Behind the $35 Million VC Fund: Polymarket and Kalshi Are Reshaping the Rules of Prediction Markets

As the prediction market shifts from being a popular opinion forum around macro events like the U.S. elections to an emerging asset class and information aggregation tool, its internal power structure is undergoing profound changes. In March 2026, the leaders of two major platforms, Polymarket and Kalshi, jointly launched a $35 million venture fund, 5c© Capital, aimed at building the infrastructure of the prediction market ecosystem. Almost simultaneously, both announced stricter user bans to prevent insider trading. These seemingly contradictory moves—expansion and contraction—point in the same direction: the prediction market is evolving from a “gambling casino” to an “institutional-grade financial infrastructure narrative.”

Dual-Track Industry Consolidation

This week, both the crypto industry and traditional finance are focusing on the prediction market sector. On one hand, according to Bloomberg, Polymarket founder Shayne Coplan and Kalshi co-founder Tarek Mansour jointly launched a $35 million venture fund, 5c© Capital, dedicated to investing in early-stage startups within the prediction market ecosystem. The fund’s name references the relevant provisions in the U.S. Commodity Exchange Act, signaling a clear regulatory intent.

On the other hand, Polymarket publicly announced on social media that it will release new market integrity rules, explicitly banning certain behaviors, enforcement procedures, and reporting mechanisms, aiming to cover both its compliant exchange regulated by the U.S. Commodity Futures Trading Commission (CFTC) and decentralized finance (DeFi) platforms. These actions occurred within the same timeframe, forming a dual narrative of “external ecosystem investment” and “internal compliance tightening.”

From Election Hype to System Building

To understand the significance of this joint move, it’s helpful to review the prediction market’s development over the past two years.

The $35 Million Infrastructure Blueprint

The establishment of 5c© Capital itself signals a major industry message. The fund’s name, referencing the Commodity Exchange Act, reflects its deep regulatory DNA, indicating its investment focus will closely align with compliance frameworks.

The fund plans to raise $35 million and invest in about 20 early-stage startups over the next two years. Early investors include over 20 entities, such as Millennium Management’s investment team, several crypto VCs, and founders of other prediction platforms.

While $35 million is modest in venture capital terms, its strategic significance far exceeds the capital itself. It represents industry leaders’ judgment on the future shape of prediction markets: the next growth phase will not rely on creating more homogeneous trading platforms but on building foundational services that support the entire ecosystem’s prosperity. These services are explicitly targeted at data tools, liquidity solutions, and compliance systems. In short, this funding aims to “empower” rather than “compete.”

Based on this, it’s reasonable to expect that in the next 1-2 years, emerging entrepreneurial opportunities in prediction markets will focus on: providing real-time, accurate off-chain data oracles; offering institutional-grade one-click compliance and trading management systems; and developing automated market-making and risk hedging protocols. 5c© Capital will act as an ecosystem catalyst, accelerating the maturation of these infrastructures.

Compliance and Development Controversies

Simultaneous with the fund’s establishment, the announcement of “user bans” and “market integrity rules” has sparked industry-wide debate.

Supporters argue: this is a necessary step toward mainstreaming prediction markets. As trading volume and institutional participation grow, the market must establish insider trading prevention mechanisms comparable to traditional finance. Polymarket and Kalshi aim to proactively embrace regulation, enhance transparency, and attract more risk-averse institutional capital, pushing the market to a new scale.

Critics contend: this may lead to “over-compliance,” weakening the core advantages of prediction markets—freedom, anonymity, and permissionless access. Strict user bans and KYC procedures could deter early users, impacting liquidity in the short term. Moreover, defining “insider information” remains a gray area in prediction markets, and enforcement could trigger new disputes.

The core controversy is whether leading platforms, through establishing funds and tightening compliance, are building an “open ecosystem” or creating a “closed monopoly.” By investing in ecosystem partners, they can convert potential competitors into co-builders, while strict rules transfer compliance costs to users, effectively raising entry barriers.

“Preventing Insider Trading” or “Setting Rules”?

When analyzing this event, it’s crucial to distinguish facts from opinions.

• Polymarket and Kalshi’s CEOs jointly established a $35 million venture fund, 5c© Capital. Polymarket announced new market integrity rules.
• Some interpret this as a move to “prevent insider trading” and protect ordinary users—this is the core narrative in Polymarket’s official statement.
• From a broader perspective, these actions’ ultimate effect may be less about “preventing insider trading” and more about “setting standards.” Whoever controls the infrastructure and compliance standards will dominate the next phase of market competition. Through the fund, leading platforms can export their standards, APIs, and compliance frameworks to the entire ecosystem, effectively becoming de facto industry standard setters. Therefore, “user bans” and “integrity rules” are not only protective measures but also strategic tools to turn compliance into a core competitive advantage.

Industry Impact: The “Institutionalization” Turning Point of Prediction Markets

This event signals a potential key “institutionalization” inflection point for the prediction market industry.

• Capital structure shift: The $35 million fund indicates capital is moving from merely investing in trading platforms to supporting platform operations—signaling a move from rough growth to refined management.
• Compliance as core asset: With participation from traditional financial giants like Millennium Management, compliance capabilities are shifting from “cost centers” to “core assets” and “financing advantages.” Future prediction projects that seamlessly integrate with existing financial systems will command higher valuations.
• Market stratification acceleration: Prediction markets are expected to rapidly differentiate. One segment includes CFTC-regulated “whitelisted” compliant markets like Kalshi, serving institutions and accredited investors; another includes “global markets” like Polymarket, which, while complying with various national laws, retain a degree of openness. Together, they will form a multi-layered market ecosystem.

Multi-Scenario Evolution

Based on current trends, three possible future scenarios are envisioned:

• Scenario 1: Positive Cycle
  • Conditions: The fund successfully raises capital and incubates multiple infrastructure projects; new compliance rules effectively curb market manipulation.
  • Path: User experience and liquidity deepen significantly, attracting more institutional users. Trading volume shifts from “event-driven” to “steady growth.” The compliance framework becomes an industry standard, adopted by new platforms, leading to healthy industry development.
• Scenario 2: Compliance Bottleneck
  • Conditions: Strict user bans cause core user loss, liquidity declines; or enforcement cases trigger trust issues.
  • Path: Market growth stalls; some capital flows to more decentralized, less regulated alternatives. Leading platforms may need to balance “compliance” and “user growth,” possibly adjusting rules to restore vitality.
• Scenario 3: Regulatory Backlash
  • Conditions: The fund and compliance rules are viewed by regulators as “excessive market influence,” prompting antitrust or stricter scrutiny.
  • Path: Authorities may intervene, requiring platform splits or restricting ecosystem investments, leading to a period of uncertainty and delaying institutionalization.

Conclusion

Polymarket and Kalshi’s joint creation of a $35 million fund and simultaneous reinforcement of user bans reflect a fundamental industry shift: prediction markets are moving from “gambling” toward “infrastructure.” This reveals the core contradiction in industry development: how to embrace compliance and mainstream acceptance while maintaining decentralization and user growth. Whether through capital deployment or rule-setting, these initiatives will profoundly influence the competitive landscape and value positioning of prediction markets in the coming years. For all participants, this is not just a rule change but a fundamental upgrade of the industry narrative.