Crypto Market Infrastructure Faces Pivotal Decisions on Market-Making and Index Inclusion

Polymarket Develops In-House Trading Capabilities

Prediction market platform Polymarket is building an internal market-making desk that could potentially trade against its own users, following a model already established by its main competitor Kalshi^[1]. The move comes as competition intensifies in the prediction markets sector, where users buy and sell contracts tied to real-world events with prices reflecting implied odds of outcomes.

Kalshi's existing trading desk has already drawn user criticism and prompted a proposed class-action lawsuit last month alleging unfair advantages^[1]. Both platforms have previously approached third-party firms for market-making services, with companies like Susquehanna International Group offering such services on Kalshi, while Galaxy Digital is reportedly in discussions to provide similar capabilities^[1].

The development coincides with Web3 wallet MetaMask's integration with Polymarket, allowing users to "trade on the future outcome of real world events inside your wallet," according to Consensys' Gabriela Helfet^[1]. The integration includes one-tap funding from any token on any EVM chain and offers MetaMask Rewards points for predictions^[1].

MSCI Proposal Threatens Bitcoin Treasury Firms

In a separate but equally significant development for crypto market infrastructure, asset management firm Strive has urged index provider MSCI to abandon plans to exclude Bitcoin treasury companies from its benchmark indexes^[2]. MSCI is considering removing companies with more than 50% of their assets in crypto from benchmark eligibility, with a decision expected on January 15^[2].

Strive CEO Matt Cole, whose firm is the 14th-largest listed BTC treasury company, warned in a letter to MSCI CEO Henry Fernandez that the exclusion would reduce investors' access to "the fastest-growing part of the global economy"^[2]. Cole also criticized the 50% threshold as "unworkable," arguing that Bitcoin's volatility would constantly push firms above and below the limit^[2].

MSCI's rationale centers on viewing digital-asset-treasury firms more like investment funds than operating businesses, which would disqualify them from equity index inclusion^[2].

Potential Market Impact

The stakes are substantial. JPMorgan analysts estimate that the removal of companies like Strategy and Metaplanet from stock indexes could trigger up to $2.8 billion in outflows for Strategy alone, with up to $12 billion at risk if other index providers follow MSCI's lead^[2].

Cole rejected MSCI's characterization of crypto treasury firms as mere investment vehicles, pointing to Bitcoin miners with significant BTC holdings that are becoming "important AI infrastructure providers" by diversifying their data centers to provide power and infrastructure for AI computing^[2]. "Even as AI revenue comes in, their Bitcoin will remain, and your exclusion would too, curtailing client participation in the fastest-growing part of the global economy," Cole argued^[2].

Structured Finance Concerns

Strive's CEO also noted that excluding crypto treasury firms would disadvantage companies offering products similar to Bitcoin-linked structured notes currently provided by traditional finance giants like JPMorgan, Morgan Stanley, and Goldman Sachs^[2]. "Bitcoin structured finance is as real a business for us as it is for JPMorgan," Cole stated^[2].

Cole further questioned the practical implementation of the 50% threshold, noting the "increasing variety of instruments" through which companies gain Bitcoin exposure and the complexity of measuring holdings across different products^[2]. The potential for increased management costs, tracking errors, and companies "flickering in and out of funds" due to Bitcoin's volatility presents additional operational challenges^[2].

Both developments highlight the growing pains of crypto market infrastructure as it matures and faces questions about fairness, transparency, and integration with traditional financial systems.