The Prof G Pod with Scott Galloway - First Time Founders with Ed Elson – How Kalshi Made it Legal to Bet on this Election

Episode Date: November 3, 2024

Ed speaks with Tarek Mansour, co-founder and CEO of Kalshi, a regulated exchange and prediction market that lets you trade on future events. They discuss Kalshi’s fight to legalize betting on the election, how to deal with negative press, and his prediction for the outcome of the election. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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I'm actually thinking of going into one of these gambling markets and placing some money on Harris. They have 300,000, this is where the money and the ground game kicks in. They have 300,000 volunteers getting people to the polling station, making sure they know where the polling station is, banging on doors. When you bang on a door and someone says, yes, I'm voting for that person, they are much more likely to actually go vote.

Supposedly they have 300,000 people on the ground, feet on the street over the next two weeks and estimates are, Trump claims he has 50,000 people on the ground, feet on the street over the next two weeks. And estimates are Trump claims he has 50,000, which means he probably has 30. So I like our ground game. I like our choices. I recognize I'm hugely biased here, but I wonder if people are just sick of the chaos. Anyways, I think Harris is going to be our next president. I think Harris is going to be our next president.

Welcome to First Time Founders. I'm Ed Elson. This election is very unique for a lot of reasons. But one of them is that for the first time in our nation's history, Americans can bet on it, legally. My next guest is responsible for that change. He created the country's first CFTC approved prediction market that lets you trade on future events including the election. And if you're a regular consumer of politics, you've likely heard of this company before. This is my conversation with Tarek Mansour, co-founder and CEO of Kalshi.

Tarek Mansour, thank you for joining me. Well, thanks for having me. I'm excited. I'm just going to start with, I was driving over here. I was in the Uber over here and I was just scrolling on TikTok. Yeah. This is 100% true about 20 minutes ago. And this was the video that came up. I'm just going to show you what this video is. Can you, can you see this?

Yeah, I'm looking, I'm looking. Captures Uber driver kicked us for saying'm just going to show you what this video is. Can you see this? Yeah, I'm looking. Captures Uber driver kicked us for saying he's going to lose his bet on Trump. Uber driver is literally kicking us out because we're not Trump supporters. That's not why I'm kicking you out. I'm kicking you out because you made fun of me for voting for Trump. You're betting while driving. Why are you doing that? Okay, time out. You're out. You're out. For people who are not watching on YouTube,

it is an Uber driver who is betting on Kalshi, on Tarek's platform, on the election, on his actual screen on the Tesla, and then the passengers are complaining about it, and he's kicking them out. Your reactions to that TikTok I saw 20 minutes ago. Well, I mean, it's pretty ridiculous. But like, I mean, first of all, don't bet and drive. I mean, you know, so we legalize betting in the US,

but not betting and driving at the same time. That is actually dangerous. That's good. Okay. You know, I think betting on the election is not dangerous. Betting on the election while driving, that is actually dangerous. Very different thing. So do not do that.

ICALSH is not advocating for doing that. But pretty cool though. Crazy. And I will also say, you are everywhere right now. There are articles about you, a lot of very negative articles, or about your company. We've talked about your company multiple times on the pod.

We've had debates about whether it should exist or not. So I would like to just get your, on a personal level, how does it feel to be everywhere right now? Yeah, we are in a lot of places. I mean, I think, you know, it's, we are obviously ramped up the marketing. We have billboards. I don't know if you saw these live billboards. I did, in New York. These are actually, if you bet on Couchsuit right now, it will show up live on billboards

in New York, Vegas, LA, pretty much every single major city. So yeah, I mean, it's a big moment. Look, personally, on a personal level, I mean, I think there's ups and downs in companies. I think what Luana, my co-founder and I have learned, you just got to ride it out. Like, we're less volatile now. Like, we feel the ups a bit less and we feel the downs a bit less. And everybody's super excited and loves us right now. And in four months, we're not the news anymore and people forget about it.

And it goes on and on. And that's what building a company is, right? Like, you know, there was a tweet today that was like, oh, cash is the newest, quote-unquote, overnight success. But they've been grinding it out for, you know, God knows how many years. So, it's a grind. There's been a lot of down moments, a lot of pain, but these up moments make it worth it. It's pretty fun to do.

But honestly, I don't think we really care about the attention so much, as much as like, we just love this product. Like, we love that people can, you know, trade on the election right now. We're having these real time odds, you know, we love that we're providing, and we believe we're providing more truth

and we can talk about that, but it's been tiring as well. We've been working 24-7. For people who don't know, I think most do, what actually is Cauchy? So Cauchy is the first legal prediction market in the US. So the first legal place in the US where you can bet yes-no or trade yes-no on any future events. So who will win the election as of this October? We can talk about us winning the lawsuit, but also will it rain tomorrow?

Will inflation go up? Will the Fed raise interest rates? Will COVID come back? Will TikTok get banned? Really anything you can think about. We don't do violence, war, terrorism, assassinations. And as of now, we don't do sports. And how did you come up with this idea?

So I worked at Goldman Sachs when I was at MIT. So at MIT I interned at Goldman Sachs in 2016. And I also worked at Citadel and a few other places. But at Goldman something striking happened. In 2016 that summer, most of the institutional money, like high net worth individuals, family offices, just big rich corporations or people, it was crazy because they weren't asking about the instruments that we were trading.

