Robinhood Revenue Structure Undergoes Massive Shift: Predicts Crypto Trading Revenue to Surpass Stock Trading

Original Title: "Robinhood, the 'Retail Investor Darling,' Sees Revenue Transformation: Predictive Market Revenue Surpasses Stock Trading"

This commission-free brokerage, known for its zero-commission trades, is now turning sports betting and election wagering into a major business.

Robinhood released its second-quarter earnings report last week, forecasting that predictive market revenue would skyrocket over tenfold year-over-year to $156 million, accounting for 20% of total revenue. For the first time, it surpassed stock and cryptocurrency trading, becoming the second-largest trading business after options. This shift occurred in less than two years since Robinhood officially entered the predictive market.

What does this number signify? Based on second-quarter data, Robinhood's predictive market business's annualized revenue has exceeded $600 million.

Dan Dolev, a stock research analyst at Mizuho Securities, bluntly stated, "Users on Robinhood enjoy gambling, and the predictive market is right up their alley. It is a perfect substitute for cryptocurrency because it can more quickly provide a sense of reward to the brain—you don't have to wait."

From Stock Trading to Betting on the World Cup: What Users Are Chasing

The logic of the predictive market is simple: users bet on the outcome of real-world events in a "yes/no" format, including World Cup matches, elections, and even weather. This instant and straightforward gameplay aligns well with Robinhood's retail user base.

Along the timeline, Robinhood's trading revenue structure has always drifted with market hotspots. During the 2021 meme stock frenzy, stock and options revenue surged; then came cryptocurrency, with meme coins like Dogecoin driving up cryptocurrency trading revenue; until the end of 2024, cryptocurrency remained Robinhood's largest trading revenue source.

A turning point occurred around the 2024 U.S. presidential election. The popularity of the predictive market soared, with a significant influx of funds betting on the election outcome. Kalshi was approved to operate legally in the U.S. that year, paving the way for other platforms to follow suit.

Subsequently, at the end of 2024, Robinhood launched its first event contract, allowing users to bet on the U.S. presidential election outcome, followed by the gradual rollout of sports events and other categories.

The revenue peak in the second quarter was largely due to the World Cup. Ed Engel, a stock research analyst at Compass Point, noted in his research report that this led to "exceptionally strong" trading volumes in June and July. However, he also mentioned that the U.S. football season is set to kick off this fall, poised to bring about a new round of uplift.

Proprietary Trading Platform Launched, Splitting from Kalshi

Originally, Robinhood did not have its own prediction market trading platform but instead routed user orders to Kalshi, with both parties sharing a 50-50 split of the 2 cents fee per contract.

This landscape is changing. In June of this year, Robinhood formed a joint venture with Susquehanna International Group to establish the prediction market trading platform Rothera and began redirecting some orders (including World Cup-related bets) to be executed on this platform.

The fee structure has also been adjusted. Robinhood now charges users a maximum of 1 cent per contract, plus an additional fee that varies depending on the execution platform—if orders are still routed to Kalshi, Kalshi also charges 1 cent per contract.

The result is a significant decrease in the interdependence between the two companies. According to Artemis data, the proportion of Robinhood orders to Kalshi trading volume has dropped from nearly 50% in the same period last year to 17.5% in the second quarter of this year.

Dan Dolev believes that using Rothera will allow Robinhood to "have more control over the prediction market business." However, he also points out that due to the need for Robinhood to incentivize users, the difference in profit margins between the two models will not be significant.

Industry Landscape: Kalshi Still Dominates, New Entrants Emerging

Despite Robinhood's strong momentum, Kalshi's dominant position in the prediction market remains unchallenged. According to Artemis data, Kalshi had a monthly nominal trading volume of around $33 billion in June of this year, Polymarket $14 billion, and Rothera (also executing trades for Robinhood and some market makers) $2.1 billion.

In terms of revenue, Kalshi's annualized revenue in June of this year has exceeded $2 billion, nearly tripling from November last year. In contrast, Polymarket has recently experienced a significant slowdown in growth.

Robinhood is not the only newcomer. Coinbase also entered the prediction market this year, with the annualized revenue for this business surpassing $1 billion in the second quarter, although specific quarterly figures were not disclosed, making them a relatively small player for now.

The prosperity of the prediction market is accompanied by regulatory uncertainty. Several states have filed lawsuits against prediction market platforms, alleging that they operate as unregistered gambling applications.

Meanwhile, the federal regulatory agency, the Commodity Futures Trading Commission (CFTC), claims regulatory authority over the prediction market, categorizing it as a financial derivative rather than gambling. The legal tension between these two categorizations has not yet been resolved.

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