This Week in Startups - Twitter bots & Apple BNPL with Deirdre Bosa + Prediction markets with Kalshi CEO Tarek Mansour | E1480

Episode Date: June 9, 2022

Today, Deirdre Bosa from CNBC joins Molly to talk about Twitter’s plans to comply with Musk’s demands for data (1:28), Apple being its own bank for Apple Pay Later (17:15), and Facebook's parent Meta changing its ticker to META (32:19). To wrap up, Jason and Molly interview Kalshi co-founder and CEO Tarek Mansour, where they talk about Kalshi building the first CFTC regulated predictions market (39:11). (0:00) Deidre Bosa joins Molly Wood to cover today’s tech news! (1:28) Twitter plans to comply with Musk’s demands for data (10:02) Indochino - Get $50 off any purchase of $399 or more by using code TWIST at checkout https://www.indochino.com (11:18) Will the Elon/Twitter deal just end up in the legal system? (17:15) Apple Will Handle Lending Internally for its new Apple New Pay Later Service (21:01) Vanta - Get $1,000 off automating your SOC 2 at https://vanta.com/twist (22:14) Will this open up Apple to more anti-trust scrutiny? (31:08) Ourcrowd - Check out the deal of the week at https://ourcrowd.com/twist (32:19) The Facebook parent Meta changed its ticker to META (38:33) Toss to our interview w/ Kalshi co-founder + CEO Tarek Mansour (39:11) Tarek Mansour joins to speak about Kalshi, the first CFTC regulated predictions market (1:26:39) If you are a founder pre-series A, you are invited to our Founder University Two-Day intensive on June 13-14!

All right, everybody, it is Thursday, June 9th. Jason has a family event today. So I got to choose, and you know, there was only one choice to make, Deirdre Brosa, from CNBC to chop up the news. Deirdre, thanks for coming on. Thank you so much for having me. I mean, Molly, I've just wanted to chat with you anyways. You got that Jason guy out of the way.

We're ready to go. Out of the way. I know. I love you, Jason. By the way, I should say that. Jason, we miss you, buddy. Desperately. Not right the second, though.

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at OUR-C-O-D-WD.com slash twist. I'm very excited because, you know, it's always a little awkward when we have to talk about Elon Musk with Jason because of the homie situation. So let's start with this breaking news as of, I think this morning, maybe late last night, that Twitter plans to comply with Elon Musk's demands for data. Elon Musk had basically been threatening to walk away from the Twitter deal saying that Twitter's refusal or inability to count its bots was a material, what did he say? It was a material information that could affect the deal price. And then all of a sudden, the Texas Attorney General coincidentally starts investigating

Twitter over its bot situation. So the maximum pressure campaign seems to have worked. What are you thinking? What are you thinking? What are you thinking about this situation? I mean, do you think that Twitter? Because all along, Twitter has been saying, this is really hard. We can't aggregate this data.

Yeah. So now has Twitter been exposed? I mean, there's just so many twists in this. I feel for the employees, we were just talking about this as we ended the show as I jumped off Tech Check. And what I said, I'm interested. Now that Elon Musk is going to have access to this data, which by the way, other companies have had access to this data, not just Twitter, but it can sell this data for people and companies to. you sift through it and pick out what they want, is Elon Musk going to be able to find something that no one else has?

He's been able to do things that no one else has. And then my co-anchor, John Ford, he countered and he said, of course you can find something through that much data. He's going to find something to build his case to not do this deal. So, you know, it's true. Maybe I'm more optimistic. I don't want to play the Jason role here, but I think that Elon Musk sees things that other people don't.

So maybe he'll find something that was previously, undiscoverable, that could be good or bad if you believe who wants to get this deal done. And I guess that's a crucial question. Does he want to? A lot of folks think he doesn't. Well, and I guess there are sort of two parts to that, which is, does he want the deal at all? Or does he want the deal at a lower price? And that seems to be possibly the maybe he wants to walk away. Maybe he's just sort of like, this is not, this is more than I bargained for. And I'm not interested in doing this after all this passing phase, if you will. but it seems more likely that what's happened is Twitter is now trading well below. Yeah.

The 5, 52, 5, 420, whatever amount that he, whatever joke amount that he offered. 5420. 5420, thank you. The weed number at the back. Right. I know. I was like, where does the weed go in this calculation? And so maybe it's to get a better deal.

Well, so it's not surprising that he wants a better price. the fact that this is Elon Musk and it's Twitter and it's such a big story. We all focus on every little twist and term. But you know what also happened recently, Molly? Toma Bravo, right? The private equity firm that announced it had plans to acquire and a plan, a certain price, quietly adjusted that and a plan agreed to it, but they're now getting a little bit of a discount.

So it's not just Elon Musk. The markets are moving so quickly. We cover this every single day. Valuations are getting more and more attractive. We're all focused on Elon Musk. because he made such a splash with this. Should the Twitter board accept something in the middle? They probably don't have to because of the way Elon Musk went about this.