You know, there's like options and swaps and credit defaults and all these complicated things, but no one actually gave a shit about that. Like, what people cared about, they were like, what do we do about the election? What do we do about Brexit? So those two were happening right in that fall. And it was like, we want to bet on the election or we want to hedge against Trump, like bet on Trump or hedge against Trump, bet on, at the time it was Hillary or against Hillary. And so we come up with these bundles and you see them right now like Goldman and JP Morgan,

they're all like the Trump bet, the Trump bundle, whatever. Yeah. And it was weird because one, it was a proxy, it wasn't exactly what they wanted for, it was indirect. Two, we would charge them crazy fees, it's over the counter, not on exchange traded. And three, this is the thing that hurt me the most, which is like, why is it not accessible for everyone? Well, they're doing it. Why can't anyone do it? So the idea of building, hey, like,

what if you build a New York Stock Exchange, where this is actively traded, it's transparent, everyone can see, and anyone can access this. It's like an exchange where you can bet on an event, where you can trade an event the same way you trade a stock. That was the genesis of CalShare. It was illegal. We spent three years getting it regulated,

and we did get it regulated by the federal government. So you said at the time, betting directly on an election was illegal. Why was it illegal? It was kind of never regulated in the US, but it was done a lot. So it was insane. If you look at the New York Times and publications back in 1900s, 1800s, they had like live tabloids of live bets, live election bets. Yeah, yeah. And it was huge. It was huge.

Even back in the time, it was like hundreds of millions if you adjust for inflation. But I don't think it's election bets. Yeah, yeah, yeah. And it was huge. It was huge. Like even back in the time, it was like, you know, hundreds of millions if you adjust for inflation. But I don't think it's election specific. I think it's like financial instruments consistently, consistently, whenever they come in and they're new, they face scrutiny. It's like, is this gambling? Is this not? Yes. I don't know if you did you know, grain futures, you know that at some point, they were going to get legalized. Is that right? People were saying it was going to be gambling. And there was a Supreme Court decision in 1905 that legalized them. Yeah. They said like, look, some people speculate. Yeah, sure.

Some people are quote unquote gambling or betting on grain futures, which is true. It's still true today. Yeah. But they have economic value because people hedge and people use them to know what the price, the future price of grain is going to be. And that's very economically relevant. So why was the election contract the one they said no to? They said, yeah, we're down with you trading on the weather.

Why elections? Yeah. As you point out, the economic value argument doesn't seem to hold up because there's no economic value necessarily in understanding if it's going to be rainy tomorrow. So what was the sticking point on the election question? So look, I mean, I think there's like a... Well, first of all, I do think whether it's going to rain tomorrow or not So what was the sticking point on the election question? So look, I mean, I think there's like a...

Well, first of all, I do think whether it's going to rain tomorrow or not is very important. I do think it has economic value. Let's hear that. Let's hear that. Well, I mean, I think, you know, the OG traders of the weather are actually the farmers. It's like, you know how there's this lingo of orange futures forecast the weather better than the weather channel? I didn't know that, but I love that and I'm sure that's true. And they do because actually oranges fluctuate a lot with the weather. Like the harvest and the prices of oranges fluctuate a lot with the weather.

But so, you know, forecasting the weather is very important, actually. Okay. And you can extend it to knowing whether a hurricane is going to hit a certain territory versus not. Like we actually have people in the Keys in Florida, and every hurricane season, it's interesting. We do have a phone number on Kalshi. We keep it very hidden because we don't want a lot of people to call us in support we get flooded.

No one uses it, right? People use Zendesk and chat and, but actually around hurricane season, we started getting phone calls and it's basically people from the Keys in Florida, uh, that usually, you know, it's a bit kind of like older, older generation and so on. Insurance companies have pulled out of the Keys in Florida. They don't insure, they don't love insuring and taking the risk because there's been so many hurricanes, it's kind of like a very dangerous area. But we have a market about that.

So people put on a hedge on Cauchy against damages to their properties, against a hurricane hitting their time. So that's economically relevant. That's insurance. That's important. Like that's important to do. And yes, some people are speculating, but that's true for insurance, right? If you're insuring against something bad happening,

someone else is speculating on that on the other side, which could be the insurance companies and so on. You asked about elections. I mean, look, I can't speak on behalf of a regular, but the thing that happens is like, there's always a sort of official and unofficial, like I think the official response was like, hey, trading on the election is gaming.

That's no different than, you know, going to a casino and betting on a slot machine or betting on the outcome of roulette. And I think you're asking a good question. Like how is that gaming, but whether it's not? That sounds like a weird line to be drawing. So there's an unofficial answer. It's just like people have found it to be taboo.

DC doesn't love the idea of people trading on the election. Generally speaking, that has always been true, but that does not mean it's a bad thing, right? And so we argued in court, actually, it's a tremendous proposition to be arguing that elections are a game. Right. If elections are a game, what are we all doing? What are we doing?

Right? Like, what do people care so much? I mean, you know, elections have no economic impact on society that is headrable, like clearly like headrable and you can transfer risk with respect to, then what do we care so much? Like, you know, and we won, right? I mean, the law is on our side very squarely. How did the ruling go down? What were some of their reasons for why you are correct?

So, I mean, we've always been consistent about the law. We're like, look, I think the law says the underlying, the thing that you need to be trading on cannot be gaming, right? And we argued elections are not a game, right? And we argued elections are not a game. Elections are different from looking at two boxers fighting and betting on the outcome. Or rolling a dice and betting on the outcome. And at a high level, the way to think about that and how do you differentiate these from betting. Look, I'm okay with people calling this betting.

I'm actually okay. When CME launched Water Futures, one of the most economically relevant commodity, like financial instruments you can imagine, it's water, people called it betting. Oh, now you can bet on the water. Okay, fine. So that's fine, because betting is very similar to speculation.

Are people betting on the stock market? Yes, in some forms, but that doesn't mean the stock market in and of itself is bad. But there is a line to be drawn, and the line is artificial risk versus natural risk, right? If you and I right now, I don't know, like pick a pick dice and roll it and we bet on the outcome, we create an artificial risk so we can speculate on it. That's entertainment. We're having fun with it.

