A deal that will see exchange giant Intercontinental Exchange Inc. (ICE) take a US$2-billion stake in blockchain-based prediction market, Polymarket, will boost the exchange’s data business, says Moody’s Ratings.
In a report this week, the rating agency said that ICE’s strategic investment in Polymarket, which was announced on Oct. 7, is a positive for the traditional exchange company.
“Although the deal carries valuation and regulatory risks, the potential for recurring revenue growth, product innovation and competitive positioning in emerging markets is credit-positive, provided ICE’s leverage remains within its targeted levels and regulatory risks are managed,” Moody’s said.
The transaction is in line with ICE’s long-term goals of expanding its data and analytics business, and giving it a foothold in the future of digital finance, the report noted.
As part of the deal, ICE will become the global distributor of Polymarket’s data — which is derived from real-time probabilities for events — that will likely enhance the exchange’s recurring revenue, which is less sensitive to cyclical trading volumes, Moody’s said.
Additionally, Polymarket’s data will likely be used to develop new products on ICE’s platform, “such as indexes, sentiment indicators and other analytics products,” it added.
The firms also said they will collaborate on future tokenization initiatives.
“The investment strengthens ICE’s foothold in decentralized finance and blockchain-based markets, areas of increasing relevance in financial services,” Moody’s said.
Indeed, the deal comes at a time when the U.S. regulatory environment has become more supportive of digital finance, “encouraging traditional financial institutions to invest in emerging market infrastructure,” it noted.
That said, the report also noted that the evolution of digital finance is at an early stage and “the regulatory environment is fluid and rapidly evolving.”
In the past, Polymarket has faced enforcement action from the U.S. Commodity Futures Trading Commission (CFTC), and additional regulatory scrutiny, “including federal probes and investigations” into whether U.S. users were improperly accessing the platform at a time when it didn’t meet U.S. regulatory requirements.
While this kind of regulatory scrutiny has been scaled back under the current administration, Moody’s cautioned that “future regulatory shifts could affect Polymarket’s operations and ICE’s ability to monetize the investment.”