He's just so brash. And he announced this and he said he didn't need to do due diligence. So the position he's in, he's put himself in. Oh, 100%. And we should be super clear that he actually has no legal right to cancel this deal, right? He assigned a contract. And actually, the contract probably even says something, the lines of you signed a deal that said you weren't going to do any diligence,

so you are not, in fact, entitled to diligence. But because it's Elon Musu, one of our noties referred to the other day as like a sovereign state, you know, he can apply this maximum pressure in public. He can move a gigafactory to Texas and then all of a sudden have the Texas Attorney General investigating Twitter over a bot problem, which I would argue is not among the top priorities for Texans in terms of enforcement. And so it doesn't actually matter. I mean, I guess that's the question.

Doesn't matter anymore what contracts say. Well, let's remember that Tesla, one of the most successful companies of our generation in the world at the moment, one of the biggest market caps, has not spent any money on marketing or communications, right? Elon Musk has been able to work Twitter and this public persona to build one of the greatest companies that we currently have. is he applying that sort of same playbook to what he wants to get out of Twitter? It feels like it, is it going to backfire this time? I guess that's what makes this such an exciting story for us. Right. And of course, we should acknowledge the elephant to the room,

which is that it's all journalists are on Twitter. Yes. Of course, journalism is going to cover this to the ground. Because it's not just his playground, it's ours. Well, Molly, let me ask you. There's been so much discussion of the employees. during all of this as well. I think I started, I said, I feel for them.

They're in this limbo. But they've kind of always been in limbo. What an interesting company throughout the last decade to cover Twitter, right? I mean, it's gone through so many transitions. You had Jack Dorsey go back. What do you think they're thinking right now? I mean, I hear a little bit of it from sources, of course, but is it so different than what it's been through over the last decade?

Yeah, I don't think so, right? I mean, I guess this sort of existential uncertainty is probably new. What happens if Musk comes in and buys this and takes it private and changes everything? But certainly the number of identities that Twitter has been through, remember when it was the Arab Spring, and it was sort of like going to be the savior of freedom and liberty across the room because it was going to sign across the world shining sunlight in every corner. And then it was more abundant before the 2016 election.

It was really like on the decline. and then Trump in the 2016 election really were a huge, I think, shot in the arm for Twitter. Like, I will never forget, Les Moonves of CBS saying Trump is terrible for America, but he's great for CBS. He was great for Twitter too. And then all of a sudden it's in the eye of the disinformation maelstrom. What's the saying, Molly, if you live long enough, live long enough as a hero that you become the villain? I'm sure I'm getting that wrong. If someone can correct me, but I often get my same.

Something like that, exactly. Something like that. The sentiment. That's what happens with Twitter, right? Yeah, you talk about the Arab Spring and how it was the savior and it was going to bring information and a voice to everyone around the world. And now it's the target of disinformation. We're kind of seeing the same thing.

I don't know, actually, are we seeing the same thing happening to Elon Musk? He's done such amazing things with Tesla, with his other companies. So now he's really changing in the public view as well. And it's really hard to figure out what's motivating. him here. Is he bored? Is this his yacht that's bigger than Jeff Bezos is? Is that why he wants Twitter? Why else does he want it? Yeah, I don't know. I mean, I do think that there is a lot of credence to the idea that it's just passion, that it literally is the product that he loves and the product that he has been able to so effectively use. I mean, if you had the most effective

marketing arm to your point on earth and you could own it, I guess why wouldn't you? It's interesting to you. When this whole saga started, we talked a lot of, about how Twitter's board is basically non-existent on Twitter. They don't really use it. Why haven't they been using it, experimenting with it? It's funny, they've just let sort of Elon Musk run amok and do what he does. And it doesn't feel like there's been any increase in engagement, not that they necessarily should.

They're focused on the financials of this deal. Some would argue that that is a better thing to focus on. But it does go back to what I think Jason might say here is letting someone run the company who loves it. and that's what it comes down to. I guess at what price they have their fiduciary duty to get it for the price that Elon Musk said he was going to buy it for. Right.

I mean, I think you hate to make a prediction where Musk is concerned, run a musk. Yeah. Am I right? Listen, weddings are fully back this summer, as I'm sure many of you know, whether you're the groom in the wedding party or you're a guest, you've got to look great. Everything's got to be tight. And if you want to look great, you've got to use Indochino just like I do.

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I feel like there is no universe in which he pays the original bid for Twitter and I don't think he even wants to. Is there a universe where this doesn't go to court forever? And then you have the court looking at the data that, what is the 500 million tweets a day and this is just ending up in the legal system for so long? I just, I don't see that happening because it's no good for Twitter.

You know, I keep sort of quoting Matt Liff's, on this one, who has written about the fact that on the one hand, there is the letter of the law. There's an existing contract. It affords no rights to due diligence. Material impact and material breach is incredibly hard to prove. And there's a billion dollar breakup fee. And all of that is in writing and it's incontrovertible, except that on the other hand, you have Elon Musk and who the hell is going to sue Elon Musk? Why would you do that? Right. It's nothing but downside for Twitter. So most likely he's going to get what he wants. I'm sure it is demoralizing for some employees and thrilling for others.

And it's like the most annoying soap opera that I wish I could stop watching. I completely agree. Molly, what is your, do you love Twitter or hate Twitter or is it both? I mean, this is a question that we are constantly sort of debating within CNBC, right? You're on TV every day and you see the comments rolling. you're on a podcast, you're on YouTube every single day. What would you want to see improve? I mean, I definitely don't understand why that product does not gotten better.