Right? Brexit happening or not, hurricane hitting somewhere, TikTok being banned or not, legislation, elections are natural risks. They exist independently of you and I. And once there's a risk that exists, you now have the need for a market to transfer risk. From people that have it but do not want it, they cannot bear it, to people that don't have it and have capacity for it. It could be hedge funds, it could be large institutions, it could be people, it could be people that want to speculate and so on and so forth.

And that's why we have a derivatives market, it's risk transfer essentially. I think that the majority of transactions that are happening on the stock market are gambling. I think that's true of options too, I think that's true of trading and that's okay. And we're down with that. I don't think it's necessarily a good thing, but I almost don't feel like it matters whether it's a good thing or not. It just is.

It's something that people do. Um, and that's okay. And so that's how I view. Cal she I'm like, in my view, I think it is gambling in most cases. I'd be interested to see if you agree with that. But that's fine with me. If you want to gamble, you can gamble and that's okay. And the other side to this is gambling is legal. You can go to the casino and gamble and you can bet on a boxing match. So why I still don't fully understand what the regulatory questions are here, because there are many,

in many states, you can gamble on sports. You can do whatever you want. Look, honestly, I think that's a very informed view. And I love that because I've learned to believe the simple statements like gambling on elections is bad, just resonate better. You know? Then like telling people like, hey, you should get informed. Like read why economists love these markets. Why, like people don't like going below the surface.

They're just like, hear the thing and like, you know, great. So, so, but like... And by the way, I just want to point out, like, again, I kind of agree with that personally. I don't want to gamble on the election personally. But you think it's like fine. But it's fine. So, so... I mean, I don't, I also don't want to like on the election personally. But you think it's fine. But it's fine. I mean, I also don't want to like chain smoke cigarettes all the time.

Yeah, I mean, I would say a few things and I'll address a few. So let's talk about some of the alternatives and we come back to our market. So quite default swaps, which are basically a way to insure against company debt, right? So generally the market for that is around, like I think per year, today it's like in the tens of billions of dollars, like maybe close up to a hundred billion, right? That's the market for hedging actual debt. But the trading volumes, the volumes are actually closer to trillions.

So you have a solid like 10 to maybe even like 50x factor. Exactly. What is the rest of that? Yeah, exactly. That's speculation. Speculation. Yeah. Same with, yeah, sorry.

No, no, I mean, it's speculation. So my point is we've just established that in traditional market, and by the way, this is also true for grain futures, for commodity futures, all these things that have a lot of economic value that are important. And the stock market, I actually do think that most of the transactions in the stock market are not capital allocation. That's right. And the reason why you cannot stop speculation, if you take out speculation from the stock market,

you know what would happen? There's no more liquidity. It dries up. There's no more stock market. There's no transactions anymore, right? There's no life-taking prices. Nothing is happening. So the people that need the capital at that point, the very purpose of the stock market fades away. And we've seen that that no stock market weakens capitalism it you start erring on the side of telling people what to do and what not to do with their money so it's the same thing here yes there's a lot of speculation i'll tell you like majority of things are going to be stuck if the market is liquid on cash it will be a lot of speculation

because for every hedgerow you need multiple speculators you need that market to be vibrant and and you need that type of speculative activity. But it doesn't make the market itself bad. Gambling and betting, in my view, though, like I'm okay with calling betting and speculation. Gambling is a bit weird. It has some negative connotations historically, which come with, I'm betting against the house.

Right? Like I'm going to a casino and I'm betting against the house. And if I make a lot of money, they'll kneecap me. Right. Right? There's like odds that are tilted against me. Because the house usually wigs the game so that they always win. That's a really good distinction. Right.

Whereas on cash, it's in this is why I call it bet maybe speculation or betting, or like the stock market, you're trading against other people. It's fair game. You're not trading against like, we're not the ones setting the odds. It's not tilted towards us. You're trading against other people. That is a good point. We just take transaction fees.

And so that's a different type of dynamic. Right. It's not tilted towards us. You're trading against other people. That is a good point. We just take transaction fees. And so, that's a different type of dynamic. Right. You're not always negative EV in our markets. Yeah. Hopefully, if you're informed. I mean, I'll ask you a question. I'm just trying to think like how sports betting works.

I guess that's gambling. A lot of it is against the house. The house sets the... You bet against DraftKings or you bet against FanDuel. Right. There are some new ones where it's like kind of more exchange driven, where you know, I'm betting against you or other people and we are setting the odds by putting orders against each other. So our prices are not set by anyone. It's like actually market supply and demand.

It's like the stock market. Totally. I hadn't thought of that and I think that's exactly right. So I'm going to go along with you on this, that we're down and propose some potential issues now that let's assume we agree. One of the events you can trade on is whether or not Elon Musk will be nominated to the cabinet, to Trump's cabinet. Yeah. Let's say you're Elon Musk.

You've just had a private conversation with Trump. He tells you, I want to have you in the cabinet. What is stopping Elon legally from rigging that market and thus rigging all the other gamblers? Yeah. Sorry. And that example applies to a lot of event contracts in prediction markets. I mean, that's definitely true. And guess what that example applies to as well? Stock market.

Stock market, right? Like, and so- I should just rephrase, how do you prevent insider trading? Exactly. There's so many interesting things. So first of all, actually, weirdly enough, insider trading is not illegal in commodity derivatives. Yeah, because the farmers are trading on grain prices, and obviously farmers have insider information on grain prices.

Okay. To be clear, that said, we have it in our own rules. Our designation is a designated contract market, it's like a legal designation. And what we are is a self-regulated organization. Think of it as a little bit of an extension of a government where we have our own set of rules. Okay. And these rules are like basically can go from civil prosecution all the way to criminal

prosecution. And we have a rule against insider trading. We do have it actually, Kalshi, but that's not because of the law. We impose the rule that you cannot trade on material non-public information on prediction markets, on our prediction markets. So if you do, you're actually violating the law. Because violating the rules of an SRO is violating the law. This is fascinating.

