Prediction Market Consolidation Spurred by Platforms Merging Infrastructure

Analysts at Bernstein predict that the prediction-market industry will experience a wave of consolidation as major platforms bring trading infrastructure in-house. This shift, known as 'operational consolidation,' could lead to a surge in acquisitions across various sectors, including crypto platforms, sportsbooks, brokerages, and standalone exchanges.

The move towards operational consolidation is driven by consumer platforms seeking to control more of the prediction-market stack. According to Bernstein's research report, every major platform has merged their front and back-end infrastructure, including distribution, brokerage, exchange, and clearing. This convergence has created a single competitive landscape for businesses that historically operated in separate industries.

Examples of this trend include Robinhood routing World Cup contracts through its jointly-owned exchange with Susquehanna, Rothera, and DraftKings launching DKeX and moving volume away from CME and Crypto.com infrastructure. Coinbase's acquisition of The Clearing Company and the launch of event contracts also demonstrate consumer platforms' desire to control more of the prediction-market stack.

Owning the infrastructure allows platforms to retain fees that previously flowed to outside partners, making acquisitions a faster route to distribution, licenses, or completing missing parts of the stack. However, this consolidation could heighten state and federal scrutiny due to the blurring of regulatory boundaries between financial trading and gambling.