My theory about Twitter is that because everyone was so hands off in the beginning, because there was this sort of like, it's all free speech all the time, none of the issues that have broken Twitter now, like bots and brigading and harassment and spam, all of the issues that were making Twitter, you know, difficult for a segment of the population that was never listened to, women of color, primarily, GamerGate, for example,

when we all decided that GamerGate was like not a thing and didn't enforce any rules around harassment and brigating and spam and bots, Twitter really did become, over the years, totally unusable. And then they had to sort of like go too far in the other direction to try to correct it. And so people who had never been even a little bit moderated in terms of their content,

lost their collective and I think it's been a failure all along of moderation that has now made it a complete flashpoint, the like center of the culture wars. And so Twitter is like simultaneously the best and the absolute worst.

I mean, I remember years ago wanting to round up a panel for South by Southwest and get like Marty Barron and Mark Thompson, the New York Times guy or, you know, what's his butt, Dean McKay? and the guy from, so, okay, post, Gerald Baker,

and be like, why are you letting your journalist be on Twitter? Because it's so clear that Twitter has become the assignment desk for media and that fear of getting yelled out on Twitter is materially changing what we report. And it would be a lie to say that it doesn't. It does. Twitter, it's this place where I'm always very aware that within, you know, five seconds, you tweet something out, that could be the different. between being fired and not you have to be so, so careful with how you use it. But I'm torn. I mean, and we've had this conversation on tech check as well. Do you moderate? Do you take people like

former president Donald Trump off the platform? And then there's this whole segment of the population that maybe thinks something's being hidden from them, right? Or do you allow them to make up their own minds? It was interesting. We had someone on that said, though, this prominent VC who said that she was blocked by Elon Musk on Twitter. So if he can block someone, that's not free speech either. And there's this constant push and pull. I was hoping at the start of this

that we could see what Elon Musk was going to do here. If he was going to make it open source, how that would even work. What a fascinating experiment. Now I fear that we're never going to get that opportunity because this is going to be tied up in litigation for years and years. I know. Because I agree with you.

I would love to see the data on the bots. I'm with Elon on that one. I want to see the data. on the bots. I want to know if shadow banning exists. I want to know if there's some email chain that says, we verify this person and not this person. What if it's not all that exciting? What if? I'm sure it's not. That's a sad thing. Yeah, the majority of Twitter users are just sort of, they're silent. They're just going on to look. Of course, you're going to hear bots because they're the loudest, but there's so many people on Twitter who just use it to follow people and don't

actually do their own tweets. I know. Everything is so much more banal. then you think it's going to be when it comes out in discovery. I'm sure this is. It's fun reporting on it all along the way. It is. So yes, to answer your question more succinctly, love slash hate.

Yes. Like there isn't anywhere else where you can get such direct access to information on the ground. And that's the part. Like I want to like cut through all of the journalists on my feed and get to the people who are actually telling us in real time what's happening. That was like the magic, right? But somehow it all still got mediated by. bots and journalists and VCs and, you know, there still is like information gatekeeping on Twitter

that when you can strip that away, it's magical. You can't get that information anywhere else. I mean, I had a scoop a few weeks ago and I thought, I looked at and I thought, okay, I could put this on the CNBC website, but within the, you know, 20 minutes it takes me to do that. Someone else could get this scoop and report it. Twitter was the fastest, most effective way to do it. but that's something that we're at CNBC constantly navigating as well. How do we direct people to our site, make sure that CNBC is getting credit for this while matching the speed, the velocity of Twitter?

Yeah, I know. It's impossible. It's impossible. We only have a short time with you, and so even though we can probably talk about Twitter all day, it's not good for us or America. So let's talk about a really big business story that happened while everybody else was talking. about iOS 16 updates and what's going to happen on your home screen.

Apple is moving into the Buy Now Pay Later space with its new Apple Pay Later service and will handle lending internally. So Mark Herbert at Bloomberg, just for background, reported that Apple has now decided to manage all of the aspects for Buy Now Pay Later. It's going to be its own underwriter, which of course it can do because as of the last quarter, Apple had $51 billion in cash and marketable securities. For comparison, how much about $200 billion?

I think they've got $200 billion, I thought. Yeah, $51 billion is that just, oh yeah, yeah, they've got nearly $200 billion overall. I think they may have added in last quarter, $51 billion in cash. Thank you, yeah. Okay, so just to be clear, the $51 billion that I mentioned before was Apple's cash and short-term marketable securities at the end of the last quarter. So presumably money they could spend now. If you include the long-term securities of the additional $141 billion,

that's where you get that $200 billion in total cash. But either way, the other major by now pay later player, affirm, has had to partner with Cross River Bank to underwrite loans on its platform. So Apple is in this phenomenal position where everybody has been asking, what are they going to do with this cash? And we were like, maybe they'll buy Disney or Tesla. And turns out they were like, no, we're going to go big boy here and be able. a bank.

I love the way that you just frame that. That's where the real money is, right? Like, what would you? They're like, they're not acquiring anything. They're just opening up the balance sheet to consumers. I mean, this is bananas. How, from your understanding, will this work for Apple? So I am fascinated by this story.