Yeah, yeah. So you violate the Kalshi rules, you're violating the law and we can prosecute you. You can impose fines all the way to criminal prosecution. You can be prosecuted by the CFTC. Basically, same way that if a Goldman trader commits insider trading, they'll be prosecuted by the SEC. So same thing. So from a legal perspective, it's the same thing.

We established that. Now the question is like, how do you enforce against it? Exactly. Same thing as a stock market, right? Like if Elon has a product announcement or actually anyone at Tesla has an upcoming product announcement and they call their cousin and they say hey this is coming you should load up on Tesla options how does the New York Stock Exchange police against that right we do have actually very good mechanism we

have the same ones that we've built over the years so we have first of all like we have surveillance systems are constantly ingesting trading data and seeing weird artificial patterns right like if someone is loading way out of the money, buying stuff that's trading at 10% and suddenly it moves to 90 the next day, those usually get flagged, especially if the transactions are large. They get flagged and they go to investigation. We have a whole investigation department that basically investigates who they are. Because we KYC people, we know who they are.

We ask them questions. We know it's like opening a brokerage account. So we have their SSN and so on. And then they can be escalated for an investigation where we figure out why did you place that trade and how did it come to fruition. Very similar to how insider trading is monitored on stocks. Is this perfect? No, but people do do insider trading on stocks. The most important thing to flag when insider trading becomes vile and bad is when it's

large. Like the larger, the more important it is to flag. Like if someone puts $10 on Tesla options because they had some of their cousin told them something, like is that going to be flagged? Probably not. Now, if that $10 turns into $20 million, that's a very different story.

But also $20 million is much easier to flag. You figured out the regulation. That's your big innovation. Exactly. And you described how when you're working at Goldman and these family offices, we want to make bets on the election. I would bet that Goldman is looking at Cal-She right now and they're thinking, holy shit, they're about to take our entire

trading business or at least in that aspect of things where people want to make these sort of narrative driven bets. And why wouldn't they just do it on cal she they don't need Goldman to bundle up this special options package for them. They can literally just bet on the story. And it's all because you guys figured out the regulation. How did you do that? And what did you learn about the regulatory system? What about your process actually pushed this through? It took a long time. Because you need to imagine, three years, all we're doing is regulation.

I'm drafting law and policy and regulations all day, all night. Everyone around us was saying, this is never going to happen. Every single lawyer, when we first started the company, one day we called 65 lawyers, all of them said, no, it's not happening. This is stupid. And the CFD wasn't giving us any lawyers, all of them said no. It's not happening. This is stupid. And the CFD wasn't giving us any like, oh yeah, we're going to do this. It was mostly like, oh, here are all the issues with this thing. And we would go take these issues, fix them.

And then there's more issues and more issues. It was like rocking through this desert. You have no evidence whatsoever that the desert ends. Actually, all evidence is pointing that this desert is not going to end. And we kept going. And I really think that was it. I think a lot of it is actually you just have to stick it through and it's a war of attrition and you have to just

keep pushing and keep your conviction. And what kept us convicted is like, look, we will stop when we get what we want or we are proven wrong. And until we are proven wrong, literally mathematically proven wrong, why should these markets not exist, we'll keep going and see what happens.

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experience music, but the music itself. All that all this month on the Vergecast, wherever you find podcasts. We're back with First Time Founders. I want to move on to another topic. So this has become super, super politicized because... Yeah, yeah, the odds are off. Yes. Um, and a lot of people are looking at the odds on Cauchi right now, which, which as of today, I think they're around 60%. 60? Is it 60 right now? Let me check.

It was, I think, 60 a day or two ago. I thought it might have dropped to 58, I think. 59%. 59%. So a lot of people are saying that this is one of the arguments in favor of this, which I don't fully agree with, is that this is one of the arguments in favor of this, which I don't fully agree with, is that this is an alternative to polls. Because it's more accurate than the polls because people are actually putting their money forward. You're drawing from the wisdom of crowds. My belief is that this is not necessarily the base truth because one of the biases that I've noticed, which I saw you guys put your numbers out on your demographics, is 90% of the people on Kalshi are men. And so, you know, my view is baked into this is a level of bias that means that it can't just be the exact truth. Your points on my thoughts on that. Yeah, I think that's a great point.

Let me address a few things like, you know, and I kind of keep repeating this, and I know you know this, but it feels like the general population doesn't understand this. Like, market odds are pricing the probability of a candidate winning. That's not what polls do. That's not what polls are, yeah. Like, if you're up two points on the polls,

you're up more like 5 to 10% in prediction markets and odds. It's not the same thing, right? Like 60% odds is not 60% in polling. If you're polling 60% up, you won. You're like 90% chance of winning in a certain place. So I think people are overreacting to this in either case, like the Republican campaign. They're going crazy. This has been crazy. I know, it's been crazy.

I agree. I think the Republicans are kind of taking it as a strong sign of victory and the Democrats are taking it as a strong sign of defeat. It's rigged and all that. But I'm telling everyone to calm down. First of all, this is still a coin flip. It's slightly biased. And if it was in the sports context, if Barcelona is slightly disfavored versus Real Madrid, Barcelona wins very often like you know so so

that's one. Two, ten days is a very long time for these markets. Ten days ago the odds were 51% Kamala Harris. Now there's 60, it moves that's like the whole point is it moves and it's pricing in real time so that that's kind of putting that out there. Now I don't think sampling bias is a real thing in prediction markets to be honest. I don't think so and I don't think sampling bias is a real thing in prediction markets, to be honest. I don't think so. I don't actually really agree with that. The basic point is actually, so fine, there are more men than women on Kashi.

