Galaxy Digital, the digital assets fund manager, said prediction markets are the future of event-driven markets for institutions as it launched its first over-the-counter (OTC) offering in the space.

The asset manager’s global markets trading desk hosted a webinar on 10 June to discuss the growth in prediction markets and the increasing interest from institutions. Zane Glauber, global head of distribution at Galaxy, said on the webinar that prediction markets are the future of event-driven markets for institutions.

There was more than $44bn of trading across prediction markets in 2025, according to Galaxy research, predominantly on Polymarket and Kalshi. Glauber said: “Prediction markets have gone from niche to mainstream, and the velocity of growth  has been quite remarkable.”

As a result the firm launched its first institutional OTC prediction markets offering from its global trading desk with the aim of bringing liquidity, risk management, and institutional scale to event-driven markets. The OTC transactions are between Galaxy and the counterparty, where they each take credit risk, and involve trading economic substitutes for shares on contracts markets that are not fungible with those that could potentially trade on Polymarket or Kalshi.

Galaxy’s offering covers instruments referencing non-sports event contracts traded on Kalshi and Polymarket, including economic, political, geopolitical, and other event-driven markets, with plans to expand to additional platforms.

“We think this is a powerful tool to pair with equities, commodities and other hedges for our counterparties,” Glauber added.

Jason Urban, global co-head of digital assets at Galaxy, said in a statement that event-driven markets are becoming core to how sophisticated investors express macro views. Urban said. “We’re giving clients a principal counterparty that can warehouse risk, build hedged strategies across asset classes, and execute at sizes and scale that actually matter to their overall portfolios.”

One example of this strategy is the new desk’s execution of a $10m trade with crypto-native hedge fund Arca, on whether the CLARITY Act for digital asset market structure will be passed by the U.S. administration.

Mike Harvey, head of franchise trading at Galaxy, said on the webinar that the most important reason for institutions to care about prediction markets is for event-driven exposure and hedging. He added: “An age-old problem in macro trading is the construction of the perfect hedge for your view.”

Gil Wassermann, head of prediction markets at Galaxy, commented on the webinar that prediction contracts allow investors to be “hyper-specific” about the exposure they are trying to  hedge. He said: “The specificity makes this very different from everything else in financial markets.”

Urban added that prediction contracts allow hedging with “surgical” precision. Galaxy gave a purely hypothetical example of a movie studio launching a major film and wanting to have a floor on their investment by using a prediction market contract to hedge against the film making a certain amount of money on its opening weekend. Wassermann described this type of transaction as a similar risk transfer that is carried out today by a traditional bank’s  exotic derivatives desk.

“A client wants to hedge a very specific exposure that  is warehoused by the dealer and hedged in vanilla proxies,” Wassermann added. “Clients can trade the outcome and leave all  headache of managing risk to us.”

Clients can also hedge against events around macroeconomic outcomes, such as whether a central bank will raise interest rates or whether an asset reaches a certain price. Glauber added that event contracts are surgical tools for corporates to hedge risks to their business, which may not just be FX or interest rates.

Clients have been having conversations with Galaxy about using prediction markets related to macroeconomic and geopolitical  events, according to Wassermann. He said: “It has been really interesting to think about how we want to hedge that creatively from our side.”

Hedging is important for Galaxy as it is warehousing binary contracts. Once the outcome is determined, the contract held by the winning party pays out, while the other side loses everything.

Harvey continued that futures are available as alternatives to some event contracts, such as those based on the direction of interest rates. However, he argued that some clients may prefer to use prediction contracts as they receive a defined payout, or they not have access to futures, or they may want a more bespoke hedge.

Wassermann said the new desk had a “reasonably sized” book. He added: “One of things that has been cool is the partnership as a lot of times the conversation starts out with a discussion of the client’s worries. If it is better to just trade this in the vanilla space, we will let them know.”

ETFs

Harvey added that some asset managers have been in discussions about launching prediction market ETFs, but these would need permission from the U.S. Securities and Exchange Commission.

In February this year Roundhill filed with the SEC to register six ETFs investing in event contracts, including which political party wins the presidency and control of either house of Congress. This was followed by similar applications from other issuers, including  GraniteShares and Bitwise.

Paul Atkins, chairman of the SEC, said in a statement on 20 May 2026: “Novel products raise novel questions, and I appreciate the willingness fund sponsors have shown in delaying the effectiveness of a number of novel ETFs, including event contract ETFs, while we consider the implications. To ensure we do this in a transparent and thoughtful manner, I have instructed the staff to seek input from the public on how the Commission should respond to recent market changes.”

Jeffrey Ptak, managing director for Morningstar Research Services, said in a blog that the SEC should reject contract market ETFs. He argued that ETFs have been a relatively cheap, reliable gateway to global capital markets, creating trillions in wealth and advancing important goals for investors such as funding college or retirement.

“These proposed products seem like the antithesis of that,” said Ptak. “They’re zero-sum and serve no economically productive purpose, such as facilitating capital formation and spurring innovation. They’re likely to be costly and push investors’ buttons to their detriment.”

Oracle risk

Wassermann highlighted that there are some risks that are very specific to prediction markets, including oracle risk as some of the wording of prediction contracts can be unclear in certain edge cases. He said: “The market is great at  pushing to those edge cases and really like testing out this oracle mechanism.”

Jeff Dorman, co-founder and chief investment officer at Arca, said in a blog that the firm is a big believer in prediction markets, as shown by its trade with Galaxy, but that the oracle problem is a huge risk. Dorman wrote in a blog that “Polymarket ruined prediction markets.”

Dorman highlighted a contract on Polymarket that was: “MicroStrategy sells any Bitcoin by May 31, 2026,” for which there was $400m in bets.

In a regulatory filing on 1 June Microstrategy, the bitcoin treasury company, said that the firm did sell bitcoin between 26 May  and 31 May, but the contract did not pay out “YES.”

Dorman said “Polymarket posted “additional context” (at 1 p.m. ET Monday 1 June): “no MSTR filing, on-chain data, or credible reporting had confirmed a sale within the market’s timeframe, and confirmation achieved outside that window doesn’t qualify.”

He argued that this does not make sense, as the contract could traded after 31 May and cited a research note from Will Owens at Galaxy Digital who agreed that Strategy sold Bitcoin before that date.

“Everyone who bought YES predicted the future correctly, and the market told them they were wrong,” said Owens. “A prediction market is supposed to price what will happen; when resolution diverges from what actually happened, the product is merely pricing how the platform will read its own rules after the fact. That’s worthless.”

Dorman continued that this will be an interesting case study in “the persistence of negative public opinion that is almost unanimously against Polymarket, the outcome, the oracle, and the UMA protocol’s voting mechanism.”