Galaxy Digital executed a $10M event swap with Arca on crypto legislation, using ISDA framework to bypass thin retail liquidity on Kalshi and Polymarket.
Galaxy Digital (NASDAQ: GLXY) executed a $10 million over-the-counter prediction markets trade with crypto hedge fund Arca on Tuesday, using an event swap structure that sidesteps the thin liquidity and public visibility of retail platforms like Kalshi and Polymarket. The trade is tied to the Digital Asset Market Clarity Act of 2025 and whether it passes Congress before 2027.
Shares of Galaxy fell 6% on the day to $29.06, tracking a broader decline in crypto-related equities. The stock move reflects macro pressure rather than a reaction to the new desk.
The transaction between Galaxy and Arca uses an ISDA framework to create an event swap. Arca will pay Galaxy if the Digital Asset Market Clarity Act passes before 2027. If the bill fails, Galaxy pays Arca. The $10 million notional is roughly five times the total volume on the equivalent Kalshi contract tracking the same legislation, according to Bloomberg.
| Metric | Value |
|---|---|
| Galaxy–Arca trade size | $10 million |
| Total volume on equivalent Kalshi contract | ~$2 million |
| Ratio | 5x |
A single institutional trade larger than the entire retail liquidity pool for the same event forces capital to seek OTC execution. The alternative – fragmenting into smaller orders on Kalshi or Polymarket – risks price impact and front-running.
Practical rule: When a trade is five times bigger than the visible market depth, an OTC desk is the only way to execute without moving the price against the trader.
Two barriers prevent large funds from trading prediction markets on retail platforms: liquidity depth and privacy.
On Polymarket, every trade is recorded on-chain with wallet addresses attached. A fund betting $5 million on a regulatory outcome reveals not just the direction, the timing, and the size. Competitors, media, or regulators could track the position. That exposure is unacceptable for most institutional portfolios.
Gilbert Wasserman, Galaxy's head of prediction markets, told Bloomberg that privacy is a major attraction for institutional investors. On Polymarket, wallet addresses are publicly visible, making large positions visible before they are fully built.
Galaxy structures these trades as event swaps under pre-existing ISDA agreements. This framework allows institutions to trade prediction markets without setting up separate legal infrastructure or directly opening accounts on specific prediction market platforms. The client only deals with Galaxy, and the position is settled privately.
Jeff Dorman, Arca's chief investment officer, said prediction markets are among the best tools for hedging exposure to regulatory negotiations in crypto. He noted that liquidity on existing platforms makes direct participation difficult for larger funds.
The Digital Asset Market Clarity Act of 2025 aims to establish a federal framework for digital asset classification and regulation. The contract specifies a binary outcome before 2027, giving the legislation a two-year window to pass Congress.
Key catalysts that could shift the probability:
The long time horizon reduces the need for frequent rebalancing, making the trade suitable for institutional mandates with quarterly or annual review cycles.
Arca used the trade to reduce its portfolio's sensitivity to the bill's fate. If the bill passes, Arca pays Galaxy, offsetting potential losses in other crypto positions that could suffer from the same outcome (e.g., token prices adjusting to new rules). If the bill fails, Galaxy pays Arca, and Arca's core portfolio might benefit from regulatory status quo. The trade is a risk transfer mechanism, not a standalone directional bet.
Galaxy takes the counterparty risk on every swap. The firm holds an offsetting hedge on Kalshi or uses its own balance sheet to absorb the exposure. Galaxy has stated it will allow the combination of prediction market positions with other types of hedges across multiple asset classes, giving it flexibility to pair the Arca swap with a regulatory-sensitive crypto bond or a lawsuit settlement contract.
Risk to watch: Galaxy's balance sheet capacity for prediction market exposure is untested at scale. A string of correlated events – multiple bills failing or passing in the same session – could strain the firm's hedging models. The company will conduct business only with institutional firms and assess offerings on a jurisdiction-by-jurisdiction basis.
Galaxy plans to expand beyond Kalshi and Polymarket to additional platforms over time. The $10 million Arca trade shows demand exists for institutional-grade prediction market exposure. Whether this becomes a recurring revenue line or a single-event experiment depends on how many institutions follow Arca's lead and how Galaxy manages counterparty risk.
The structure matters more than the outcome of the specific bill. The ISDA framework and private execution are the lasting innovations. The next trade, on a different event, will tell us whether the model has legs.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.