I used to cover Fintech. And there's always sort of been the elephant in the room, which is the big tech giants. When would they really push into financial services? They have the users. They have the credit card payments information. Apple has 1.8 billion devices, many users on its Apple Pay Program. It's so interesting.

I don't think that this is just about by now, pay later. I think this is setting the tone for Apple to become a full-fledged, as you called it, bank or at least offer a full-fledged financial stack. So maybe this is just the beginning. But you're getting into lending, and it's so notable that they're already working with Golden Sacks and MasterCard on their credit card offering, but they're doing this themselves. They created this wholly owned subsidiary. And as you said, Molly, they're going to be lending from their balance sheet, from their massive cash pile. Three things going for it, which makes this so interesting and so powerful, is that Apple vertical integration, fintech flywheel, that now is getting going supported by the services, a business, which has been growing so much.

So, one, they've got the low cost of customer acquisition, right? All of those devices and the people that are using Apple wallet. Two, they've got that low cost of capital, which we've talked about, $200 billion on the balance sheet. Third, data and underwriting. Apple has, you know, been collecting payments information from their users through the app store through buying an iPhone or a computer, whether you miss sort of a payment or you can't make a payment. your credit cards decline for something on the app store. They can use all three of those things to become quite a formidable player, I think, in the space.

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Because you listen to this week in startups, get that $1,000 off right now. Vanta.com slash twist, V-A-N-T-A dot com slash twist. Once again, vanta.com slash twist for $1,000 off. It's very interesting on a number of fronts. One, not least of which is one imagines that this will start to open up all up to even more antitrust scrutiny. even though the antitrust play here is not obvious, right? Apple itself is only barely a majority in the United States in terms of penetration. I think it's like 51% is Apple in the U.S., which is not quite monopoly levels.

And they're certainly not going to be a monopoly in banking. However, they become this like incredibly powerful force in terms of this sort of, what does future antitrust law look like? Does it look like sheer power and integration of every single thing that a consumer does? Right. It's already fighting these battles. But there's been so little evidence, especially here in the U.S., that regulators are going to get anything done. That used to be my biggest point.

Why wouldn't Amazon or Facebook or Apple or Google go into banking because they don't want to further spur the regulators? But, I mean, it's been years that we've been talking about regulation. Markets don't care. Investors don't care. Consumers don't care. Other companies, developers, they do care, but hasn't made a difference. Regulators cannot get their act together, at least in the U.S. Europe a little bit more, yes, but it's still moving into these areas because I think it can.

Yeah, absolutely. And then that raises this sort of other question about Apple moving into not just finance, but buy now, pay later, which is arguably, well, I guess this is the question, is it good for consumers? Like, for example, we've seen recently that the U.S. consumer is still spending. So everybody's like, yay, the economy is going to be fine as long as we're buying crap, which is such a delightful way to measure health. However, we're seeing the consumer credit after declining pretty significantly during the pandemic is now starting to rise. So people are buying, but they're buying with debt. And then increasingly, they're piling on these buy now, pay later payments. And there's been some research that says at least one in four.

consumers have missed a buy now pay later payment? You know, I'm torn on this. We just spoke to Max Levchen earlier this week on Tech Check, and I asked him this question. I said, there's no real upside for consumers to use buy now, pay later. It doesn't help them build credit, and it could get flagged to, you know, the credit authorities that they missed a payment.

So there's only downside for your credit score. On the other hand, I don't know if you know this, Molly, I'm Canadian. I've been living in the U.S. for about 60s. years now. When I first bought here, despite my credit history in Canada, it didn't matter. I could not get a credit card. I still have issues six years later. It has been so difficult for me to build credit. When I moved here six years ago, I really could have used a buy now, pay later. And I think that there's just this general distrust, especially among a younger consumer, to get in with

the credit card. There's some surprise along the way. I'm not saying that that's not the case of buy now, pay later, but there's less sign up. And as there's less upside for buy now, pay later, there's a lot of downside with a credit card as well if you don't understand exactly how it works. So I don't really like that argument is that we should be protecting consumers by not offering buy now, pay later. They have overwhelmingly shown us that that is what they want, especially millennials and Gen Z. So why not offer it to them in a safer way? And I believe there's both companies doing it. I think a firm will actually is willing to deny a consumer if they don't think that their creditworthiness is good enough.

they're going to say we're not going to issue this loan. Apple's starting small with $1,000. So there's a right way of doing it, but then there's all these other companies that have jumped on the bandwagon and we'll probably issue a BNPL loan, no matter what the credit worthiness of the customer. Right. I mean, there's the one argument that this could be troublesome for Apple's brand

because finance is one of the least trusted industries, right, among consumers. That's why you see this rise in NeoBanks who are basically like, yeah, we're not trying to screw you like everybody else. But on the other hand, Apple really does to your point have an opportunity and a firm also to be really transparent with the terms. And Apple really is. And do it better.

I was so funny. Over the last summer, my six-year-old got some, you know, Christmas money was still sitting on our desk, you know, six months later. But I walked into a bank. This was in Canada. And I said, okay, is there anyone here? Like my six-year-old is right here. He wants to open a bank account in my mind.