That is true. We released that. We said that publicly. 90% is men, 10% is women. But amongst the women, like if you just see where women, what women are buying and betting, they're actually buying more Trump than Kamala. There is zero evidence right now that if we had 50-50 women, that it would actually change. Actually, the Trump bias is slightly higher amongst women than it is amongst men. Interesting. So, does it definitely, like this is not a poll by the way, that does not saying that

more women are going to vote for Trump and Kamala, not at all. That's not what this is saying. All that this is saying is I don't think this bias is really there. So, you know, one of the issues with polling that has often happened is that Democrats, historically speaking, have been more down to pick up the phone and to answer the polling question. Sure, sure. Um, and Republicans, historically speaking, when they hear someone, Hey, I'd like to ask you a few questions Sure, sure. And Republicans, historically speaking,

when they hear someone, hey, I'd like to ask you a few questions about the election. Fuck off. So that's historically been what's happened. And that could totally change. The point being, there is a very specific and kind of weird bias baked into the polling, which means that you can't take it as base truth, which I think all of us

already know. What I would say about Kalshi is that you can't take it as base truth, which I think all of us already know. What I would say about Kalshi is that, you mentioned that the women on Kalshi are actually more pro-Trump. I would bet that Kalshi is also attracting a certain type of woman, and the certain type of woman is probably more likely to bet Trump, would be my guess,

but again, that's total speculation. And my point being, both of these things are trying to draw the base truth out of what's happening. But it's biased, yeah. They're biased in small different ways. And so the idea that either is more accurate than the other, to me, isn't true. That is a fair point.

And I think that there is a difference, though. And that's why that was my second point, actually. So first, I mean, that's kind of the face value. Maybe maybe maybe these women are actually more pro Trump than they are pro Camelot and they want to buy more more Trump. That's that's possible. Yeah. But and that's important to understand. Like in polls, if that happens, it's done. You polled a bunch of people and you get the number and that's it. In markets, if the true value, if the fair value, the theoretical correct answer is 50, and there's weird flows that are biasing it to 60,

arbitrageurs and traders that like making money. I hope that we can all agree that people in America, or really everywhere, like making money. Like, I hope that, like, there's no disagreement about it. No, I don't care about money. People are greedy. As long as you trust that people are greedy. I love it. People are studying these insanely obsessively.

They study the polls, they study how the polls are being made, they study statements, they study historical data, they study the markets, they study other markets like stocks and so on. Now, if this is true, if we are really at 50-50 and the author is saying 60-40, there is a multi-10 million million incentive to bring it back. And we have institutional liquidity. We have institutional liquidity on the platform, like really smart money.

It is there. It could be individuals that are really smart. I mean, we have Susquehanna on the platform, SIG, one of our main partners that has been pricing and trading these things forever. We have other prop shops and hedge funds. Some of the smartest people on earth, like you can imagine all the names,

they're not, SIG is public, some of the smartest people on earth. Like, you know, you can imagine all the names. They're not... SIG is public, the others didn't make it public. But smart money brings back the prices to where it should be because there is incentive to do so. Like, it... Fine, there is a Trump bias in the flow. That is, like, what people consider to be the best type of flow for the citadels and the sasquahanas of the world.

Because they come and trade against it and bring the prices down. And these people are actually trading at a loss, at a negative expected value, and the market makers are trading at a positive expected value. That makes a lot of sense. What I would say is that, you know, the stock market has a lot of liquidity and oftentimes, as we have seen in the past, the stock market can be wrong about things. People can be just sort of wrong and they can get things. Irrational, yeah.

They can be irrational. So that is my view on this is that people are irrational, therefore polls are irrational and therefore markets are irrational. And so this debate over this one's true and this one isn't to me feels a little bit useless. And I guess the question that I would sort of wrap up this specific point to you with is, feels a little bit useless. And I guess the question that I would sort of wrap up this

specific point to you with is, do you think that Caoshi should be replacing polling in some way? I think I'm going to address liquidity and then the sort of irrationalism of markets, which I agree with, by the way. So we are very liquid, actually. By the way, could you just give us the statistics on how much money has been waged? It's different, by the way. So liquidity, and people confuse this a bit with volume. Okay. Liquidity is how much you can take at a point in time without moving the price a lot.

How robust is the pricing and how much you can take. On cash you can take multi-million dollars without moving the price at all. It doesn't move it. The price won't move. So if you take multi-million dollar position, the price won't move. You can take up to a hundred million dollars.

Which is reflective, by the way, of how much money is in. Yeah, yeah, yeah. But also how much the liquidity providers, these institutional market makers, that makes a difference between like a small betting market versus like a stock market. You can take up to a hundred million and it won't move the price by more than one to two cents. A hundred million.

So it's very hard to move the prices. You need like tens of millions and the impact will be very marginal. So that's one. Two, I have never said, by the way, these markets are always accurate. Nothing else. We can't say what the future holds, right? That doesn't make any sense. But what I can say is these markets are more accurate than alternatives. And I do stand by that. Right? Like if you look at the mean error of our forecast to everything else, we've been the most accurate on inflation forecast,

better than the Bloomberg Economist survey, a variety of other surveys. Yeah. Fed interest rate decisions, climate and weather, even earthquakes. That doesn't mean we can forecast earthquakes. That's a crazy statement. I'm not making that statement at all, but the alternative is like you hear a pundit on the news

or like you hear someone saying something crazy because they want to get some press or whatever. But now you have a mechanism to like, hey, if you have some information about this, come put it to market and get paid for it. And then we get an accurate price from that. But these should not replace polls. They're doing something different.

This is an additional source of data. I keep saying more truth. I don't say exclusive truth or like we're the only truth. No, we're not. Like more truth, just get informed. Look at the markets, look at the polls. Maybe don't look at all the crazy videos on TikTok, like is this misinformation left and right, right? Like if you, but I don't think they should replace polls.

They're doing something different. Polls are important. And by the way, these markets rely on polls. Right. Yeah, that's how they're informing their bets. Right. Yeah, like how are traders, like traders, a lot of, I don't know of any traders that doesn't have polling in their methodology. Let's talk about the business itself.

