Crypto.com explores internal market-making for sports-based prediction contracts

Crypto.com is recruiting traders to operate an internal market-making desk for trading directly against customers on its prediction market exchange.

The Singapore-based company has posted a “quantitative trader” job listing, who will reportedly join a team responsible for buying and selling financial contracts of sporting events outcomes. 

According to Bloomberg’s Tuesday report, the role would require them to boost liquidity on Crypto.com’s prediction market trade contracts that pay out based on a specific event.

Crypto.com prediction market adds ‘conflict of interest’ job

Market making on prediction platforms is a controversial topic because, unlike sportsbooks, which set odds or profit from customer losses, they match opposing views in an open market. But opponents argue that internal trading desks are effectively placing the platform operator or its affiliates on the opposite side of customer trades.

Crypto.com is not the only prediction market to deploy in-house traders on its exchange. Kalshi, the second most popular decentralized prediction platform in the US, also has an internal unit known as Kalshi Trading. 

Cryptopolitan had reported in early December that new US-market entrant Polymarket is also building its own internal trading operation, confirmed by people familiar with the matter. The firm has supposedly been approaching traders with professional sports betting backgrounds about joining the team.

Detractors contend that the arrangements, arguing they would make prediction platforms operators benefit when customers lose. They might have enough ammo to support their case, owing to Crypto.com’s statement about how the successful candidate will “maximize profits while carefully managing risks,” so the internal desk is expected to generate trading gains.

A spokesperson for Crypto.com pushed back on the idea, saying the company does not “rely on proprietary trading as a source of revenue,” adding that its internal market maker “does not have access to proprietary data or customer order flow” ahead of other participants.

Despite those assurances, the digital currency exchange’s own rules indicate that market makers may receive sports-linked contracts with a three-second head start over retail traders placing wagers. 

Company says it has fully complied with the CFTC’s regulations

The Crypto.com spokesperson told Bloomberg its internal trading team’s derivatives activities are listed on its US platform and that the arrangement is “fully disclosed” to the Commodity Futures Trading Commission, the purported regulator for event-based contracts in the United States.

“The bottom line for customers is more competition and liquidity on the platform creates a better overall experience,” the spokesperson surmised.

The 2016-founded trading platform was among the first prediction market companies to list sports contracts late last year. Kalshi later followed, and sports-linked wagers have since become the biggest source of trading activity on its platform. 

The market now includes companies like DraftKings Inc. and Flutter Entertainment Plc’s FanDuel, which also launched their own prediction market-style applications to have a piece of the cake.

Kalshi co-founder says market makers ‘bootstrap liquidity’

The debate over internal market making became a focal point in a proposed class action lawsuit filed in November against Kalshi and its affiliate, Kalshi Trading. Seven Kalshi users based in New York allege that Kalshi Trading sets betting lines that make it a “sportsbook without the required gaming licenses.” 

“When consumers place bets on Kalshi, they face off against money provided by a sophisticated market maker on the other side of the ledger. Market makers make it possible for consumers to place illegal, unregulated wagers ‘against the House,” the attorneys for the seven plaintiffs wrote.

However, Kalshi co-founder Luana Lopes Lara has publicly rejected those claims through social media, saying the lawsuit’s allegations were “false and reveal a fundamental misunderstanding of how prediction markets operate.”

“Kalshi is an exchange. It’s peer-to-peer, and there is no house. Anyone can place orders and trade against anyone else, whether it’s a person or an entity. Like any financial exchange, we have market makers that compete openly against each other and help bootstrap liquidity,” Lara wrote in a lengthy statement on X.

Lopes Lara also stated that Kalshi Trading is not profitable, bashing the sentiments that the affiliate exists to extract value from customer losses. She concluded her message stating that she “hopes the industry matures and decides to work together to achieve the full potential of prediction markets.”

Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.