I'm thinking, here you go. I'm giving you a customer for the next like 50 years. So we'll get a mortgage in 30 years. all of this stuff. And there was two people in their, you know, offices with their door shut. And I could see they were doing nothing. They were doing nothing. They were just sitting there kind of puttering around.

And, you know, the teller said, you need to make an appointment. I'm like, I can see they're not doing anything. Like, and they said, no, you still need to make an appointment. I said, well, you know, my son's, you know, off camp right now. We can do this right now. So I said, oh, this is just so frustrating. This is what I don't want to introduce them to. There's a way of doing this better.

And to me, opening up a square cash or a PayPal account or a chime account, for him just seemed like a better option at the time. Absolutely. And you could 100% see where Apple's going here, right? They started because if you look back to all of the times that Apple has had to work with someone else's restrictions up to and including when they launched the iPhone. And it was exclusive on AT&T. And AT&T was setting the terms because smartphones were not as popular. as they are now, and you fast forward to a time when Apple has probably led the charge on phone unlocking, and then now is letting consumers figure out how to buy their iPhones directly from Apple

on what is effectively a subscription service. Like, they've slowly carved away that carrier power and we'll almost certainly do the same thing for traditional finance. Like, I could imagine a time when Apple's like, thanks, MasterCard. We appreciate you getting us off the ground here, but we're done. We're going to disrupt you. We're actually going to be the new payments. Rails, it's going to happen on Apple devices. So V's in MasterCard, you're not needed anymore. Right? It's possible.

Consumers will be like, super. Thanks. Remember when every other interest rate was basically zero and your credit card was still charging you 26 to 30% during a pandemic? So true. Disrupt away. And app doesn't rush into things, right? And that's why I think this is so interesting.

Like I said, when I covered fintech, there was always the threat of big tech doing this. Bank of Facebook, Bank of Apple, Amazon moving. more into this. The fact that it's happening now and kind of slowly still just with buy now pay later, but maybe as a first step in getting that full financial stack, that's what I think is so interesting about this. And Molly, too, I was wondering, because if you asked me a few years ago, who would have done this first, I would have thought it would be Amazon, right? And it was kind of curiously that Amazon was partnering with a firm to do Buy Now Pay Later when they could do it themselves. Yeah, I am also surprised there was a lot of reporting. But the difference, maybe the balance sheet,

And Amazon is in a tricky position. They have a physical core e-commerce business with a huge logistics network. So they don't have the kind of cash that Apple does. They do not have $200 billion. I think what do they have? 40, 50 billion? So good. Not enough.

And they wouldn't have to underwrite their own. I mean, that's just sort of classic Apple style to be like, yeah, we're going to vertically integrate our financial product too. But I remember Amazon, I was trying to remember, actually, as you were talking, because there was reporting that they were going to start opening some rudimentary banking services, even in their Amazon stores. I think Walmart was doing the same thing. I mean, this is sort of like, it does feel like this is the money printing dream in some

ways, right, for companies. It's like, man, if we could just figure out how to crack finance, like, yes. Here's a question, though. So Apple is not taking deposits. So we can't quite say that Apple is a bank until it's taking deposits, until it has a bank charter. Do you think that's the next step or would that be just too much? I guess that raises the question of why would they?

Right now, if they can underwrite their own lending, if they can do buy now, pay later and still sort of like trade with that balance sheet and maybe a little bit of our money. I don't know. Do they need to, I guess is the question. Anthony Noto, who's the soap I CEO, he was on our air. I think it was just a few days ago. And I asked him what differentiates yourself from the others? They do have a banking charter.

And he says that does make their financials a lot better. And that protects them when you're entering a downturn, when credit gets more expensive, when interest rates are rising. So it's interesting. Remember, Walmart tried to get a bank charter many, many years ago. Square has one now as well. You should mention them. Who knows?

It's not easy. It becomes more regular. But you could see the regulators really sorting up and saying, hold on a second. Yeah. I feel like that's just red meat, right? Like, that's just waving the flag in front of the bowl at this point. At least they can sort of still say, like, there are plenty of intermediaries between us and the consumer. All around the world, tech companies are innovating.

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we're going to keep doing what we're doing revolve around the sun that is the iPhone and add on an incredibly profitable layer of finance and warren buffett is like yes please i'll take seconds, thirds, and fourth helpings of that. And then you have meta. But it's like, I get this. This I understand. The meta works. I got this.

Let's see. Make a ton of money. Done. On the other hand, you have meta, which is now officially, right? Cheryl Sandberg is leaving. As of today,

the ticker has gone from FB to meta is all in on this story about how they're going to spend unlimited amounts of money building an unproven business model that will come to fruition in 10 to 15 years. Thoughts on this move? It's interesting that you put them side by side because the metaverse, right? This is eight years out.

