Prop firms deploying AI agents erode retail edge on Polymarket and Kalshi
Proprietary trading firms are deploying AI-driven agents on Polymarket and Kalshi, squeezing the profit margins retail traders once enjoyed on event contracts. Louis Régis, founder of on-chain prop firm Propr and a former quantitative trader at Credit Suisse, warned that the automation arms race is eroding easy-money opportunities for individual participants. Brokers are now bringing in liquidity providers as institutions increasingly test event contracts. Robinhood was mentioned in the shifting environment.
For retail traders, this is a direct hit to expected returns. The same edge that drew early individual participants to regulated prediction markets — imperfect pricing, slow institutional entry, and information asymmetry they could exploit — is now being harvested by firms running automated systems at scale. Polymarket and Kalshi face a user-retention problem: if retail flow quits because margins vanish, volume concentrate among professionals and the platforms lose the broad-base political support that helped them survive regulatory attacks so far.
Robinhood already knows this dynamic from equity options, where retail flow itself became the product. The platforms must now balance welcoming liquidity providers against alienating the retail base that made prediction markets electorally defensible during the Senate ban fight. Whichever venue finds that balance first keeps both constituencies. The alternative is a slow slide into an institutional-only market with thinner political cover.