How does CalSTRI make money? How has this worked out for you as an actual business? Yeah, so it's again, it's kind of one of the decisions I've drawn. Let's talk about the business itself. How does CalSTRI make money? How has this worked out for you as an actual business? Yeah, so it's again, it's kind of one of the decisions I've drawn. So we're an exchange. So our business model is like New York Stock Exchange or CME. We take transaction fees, like trading fees. So you do a few thousand dollars, we take one to two percent in fees.

So we take 20 bucks on that transaction. That's how we make money. Over time, I think we have a lot of requests for our data. Like people want to pull data and more granular data. But for now, we're making it open source. We want everyone to have it. It's part of the mission. We're not charging for it. And specifically on the election, we're not charging fees right now. We just want to have, like we want to promote. Just get everyone in there.

We want to get everyone in there. We want the market to do their thing. No kind of barriers, fully efficient and so on. And we're also actually, we pay back the interest. We don't take the interest ourselves. I don't believe in making money off of people's interest. So if you deposit money on Cal-She, both your cash but also your open bets. So if you put a position on Kamala or Trump right now, that bet will pay you 4.1% annualized variable interest.

Oh wow, okay. As it's outstanding. And it's cool because if your position goes up in price, like if you bought at 50% and then now it's 60%, you get paid on the marked up position. Wow. So you have no opportunity costs. We're paying you your interest based on your kind of outstanding

bets and positions on Cal-She. And the expenses, is it an expensive thing to run? Yeah, regulatory. I mean, we have the thing of building the New York Stock Exchange from scratch. So we run a clearing house. We have one of the handful of clearing houses in the US that can, you know, really move money and clear derivatives. Exchange, we have the surveillance systems.

A lot of very, very heavy infrastructure that took years to build. So it is expensive to run. It's a lot of upfront costs, but the marginal costs are very low. So it's a very hard business to get into and get the flywheel running for the marketplace. But once it does, it's a very profitable business because the unit economics, the marginal expense is very low. It's AWS. And you have some significant competitors, but from my understanding, no competitors that have been approved in the US.

What is the competition? So I mean, like, look, there's always been, so there's like offshore, like Polymarket is offshore, unregulated crypto-based prediction market. Oh, it's crypto-based. I didn't know that. Yeah, they actually did get an enforcement action from the CFC two years ago. So they're not allowed to cater to US. And there are a lot of others similar to Polymarket. What I would say is don't trust the volume on these sites, because it's not actually true.

There's a lot of wash trading. So it's a lot of bots, fake bots just trading against each other. But it's not economics. Like I give you 100, you give me back 100. And is that because they haven't verified their customers, or as you have? Yeah, it's like there's no KYC, you don't know who's trading, it's not reported to the government. We can't do that type of thing, but like, it's like I give you 100, you give me back 100,

that's called wash, which is like not real trading. And so, but the volume just went up by 200. So imagine we do that 10,000 times, 100,000 times a day with bots, suddenly the volume is very large, but it's not real. So that's why we times, 100,000 times a day with bots, suddenly the volume is very large, but it's not real. So that's why we always say like, trust the one that's safe, regulated, trusted, and we're only Americans. We don't have foreign kind of participation for now. We're just only Americans and so on. Look, honestly, competition is good. It's more, more, like I always think like more people being educated about these markets is a good thing.

I believe the regulated approach is the only approach, that's what I believe. That's a strong belief we firmly hold in the company. The last thing I always say is like, I always worry a little bit about the unregulated doing something bad. And I always worry about nascent asset classes. Like I always try to advocate, like trust the regulated actors

and less the unregulated actors. And I hope the unregulated actors come and get regulated and do it the right way. So that people can trust this asset class because I think it's gonna go wrong in unregulated venues come and get regulated and do it the right way. Yes. So that people can trust this asset class because things can go wrong in unregulated venues and when they do, people don't blame the unregulated venues, regulators blame the asset class. We'll be right back.

Support for this podcast comes from Stripe. Payment management software isn't something your customers think about that often. They see your product, they want to buy it, and then they buy it. That's about as complex as it gets. But under the hood of that process, there are a lot of really complicated things happening that have to go right in order for that sale to go through. Stripe handles the complexity of financial infrastructure, offering a seamless experience for business owners and their customers. For example, Stripe can make sure that your customers see their currency and preferred payment method when they shop, so checking out never feels like a chore. Stripe is a payment and billing platform supporting millions of businesses around the world, including companies like Uber, BMW, and DoorDash. Stripe has helped countless startups and established companies alike reach their growth targets,

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Stripe handles the complexity of financial infrastructure, offering a seamless experience for business owners and their customers. For example, Stripe can make sure that your customers see their currency and preferred payment method when they shop. So checking out never feels like a chore. Stripe is a payment and billing platform supporting millions of businesses around the world, including companies like Uber, BMW, and DoorDash. Stripe has helped countless startups and established companies alike reach their growth targets,

make progress on their missions, and reach more customers globally. The platform offers a suite of specialized features and tools to power businesses of all sizes, like Stripe Billing, which makes it easy to handle subscription-based charges, invoicing, and all recurring revenue management needs. Learn how Stripe helps companies of all sizes make progress at stripe.com. That's stripe.com to learn more. Stripe. make progress. We're back with first time founders. I want to shift gears to your personal journey as an entrepreneur. Tell us about a little bit about your background.

Like what inspired you to get into this? You mentioned you worked at Goldman, you went to MIT. What sort of led up to Cauchy in your life? It's interesting because both my co-founder and I had like very similar backgrounds. I was born in LA, I grew up in Lebanon. Luana grew up in Brazil. We were both math geeks in school. Go in MIT. This is your co-founder Luana Lopez.