We started the show, by the way, check check this morning on this exact question asking, is Facebook a value or growth stock? Both the people, one VC, one Wall Street analyst on our show, both of them said value stock. And isn't that such an indignity for Facebook or meta now when they're trying to, build the next generation of technology. And they feel that they have to talk about it so much. Yet the venture capital community and Wall Street are both saying,

no, this is a value stock. It's not growing fast enough. The valuation is down. It's not going to grow. And then you've got Apple, which, you know, we know that it has AR, VR, VR ambitions, but it's not talking about it. Honestly, Molly, I was a little disappointed earlier this week

when we didn't get more on its vision for the Metaverse or for for AR and VR. But with an Apple, it doesn't need to because you know they're working on it behind the scenes. They're going to give you something that you weren't expecting like its own bank, like its own lending facility, right? Before it gives you some pie in the sky idea. Doesn't mean that Apple's not going to get there, but they are in a different position. They don't need to talk about it like Facebook has.

And this is the point that Mike Co-anchor John Ford made today. Apple has done such a good job vertically integrating that now this financial flywheel, seems so obvious, seems so lucrative. Can you say that about Facebook? I mean, they tried, right, to make a phone, not really. They haven't made their own chips in the way that Apple has. So there's just no vertical integration there. They have to look to something completely new and grow this vision of a metaverse, which, by the way, a lot of folks are skeptical. Yeah. Well, and rightfully, because even if it arrives, even if it is executed properly by meta, it's five to 10 years out, right?

Like the idea of completing this vision in under a decade is unlikely. But I wonder if this is, somebody made the point to me recently that in some ways, this is a narrative problem by Facebook. Like you look at how good Apple is at controlling the narrative. Apple is like, we're going to keep selling you iPhones at absurd margins. We're going to sell accessories at absurd margins. And we're going to tack on finance, which I'm pretty sure everybody knows, makes a lot of money. And then meta is out here. And Facebook remains a money printing machine.

What are its margins? Like 90%. Great point. Thank you. Makes so much money. And there's nothing that suggests that they will not continue to make that amount of money, but they're out here telling this like crazy story about a thing that's 10 years away. Hold on. Hold on. Is there anything that doesn't suggest they're going to continue to make money? Some would argue that that is actually, That is the fundamental problem with Facebook, why they have to talk about the metaverse, because TikTok has proved to be such a formidable competitor, and it's taking ad dollars away that, yes, it makes so much money

and it will for the kind of foreseeable future. But if we're entering a recession, and ad dollars are the first thing to get cut while it's facing all of this competition from the likes of TikTok, maybe that core story is at risk. It might be, although Facebook continues to grow, I think, overseas, phenomenally. So it's declining in the, United States, but it still is picking up hundreds of millions of users. And even if the, again, like, even if the advertising base declined somewhat, it's still like a 90% margin. So it's hard to

imagine, you know, it's not going to be a situation where Facebook is not making absurd amounts of money, even if it might be like a little less than they were before. So it's very possible that if you were making a narrative choice, what you would try to do is say, we're competition's great for everybody. Stay away regulators. We're still making, you know, tons of money in India and Indonesia. We're picking up users all over the world, and it's a 90% margin, and we're using some of that to invest over here, but don't worry, we'll tell you about it when it's read. It's a good point. And also, it may be more believable that Facebook can copy TikTok with reels, like it did snap

with stories. I mean, they did it before. They just were copying, and they got the user. So, yes, I think that that maybe is the more bullish case. But Molly, it gets back to our conversation, right? I mean, if this is about a narrative, and Charles Sandberg was the one being put out there to tell that narrative or take the fall, who's doing that now? We talked about this with Jason last time.

Zuckerberg doesn't really talk to media. Do you think he has to put himself out there more? How can they fix that narrative? I mean, heaven help us if Mark Zuckerberg puts himself out there more because he is not going to fix it. Let me tell you that. He is not going to fix it. Maybe.

So maybe the narrative becomes reality. I want to try. Mark Zucker can come talk to us. Yeah. Come on. Come on the show. Come on either of our saying. Come on both.

We'll do like a crossover show. It'll be amazing. All right. Speaking of which, Dear Durboth, CNBC, you are the best. I know you have things to get to. You are the best, Molly. This is so fun. Let's do it again. Tell Jason that he can address my Warriors ticket to one market where we broadcast. And Molly, I'll see you court side. Outstanding. It's going to be a great day. Go Warriors. Okay. Thank you guys so much. And what do we call them, Nottis? Notis. Noties. Notie again. Thank you for having me today. Take care. Talk to you soon. All right. Thanks again to Deirdra, who is awesome. And the awesome. Rassumness rolls on because next up, we have an interview with Kalshi,

co-founder and CEO, Tariq Munso. Remember, Kalshi has built the first regulated predictions market. So if you like the predictions that we make on the show, you're going to like this one because this is the kind where lots of people are betting on event contracts to help us, well, to make money. And also, though, provide an accidental data stream that might just tell us the direction that the world is going in a lot better than economists are. It's a perfect pairing with CNBC's Deirdre, and you're going to love it. Stick with us. Hey, Molly, you know what I love to do? Oh, oh, yes, I do. Gamble. The man loves to gamble. I love it. I love it. It's my chosen profession, Angel investing,

and now it's yours. Place bets. Try to make the best decision you can and reap the reward. And, you know, it's some people will call it wagering, some people call it gambling. Some people call it investing. And one of the really interesting concepts in poker is people do prop bets, proposition bets. I bet you can't hit a three-pointer. Okay, what odds will you give me? Okay, just a cold three-pointer. We put the basketball in your hands.

