Kalshi may soon be in store for some direct competition in the regulated prediction market exchange space. Railbird Exchange received CFTC approval to operate as an event contract derivative exchange on Friday afternoon, according to FrontOfficeSports. The report mentioned Railbird has been “seeking CFTC licensure for years.”
According to the Railbird Exchange website:
Railbird is a platform that allows you to forecast future events or protect yourself from unexpected occurrences that could affect your community, everyday life or activity you had planned!
The exchange uses the tagline “Trade on what you know” on its website. Among the topics advertised are:
- Stock indices
- Carbon credits
- AI chip prices
- TV show metrics
- Weather patterns
The site also affirms Railbird’s anticipated approval and regulation by the CFTC:
After a rigorous approval process and meeting all federal guidelines and rules, Railbird expects to receive the Designated Contract Market license. As a government regulated exchange, Railbird is held to high standards and regularly monitors the market. You can rest assured that your money and trades are secure.
What is Railbird Exchange and who is behind it?
Railbird Technologies Inc. is a New York-based company founded in 2021 by Miles Saffran and Edward Tian, according to Y Combinator. Both co-founders previously worked as investment research analysts at Point72, Steve Cohen’s global multi-strategy asset management firm. Railbird Exchange, Inc. was incorporated in 2023 and the site launched on June 18, 2024, according to an Instagram post from the company.
Investors, according to the Railbird website, include:
- Y Combinator
- Point72 Ventures
- Soma Capital
- Cathexis Ventures
- L2 Ventures
- PJC
While the site is not fully live yet for trading, there are some glimpses into what is to come. The screenshot included on their About page gives the impression that the layout or at least some views will be akin to what you’d expect on stock trading platforms with a watchlist, daily movers, and pricing information.
In terms of specific markets, it’s likely Railbird will offer much of what is available at Kalshi, and maybe some more depth in the areas of “hospitality, tourism, recreation.” Railbird Technologies’ company description on Y Combinator reads:
At Railbird, we are building a prediction market exchange designed to hedge and mitigate risk for the services sector. The Railbird team has years of experience analyzing companies in the service sector and has seen firsthand how little opportunity there is to hedge risk in volatile markets like hospitality, tourism, recreation, entertainment, and sports. The platform is designed to be open to all traders.
Hedge utility of prediction markets front and center
A core justification of prediction markets as a useful financial instrument rests on their ability to provide economic utility for participants. While economic utility can come in many forms, one prominent purpose is to allow individuals and businesses to mitigate economic risk associated with particular event outcomes. Railbird’s website emphasizes this utility aspect of their markets on their About page:
In addition to providing a platform for retail participants to make money from predictions, Railbird was created as a way for businesses to hedge risks. Events have a tangible risk on businesses, markets, and individuals but there are often limited opportunities to hedge economic outcomes, especially in cases where the risk lies in the occurrence or non-occurrence of an event. By offering novel markets, Railbird aims to provide a platform for businesses to manage outcomes in an ever changing world. This allows businesses to confidently operate and plan for the future.
For those familiar with Kalshi’s founding story, this rings a bell. Both exchanges emphasize the aim to offer opportunities to trade on everyday events with potential economic impact in a more direct way than what traditional financial brokers offer. Compared to Kalshi, Railbird’s mission statement appears to put more prominence on the economic utility that these markets provide for businesses.
Not without challenges
Kalshi is currently engaged in ongoing litigation against state gaming regulators who challenge the prediction market exchange’s claim that sports event contracts are indeed swaps as defined in the Commodity Exchange Act (CEA) because the events carry financial consequences. This point remains a key area of contention that could be decided with more finality in ongoing court cases in the coming months.
The incoming CFTC Chairman, former Kalshi board member Brian Quintenz, has previously defended the existence of sports-related derivatives contracts. He also reaffirmed his belief that “all events are commodities” during his recent Senate confirmation hearing, a strong sign for Kalshi and Railbird’s potential to offer sports event contracts going forward, unless the courts or Congress put a stop to it.
When it comes to sports, it sounds like Railbird will follow Kalshi’s lead into that subject, though we will have to wait and see how their sports markets—and the rest of the platform features—differ from the present U.S.-regulated offerings.