Lara, yes. And you met at MIT. So we met at MIT. It was kind of like we were both math geeks. We like love getting into MIT. That like we were both math geeks. We like love getting into MIT. That was the place for math geeks. And then we both kind of love finance, but we didn't,

we weren't like the type that was, you know how like there's a persona, I was like the entrepreneur, the person that's always building products. I want to be kind of like, we weren't that. Yeah, we didn't have that. Like we weren't reading books or listening to podcasts. I think I was firmly convinced

that I was going to be a trader. I was going to be at Citadel. I love working at Cit convinced that I was gonna be a trader. I was gonna be at Citadel. I love working at Citadel. Citadel was amazing, it was incredible. But it was one of those things that the idea was just wouldn't let go basically. It was just like, the idea was so kind of like

constant in the back of our minds. It was like pulling us to it, slowly. It kept on popping up, right? Like, in some ways the idea pulled us into building the company rather than vice versa. Like we're looking for an idea. It's like the idea just kind of pushed us. And we kind of loved it. It's like this beautiful notion of what if you can apply markets to price the future?

Yeah. Right? Like, we price anything now. Why don't we price our future? Right? Like imagine we can ask questions like, will GDP go up if Trump gets elected? Will GDP go up if Kamala gets elected? And you can have a market-based pricing for that.

Just let the market tell you. Market truth, right? And that was the elegance of it. And we really liked that. And so slowly, we basically just kind of got dragged into it. And then we're like, all right, we're going to have to build this company now because we would regret not doing so.

It's almost like there are some ideas that are so obvious that they have to get done. Like if it, I feel like if it wasn't going to be you, someone else was going to do it. And it's so interesting to me that the hurdle was the regulation and you wanted to be a trader, you clearly have a massive math brain. I doubt you're doing any math these days. Not anymore. Well, we do some. I doubt you're doing any math these days. Not anymore.

Well, we do some. I mean, we've hired people that are a lot smarter than us, which is helpful. We do less. We do less for sure. We were making jokes this week, actually. I've slowed down. I was better at math before. Out of practice.

I'm sure you get lobbying now. Better, yeah. But engaging regulators and politics, definitely better. But I would like to hear a little bit about that. I mean, first, let's talk about maybe fundraising. I mean, you've had huge success in fundraising. You've got some very big name investors. What would you say makes you a good fundraiser? And what are the qualities of a founder who can go out and

raise a lot of money? I think I'm a good fundraiser in some ways, but there are better fundraisers for sure. But I think I build relationships with people. I don't play a lot of games. I'm very honest and transparent upfront. And I've always kind of had that approach to raising money. And I explain to people like, hey, this long journey, this is a company I'm committed to and we want to build long term.

And I think a lot of investors kind of appreciate that, because they're used to the games and the kind of. So I just usually build relationships with people I kind of like. And I talk to them about the business. And I genuinely consider it as a two-sided interview. It's like, do I like this person? Do I think they get what we're trying to build?

And I think all things, it's a bit bit like dating and you have to be convinced that what you have is valuable, you know? And I never meant to claim like, Kashi is going to be, I hate these claims, like, and all founders do that. Like we are going to be- We're the next Apple. Yeah, we're the next Apple. We're going to be a hundred billion dollar company.

Like, I don't know that, right? Like I don't say that. Like there's a lot of things that have to go right for us to get there. But what I do say is it has the potential to, and I do think so. Like I think we have the potential to be a 100 billion dollar company. And if things go our way, that's the size of the town. That's the potential opportunity. Will that happen or not?

I don't know. I can't say for sure. But I will work as hard. I mean, I've shown how hard I'm willing to work and how much I'm going to sacrifice to make it happen. And I think a lot of people appreciate that. It gets to the basics of just negotiating, right? And it sounds like that you are, what you are as an incredibly skilled negotiator,

and you've kind of proven that through getting this through in your dealings in DC. And what I have found in negotiating is that it does all start with kind of your initial position, which is like, how confident am I in myself and in the product that I'm trying to sell? So you mentioned like a two-sided thing. It's like, this is where I stand, this is what I'm looking for, and this is what I'd like to get from you. That's my position.

And it sounds like you're very, very confident about that. And I think the question is, for people who want to get good at that, where do you get that confidence from? Like what do you sort of hype yourself up before you go into a meeting? How do you sort of walk into the room and say, yep, this is who I am and I'll be unapologetic about it. I'm always like interested in people like, like around me say like, Hey, where'd you get the confidence from?

But like, I always like But it always rings a bell. I'm like, I have long periods of lack of confidence. You know what I mean? It's like, I have a lot of insecurities in a variety of different ways. And maybe I've gotten tougher over time. People don't see it as much, but people over-assume how confident founders are

and how it feels on the inside. Right. I think I've really taught myself a few things. We've gotten punched down and beat down so many times. Like press loves us at some point and the press hates us at other points. And everything that happens at the company is always your fault. And everything that happens at the company

is always because you're legit. Like anything good you get congratulated for and everything that you get curated for. And then you realize actually it's not like, I didn't do anything in the last two months. Like all the work was actually the day in day out of like chop wood, carry water, chop wood, carry water. So I realized like actually like less things

are in my control than I think are in my control or that people think so. Two, I think I genuinely try to start loving the process. I really do. Like I now like I'm trying not to love too much the attention and not to hate too much the bad times. I'm trying to just like like my job and like my work. And I would say that the last one is

it's a bit of absurdity of life. Like don't take yourself too seriously. Yes. You know, it's like, I'm not a legend. I'm not, I think I'm a pretty good founder. I think I work and the reason is not because I'm not a legend. I'm not, I think I'm a pretty good founder. I think I work, and the reason is not because I'm this mythical genius. I like work really, really hard.