You don't get to warm up. You just shoot three. Okay, that's okay. So that's the proposition. It's a prop bet, right? And prop bets are a lot of fun. Like, I've seen crazy prop bets. There was a prop bet that in the next 10 days, you bicycle from Los Angeles, this poker game in Los Angeles to Vegas, and you have 24 hours to do it.

And you have to do it in the next 10 days, and it's 10 grand. And so people make these crazy bets. And sometimes people have done the research on them. Sometimes they're setting somebody up. Somebody's a ringer, right? Yeah. Other times, you know, it's just interesting to make a bet on who's going to win the Democratic primary. Now, if a lot of people do this, it can, the prop bet can turn into a prediction market because

you'll be at the table and somebody will say, well, you know, the average NBA player hits 30 to 40% of their three-pointers, but they're in a game and there's defense, but they're also super qualified. I think you have a 15% chance of hitting this. I'll lay 7 to 1 odds. So you put up 1,000. I'll put up 7,000. If you miss, you give me 1,000.

If you hit it, I give you 7%. thousand. So you lay odds, right? And laying odds and doing that just makes you really crisp, right? It makes your thinking clear because you're putting skin in the game. I love this concept as a way of looking at the world. That's how I look at the world. Where are the chances if I invest in this company, you know, it's going to pay off at some ratio. But the thing that I love is prediction markets. And prediction markets, there were a bunch of them 10, 20 years ago. In trade was one. They're fraught with a lot of legal issues. But apparently, Apparently, people are starting to work them out.

And I don't know if you've ever seen, like, you'll have 538 put the odds on a presidential election. Right. Or who's going to win the NBA finals at the start of the year or the start of the playoffs. And then, you know, a prediction market might have a slightly different. So you're like, well, who do I go with? There were a lot of people who thought Trump was going to win in the prediction markets, but maybe some other people, you know, who were professionally predicting didn't think he would, right,

as a perfect example. So it can be deltas between a prediction market. and what experts say, and then what you think. And this is just a great way to triangulate. So if I forced you to bet on something, you'd really be more thoughtful. So today we have one of these new markets emerged. And I was like, well, let's have this conversation because I think it's an important one. So maybe you could queue up who's our guest today.

Yeah, this is super interesting. And I am very excited to have a conversation about probabilistic thinking in the context of all of that. And then also, oh, my God, you can do this. It's legal. Tarek Mansoor is the founder in C. CEO of this new company called Kalshi, welcome, which lets you bet on what are called event contracts. It's the first betting market that we know of betting market company to be fully regulated by the Commodity Futures Trading Commission on the show. That's the legal part. And you're

betting on swaps whose payout is dictated by the outcome of event. So exactly what you were saying. One current example on the site is, will the average new COVID-19 cases in the United States be greater than 200,000 by September 22nd, 2022, which we know will be if we keep having conferences. Kalshi's CEO and co-founder, as we like to call them. Super spreaders, as we like to tell them. CEO and co-founder Tarek Mansoor of Kalshi, welcome to the show. Did I say that right, Kalshi?

That was great. That was great. Thanks for having me, Jason and Molly. I'm excited to be here. Thanks for coming. Yeah, tell us why, what does your prediction market do? How does it work? And how do you make money as the company that provides this service?

So how does it work? And then how do you make money? Classic entrepreneurial questions. Yeah, absolutely. I mean, I think the way we've thought about it, the way we always describe it is we're building something like the New York Stock Exchange for events for a new asset class, right? The same way that you buy stocks, where the underlying is a company. You buy futures where they're underlying out tangible things like oil and metals. We're like, how about we take things that have economic value like COVID or economics or the outcome?

of political or geopolitical events and create a market where people can get exported to that. And the way to structure that is actually quite simple. It looks like a prediction market. It is a prediction market. And what we do is we structure these swaps that essentially pay out $1 if an outcome happens

and zero if not. And so you can buy these swaps, buy or sell them at any price between zero and one. And that price that you're entering the trade at is the probability. If you're buying 40 cents to the dollar, you believe that there's a 40% chance. that the outcome is going to happen.

And if you want, let's say you buy, well, Brexit happened by the end of the year, you buy it 40 cents. You can wait until you see if the outcome happens or you can exit your position like you do with any options or swaps trading before maturity. Let's say the price moves to 70.

You can exit at 70 and you make your 30 cent on a dollar profit. So yeah, that's the sort of fundamentals. Calci. I mean, as you said, Jason and Molly, there's been a lot of trials for this idea of like how do you get exporter to that? And if you're interested,

I can talk about the origin story. and the thing that has been kind of difficult for its face is regulation. And Cal She has spent three years and a first fully regulated exchange at a federal level. How do you make money? How do you make money? So that's a great question. So we take transaction fees, very simple sort of exchange business model, the same way that CME and New York Stock Exchange take fees essentially.

