In only a few short years, prediction markets like Kalshi and Polymarket have absolutely exploded in popularity, from guessing who's going to win the World Cup to who is taking home the Oscar for best film. Even which party will control Congress? Millions of Americans are making bets and trading on these sites. Trading volume has already reached $24 billion a month. But what exactly are prediction markets and how in the world do they work? I get a chance to sit down exclusively with Kalshi's founder and CEO about that and a whole lot more. Watch this.
All right, boys and girls, let's bring in Tarek Mansour. He's founder and CEO of Kalshi, a business we talk all about, but rarely get to talk to you. So I'm glad that you're here.
I'm excited to be here. Thanks for having me.
Eight years ago, Kalshi did not even exist.
Now you're valued at about $40 billion, and in many places, you're a household name. What did you offer that the American people seem to be dying for?
I think it's a financial market that appeals to them. They relate to it in a way that they couldn't before. I think most people, when I worked at Goldman, the idea I got in 2016, I was at Goldman that summer, and we were trading all these really complicated things that people don't understand. And Wall Street has really kind of done a great job at creating very sophisticated-sounding things and complication and all of that, that sort of has alienated the average person from these markets over time. But what I realized is even some of the most sophisticated players, they're still sort of thinking about, is Brexit going to happen? Is it, you know, how is climate going to evolve? Is Donald Trump going to win the 2016 election? At the time, everybody was thinking about that. They're just using very complicated, indirect ways to get those trades in or those positions or those views. And really, the idea of Kalshi is very simple. It's like, how about we do it more directly? Instead of shorting the S&P to bet Trump winning an election, how about you buy Trump winning an election?
But it's not just about sophisticated financial markets, right? We are in a time when maybe we're facing the gamification of everything. It feels like we're betting on everything. Is that a good idea?
I don't think it's the right frame for prediction markets. I mean, prediction markets are not a new idea. Oftentimes people think it's Kalshi and some of our competitors that brought it to life, but it started actually in World War II. Friedrich Hayek, the economist, used to talk about information markets. That was the first term, or it used to be called information markets. And it was really a very simple concept, which is, you know, we make decisions in committee, but the information that's relevant to those decisions is distributed. It's sitting with some people in Hawaii and California and New York and so on and so forth. And we're the mechanism to surface information, incentivize people to go out, seek knowledge, do research, and then come and get rewarded for it by trading.
Sure, but in World War II, you didn't have Super Bowl dancers who could bet on how long the Super Bowl halftime show was going to be when they knew that information because they were in the dance. That's what makes us feel stinky.
Yeah, I mean, maybe. I think that like—
Yeah, because I think that it's a little bit like, think of a fringe market as one market out of the 10,000 markets we have is not exactly right. Right now, I can quote a number of financial markets that exist that either still feel stinky or society felt stinky about them for a long period of time. I think you wouldn't think the same if it's about whether inflation is going to go up or down, whether the weather is going to rain tomorrow or a hurricane is going to hit a certain city, or whether the outcome, whether the World Cup is going to be played in a certain city or not. And you would agree with me that that has dramatic economic consequence. People make meaningful business decisions based on those sort of outcomes and events. The thing that's interesting, I mean, you know, and you know, there's like the topic of sort of, people oftentimes attack Kalshi as, you know, this is gambling. I actually don't like gambling. I really dislike gambling. And because it's a fundamentally different structure, one is, you know, when you walk into a casino or a sportsbook, the incentive structure is for you to have fun and lose. If you win or you're a card counter, what happens? You get kicked out.
And if you lose and you have a tendency to maybe like do stupid things, or you know, you have some maybe addiction issue, you get like rewarded and you get a drink or you get bonuses. Prediction markets reward the exact opposite thing. Prediction markets need to be efficient. We need efficient markets, which lead to accurate prices. And that's why you see Kalshi share prices, because people quote our prices, our forecast for who's going to win the midterm, what's going to happen with different events. And to get that, we need the card counters. We need the sophisticated people that are going out there seeking knowledge and then trading based on it. That is really the right frame when I think about what we're bringing to people, is rewarding people based on knowledge.
