MIAXdx and its move toward becoming a self-clearing exchange is the most immediate competitive threat. Kalshi's mitigation strategies include institutional data sales via Tradeweb, proprietary complex products like combos and equity index markets, and international distribution.

With a $22B valuation, an annualized revenue run-rate of $600M–$700M, total funding exceeding $1.7B, and over $41B in historical volume, Kalshi is positioning for a public offering. The central question is whether its regulatory moat — built through years of litigation and compliance — will prove durable enough to sustain a public-company valuation, or whether state-level legal challenges and competitive pressure will erode the business first.