Susquehanna's Maletz: Prediction Markets Need Market Makers for Institutional Adoption
In brief
- Jeremy Maletz leads Susquehanna's market-making operations on Kalshi prediction platform
- Prediction markets could hedge institutional risks, though sports betting dominates liquidity
- Market makers bridge buyers and sellers, critical for institutional adoption and stability
- Susquehanna's capital enables larger institutional-sized trades on prediction markets
Prediction Markets as Hedging Instruments
Prediction markets could be used by larger institutional investors, including hedge funds, according to Maletz. The appeal is straightforward: certain contract types could offset economic risks in ways traditional derivatives don't. "In theory some of these contracts could be useful for hedging some sort of economic risk," Maletz said, "maybe not the taylor swift one or the half time show ones but some of these other ones."
The distinction matters. Sports betting has generated significant liquidity, but prediction markets for other events face adoption challenges. Without enough traders, prices become unreliable and spreads widen. That's where market makers enter.
The Market Maker's Role
Market makers are essential for providing liquidity and stability in trading environments. They stand ready to buy or sell at posted prices, absorbing temporary imbalances and allowing traders to execute quickly. Susquehanna is primarily a market-making firm focused on options, and Maletz leads the firm's market-making business with Kalshi.
The mechanics are simple in theory. A market maker quotes both sides of a contract, pocketing the spread. When one trader buys, the market maker holds the position until another trader wants the opposite side. This patience—and capital—creates the friction-free marketplace that institutional money demands.
Capital as Competitive Advantage
Kalshi is well-suited to bootstrap a market and handle institutional-sized trades due to capital advantages. Susquehanna can provide much larger size on trades and is not constrained by capital, giving Kalshi an edge over smaller competitors. A hedge fund wanting to hedge a $50 million economic exposure needs a counterparty with deep pockets. Susquehanna has them.
This advantage compounds. Deeper liquidity attracts more institutional traders, which attracts more market makers, which deepens liquidity further. The flywheel spins faster when capital is abundant.
Frequently asked questions
What are prediction markets used for in institutional investing?
Prediction markets can serve as hedging tools for institutional investors like hedge funds, allowing them to offset certain economic risks. While sports betting dominates current liquidity, other contract types—beyond entertainment bets—could theoretically hedge real economic exposures.
Why are market makers important for prediction markets?
Market makers provide liquidity and stability by standing ready to buy or sell at posted prices, allowing traders to execute quickly without waiting for a matching counterparty. This bridges the gap between buyers and sellers across time and size.
How does Susquehanna's capital advantage help Kalshi?
Susquehanna's deep capital reserves let Kalshi handle institutional-sized trades—$50 million positions or larger—without being constrained. This attracts more institutional traders, which in turn deepens liquidity and attracts more market makers.