But what about those who don't have to seek knowledge? We have candidates. We have politicians who bet on themselves when they themselves are those policymakers?
They can't do that on Kalshi. So we're a federally regulated exchange. The first four years of the company, we spent them getting regulated up front.
So you think it doesn't happen at all?
Well, it happens in the stock market and it happens on Kalshi. The question is, are you policing it or are you not? All systems are going to have bad actors. Would you agree with that?
People commit crime and commit financial crime. The question is, are you policing it and are you enforcing your rules when they do it or not? And actually, I'll tell you, the key thing that's happened in our industry is there's been like, Kalshi is an onshore American regulated market, and there's been other players that have been offshore.
Okay, so that's what I want you to explain. Because people say Kalshi and Polymarket. I think what you're doing is explaining the difference between the two.
So we started in 2018, we spent the first four years of the company getting regulated. We embraced regulation up front before launching the product. By the way, that was a weird thing to do in Silicon Valley at the time, because you would know this better than anyone. Move fast, break things. Yeah, we did not move fast. We actually decided to move slow, do things the right way and then move fast, right? And before us, you know, it was Uber and Airbnb and Meta, everyone was sort of move fast, break things, get regulated in the back end of it, not at the front end. And I really wanted to do it the right way. And what does that mean? It means setting the right sort of customer guardrails to make sure people are not harming themselves and then creating a marketplace like any financial market. Rule number one is that it's fair, where insiders are not basically able to cheat against people that don't have access to insider information. And the reason that's very important is because if people don't trust that the marketplace is fair, it is not — people don't trade. Why would they? Why would they participate in a place where the opponent on the other side, your competitor, is cheating?
But in those early days, you did not allow betting or trading on elections. That changed.
Yeah, but, you know, I don't think the surface area for, like, trading on elections in terms of having insiders is higher than the stock market, right? Like, there's hundreds of thousands of people that work at Amazon that have insider information. Why do they not use it? Well, some of them use it, and when they get punished, that sends a signal to the others not to do it. And the distinction between us and some of the offshore players is that we have always taken a stance where we have established guardrails to ban insider trading, to catch it when people do it, and to police it, to enforce our rules when they do it. So, you might have heard of George Santos, who tried to cheat on Kalshi.
Yes, I've heard of George Santos.
The White House teleprompter. The reason why you heard about them is because —
Okay, but hold on. You really think that of all the people in this administration who are conducting insider trading, you think the biggest and baddest one, the one that the biggest and baddest one to get was the teleprompter operator?
You don't think anybody bigger?
I don't know, I can't speak about all the other markets.
People claim that there's, it's actually on the oil futures, right?
That's not my market. That's actually traditional financial markets. That's the New York Stock Exchange right behind you.
The same owner, right? But like, my point is, I know what's happening on Kalshi. And what I can tell you is whenever someone cheats the rules, we enforce our rules uniformly. And that's what's happened here, right? We're not deciding, like, I cannot police all the other markets. It's not, you know, whether traditional markets or new markets, but in the markets that are on Kalshi, we have been very consistent by enforcing our rules uniformly.
And you know, I also had to ask him about one of the strategic advisors to Kalshi, Donald Trump's son, Don Jr., and all the questions that come with that.
I get asked a lot about Don. I mean, I think that is a fair question. And the optics, I agree with you. We are facing sort of an optics issue, I think. But what I can tell you certainly, so we, in August '24, people, you know, now we're big. So when you're big, I realize now, you know, I'm 30, but like, we're seen as the establishment. But you know, two years ago, we were like a tiny startup with 20 people. And like, if you had walked in our office in Soho, it like smelled bad. It was like this tiny, you know, very, very tiny, you know, nobody cared about prediction markets. Nobody knew what Kalshi is, right? It was this weird name, which, you know, people—