I really do. Anyone around me knows how hard I work and how much I'm willing to sacrifice. I'm reasonably smart. Like, you know, I'm neither a genius nor, but I, you know, and that's because I've, partly because of one. And I've worked on my EQ over time.

Like I, and I like engaging with people and meeting people and so on. And so, but number one is by far and large, the most important. That's it. I just work really hard. Yeah. And I, and if you really understand why, where the success or lack of success comes from, then you're like, it doesn't get to your head.

A hundred percent. Yeah. I'd love to know as, as you are, you're becoming more and more famous. Yeah. Uh, the, the company, especially. I mean, this company is everywhere. And, you know, when this episode airs, it'll be a few days before the election, I will bet that you or Khalshi are going to be just...

somehow in the crosshairs of all of the political craziness that is going to happen. And maybe it's already happening to you. Do you... read the comments? Do you read what people say about you? I mean, I know there have been these articles that have been saying Kelshe's a problem. Do you read those?

Like, what do you think about when the public starts talking about you? I don't really read anymore. I don't really read the press. I read, I barely, like, people call me, it's like, oh, sometimes they call me about my own quotes, and I'm like, I don't even read anymore. You don't read? I don't really read the press. I read, I barely, like people call me, it's like, oh, sometimes they call me about my own quotes and I'm like, I don't even remember saying that. Like I really like, so it happens.

Look, I think the way I view it, and Luana Covina is very good at this, if you're long-term oriented, there's going to be ups and downs in the short term. It's a bit like a stock, but it all stabilizes over time. And so be long-term oriented, so you don't worry too much about the short-term, whether good or bad. Like, don't be too happy about the good and be too worried about the bad.

But then the second thing is actually do good. I really believe in that. Like, look, honestly, I was working at Citadel. I think I might have been actually richer if I stayed at Citadel. I mean, maybe now it's compared. Well, like, you know my point. Like, it's cash. You get paid a lot at Citadel. Like, frankly, it's insane now.

Like, the things I'm hearing are truly insane. So, like, yeah, I'm not doing this out of pro bono. Like, I want to make money and so on. But I really genuinely want these markets to exist, and I want to do good. And so, as long as we're doing the right things day in, day out, I believe that there's going to be mean reversion. Like, when people overestimate us, it's going to come down and be what it actually is. And when people think it's worse than what they should be thinking, I think there's going to be mean reversion. Like, when people overestimate us, it's going to come down and be what it actually is.

And when people think it's worse than what they should be thinking, I think it's going to remain revert. So I believe that. My favorite saying from Scott, he has a quote that he always says through Try Live, which is, nothing is ever as good or as bad as it seems. It's so true. And I actually repeated this, you know know this Chinese proverb or story about the Chinese farmer? Oh, I know, but tell it because it's great. I say a lot to the company multiple times, which is like, you know, so there's a Chinese farmer in a village, he's a farmer in China and like so, you know, he had this horse that

he really loved and the horse basically disappears, it just like flees. So the village comes on and is like, hey, like, you know, oh my God, it's so unfortunate, so sorry to hear the news. And he's like, you know, his answer is like, I don't know, we'll see. And the next day the horse comes back with a flock of horses and it's like, wow, dude, he's like, you know, rich and he has a flock of horses. And again, they come back, the farmers come in and he's like, how fortunate, you're so lucky like it's crazy.

Life loves you and you know, God loves you. I don't know, we'll see. His son next day is riding one of the horses, falls, gets, you know, injured. Same thing. I don't know, we'll see. They come in unfortunate and so on. Next day, China goes to war.

All the young people get drafted into war. His son is injured so he doesn't get drafted into war. You're the luckiest man alive. You're so fortunate. And it ends with this kind of like, you know, he smirks and he's like, I don't know, we'll see. And I always say like, I don't know, we'll see. And I always say like, I don't know, we'll see. Like, you know, like just, just chop wood, carry water, do the work day in, day out, and we'll see what happens.

That is a great place to end. Do you have a prediction for the election? That's what people really want to know. People are. I'd love to get it from you just before we wrap up. You don't have to say who's going to win unless you're down. I'd love to hear if you are the expert on prediction markets. What's your prediction for this election?

It's funny because a lot of people are asking me this question now. You're the guy. You're the guy. I don't have any different... I just want to say I'm still a regular dude when it comes to this. If I trade on cash, I may lose money. I can't trade because I run the exchange. I'm legally not allowed to trade. But I don't know if I'll be that good at doing this. So I think trust the markets.

That's the whole point, right? And get informed. Like, I think look at the markets. Look at the polls. I think the markets are accurate gauge. 60% doesn't mean 100%. But I think right now 60% seems to be what fair value is. And that doesn't... You've got your money on track. I don't have... Not your personal. But I really think trust the market. But no, but I think 10 days is long.

It's going to move a lot. Yes. Whether up or down, but it does move. We've seen this. People are so short-term driven right now. It's like, oh my God. But like you see tomorrow, it moves and moves and moves. So it's a very long day.

10 days is a very long time. And two, I really think 60-40 is close to a coin flip. It really is. So what you should take from these markets, it's a very tight race. Tariq Mansur is the CEO and co-founder of Kelshi, a regulated exchange and prediction market. This was awesome. I'm really happy you came in and thank you for doing this with me. Yeah, well, this was really fun. Thanks for having me.

Our producer is Claire Miller, our associate producer is Alison Weiss, and our engineer is Benjamin Spencer. Thank you for listening to First Time Founders from the Vox Media Podcast Network. Tune in tomorrow for Profgy Markets. Support for this podcast comes from Stripe. Stripe is a payments and billing platform supporting millions of businesses around the world, including companies like Uber, BMW, and DoorDash. Stripe has helped countless startups and established companies alike reach their growth targets, make progress on their missions, and reach more customers globally. The platform offers a suite of specialized features and tools to fast-track growth, like Stripe Billing, which makes it easy to handle subscription-based charges,

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