Robinhood Leverages Market Dominance to Launch CFTC-regulated Derivatives Exchange Amid Intensifying Prediction Markets Competition

Investing and trading app, Robinhood, is set to take both its expansion plan and the prediction markets into new territory. Robinhood is preparing to launch a Commodity Futures Trading Commission (CFTC)-regulated derivatives exchange. This is in partnership with Susquehanna, through a joint venture and represents a development that industry analysts from research and brokerage firm Bernstein believe could significantly impact the evolving competitive landscape of the sector.

A Deep Dive into Robinhood’s Expansion Plans

An essential part of Robinhood’s strategic development is its initiative in the prediction markets, which represents the fastest-growing business line for the company since its introduction earlier this year. By pointing out the significant strides made by Robinhood in the prediction markets, Bernstein analysts led by Gautam Chhugani noted that Robinhood’s market volumes already constitute more than half of market heavyweight Kalshi’s market volumes, owing to an existing collaboration. The imminent game-changer is Robinhood’s ambitious plan as reported on Tuesday. Robinhood Markets, Inc., the controlling force of the joint venture, is set to acquire MIAXdx, which is a CFTC-licensed Designated Contract Market and Derivatives Clearing Organization. The broader strategic goal here, as analyzed by Bernstein analysts, is Robinhood’s attempt to leverage its distribution edge for a more significant share of the market revenue pool.

Robinhood Making Significant Leaps in Prediction Markets

Bernstein’s analysis reveals Robinhood’s impressive pedigree in the prediction markets, with more than 9 billion contracts traded by over 1 million users. They estimate an annual run rate to be above $300 million, borne out by the results of the third quarter which tallied Robinhood’s processing of 2.3 billion contracts through its prediction-market hub. Additionally, the prediction markets product line reflected positively on Robinhood’s performance in October. It accounted for $2.5 billion in generated volume, representing 57% of Kalshi’s activity for the same period.

Industry Shifts Indicate A More Competitive Future

Robinhood’s strategic planning comes against the backdrop of a broader competitive shift within the sector. While Robinhood is steadily focusing on ramping up its operations in the prediction markets, there are additional developments. Notably, there are suggestions that Coinbase, another major platform, is also planning on introducing a prediction market product. However, Coinbase’s approach differs slightly, as uncertainty lingers whether the exchange will distribute a partner’s markets or launch its own liquidity using a white-label structure.

Key Players Making Strategic Moves

Key competitors in the prediction markets are also setting the stage for an interesting future. Polymarket, primarily seen as Kalshi’s main rival, is re-engaging the U.S. market while working within an amended CFTC designation model. This has enabled it to offer contracts via broker-dealers and futures commission merchants, reversing an earlier ban. While the dynamics of competition are gradually changing, Kalshi recorded more significant monthly volume than Polymarket. The total volume for Kalshi stood at $4.4 billion, in contrast to Polymarket’s $3 billion. However, the direction and implications of these latest intrigues remain to be seen.

Reshaping the Market Landscape

As the landscape of the prediction market industry evolves, certain dominant patterns become evident. According to Bernstein, there’s an emerging structural split between liquidity platforms (Kalshi, Polymarket) and distribution channels (retail brokers, crypto exchanges). Robinhood is uniquely positioned in this regard, with 14 million active traders, offering an ideal demographic and product market fit for prediction markets. This would allow Robinhood to go more forcefully into revenue capture as the ecosystem expands. Armed with a $160 price target, 38% up from a closing price of $115.57 on Tuesday, Bernstein analysts reiterated outperform rating on Robinhood. They have valued the company on a 40x multiple of estimated earnings for 2027.