And where are those fees? If I were to bet $10,000 in this, you know, a bet about the COVID number of cases of $200,000 by a certain date. So I bet that $10,000. and I guess somebody on the other side bet and lost, you have to balance out those two sides, I'm assuming. So how much do you make and how much do I make? So if I won the bet and it was 50-50,

I would theoretically get back 10,000, right? If it was even odds. Correct. So if this was trading at 50 cents, am I correct? And that's even odds. So I bet 10. I would theoretically get 10,

but I'm sure there's a Vig in here. That's how you make money. So what is the Vig, the Vigorous, the Tate? Yes, absolutely. So the average fee, it depends on the price at which you're entering at, you know, if you're entering at 50 versus 10, it's different prices. But the average fee across all prices is 1%. It tends to average a little bit less because actually things are not usually at 50-50. And so, yeah, you would take like, you know, you're in 10,000, you pay $100 out of that to the exchange.

Now, the thing that's very important here is that you are trading against other traders, other funds, the same way. Like, it's a central limited order book. So you actually go and tell the exchange, I want to buy, let's say, $10,000 or $10,000, contracts at 50 cents. That's what I'm willing to be. The same way that you do for a share of Apple and then someone else might be willing to sell it 50 cents and then there's a transaction. Got it. But I can't just put a market order in where I say I'll just bet 10,000 at 50, but just fill 10,000. You don't do that, right? No, actually you could do it market order. It's a great question. Yeah, and it will get filled at whatever price is basically available.

Got it. So you just, you were absolutely certain that this COVID thing's going to spread. You're David Friedberg, you're the Sultan of Science. You've got a theory. And you're like, listen, I know this is happening. I'll just keep betting to the cows come home. They, you know, or you just have a great conviction. You could buy at 50 and then 45 and 40 and fill the order like that. But you need to have people on the other side. Got it. What happens if you don't get enough people on each side? Because then that can screw you up, right? If you don't have enough action on both sides, what if everybody just wants to bet the Warriors or everybody wants to bet COVID's coming back with a, you know, a fury and 200,000 was too, it was a bad bet. And it

just, boom, nobody wants to take the other side. What happens? Yeah, it's a great question. And, you mentioned probabilistic thinking. It's why I love your Twitter, Jason. I mean, it's people that think probabilistically, which tends to be traders. I mean, that's how we started a company. It's traders.

If a lot of people believe COVID is not going to or is going to happen, everybody is on the same side, the price is going to move from 50 to 95, 99%. And those people are okay buying the 99% outcome because they consider them to be bonds. You're getting 5, 3, 4% yield over the next few weeks that is relatively, you know, you can call it risk-free. You know, 99% of the cases you're going to get that yield. But the interesting part is that, you know, and this is kind of the common idiom in prediction markets and traders is like, you know, 1% is not 0%. 100% is not 99%. There are traders, for example, back in June, that have bought a yes on 1% on whether we're going to get back, get another COVID wave that is actually even worse than 2020.

Those traders are 100xed. Yeah. Yeah, it's basically people buying tail risks and people that know how to evaluate these tail risks. Can it go to a decimal? So could it be 99.9 and be a thousand to one? It's funny. The limitation right now is the banking system. The banking system doesn't have centi sense.

So that's something we're working on, but we're getting there. God, I really want to start a band called centi cents. Tell me what made you want to do this. I'm looking at your background. You were at MIT. You were at Palantir. You were a quantitative trader at Citibate. Adele, like, is this for you because you're super passionate about this type of trading and you

think it's really fascinating like Jason? Or were you also just like, people are going to do this like crazy because they cannot help themselves and it will rain money at the end? Yeah, I mean, I think I'll give you the origin story. So I think definitely a market fanatic. I mean, I love markets. I just love the concept of, you know, everything has a price. And, you know, when I was trading at Goldman, other people,

We always used to play this game called Make a Market. So it's like you, what is the probability around, I don't know, Kim and Trump are going to get out of North Korea to deal? And then we'd make markets and then buy a certain odds and then trade sort of with each other. But the more interesting thing that happened is so when I was a Goldman 2016 in that summer, I was working on this exotics desk. It was this equity exotic task. And all the flow, I'm talking 90% of the flow was about get us exposure to Brexit

or let us allow us to head exposure to Brexit. That was institutions. That was a very legitimate flow. We're talking billions of dollars. And what we would do is we bundle these kind of weird. We had swaps and options and put them all in one bundle, sell it to them as a good proxy, but not actually what they were looking for. And it was very expensive. Sometimes it was like 40% premiums.

I was like, okay, what if they just trade directly on the event? I mean, that's what they want to do anyways. Why are they doing it indirectly? Then I worked at Citadel, and that's also some of the things that we were doing. So taking exposure of macro, macro-tracks, macro trades, but doing it via swaps or options indirectly. And so the more we thought about it, the more we like, I mean, this makes perfect sense. you know, just getting exported to specific events. And, you know, the more we looked into it, the more we realized, okay, actually this doesn't exist because of the regulatory piece.

And we're naive enough at the time to essentially go through the regulatory piece. And that was great. I mean, that was, you know, we're in retrospect, that was a phenomenal sort of process. Because previously, just to clarify, like previously, this has only existed as sort of Las Vegas line, Betty. Well, yeah, I mean, I think there were saying like a few kind of, as Jason mentioned, a few like unregulated that tried and then, you know, got shut down by regulation. because, you know, this is not like Uber, this is financial instruments. People get hurt if it's not done well. And, you know, maybe a few crypto trials and things like that, but nothing in that kind of

fully regulated, you know, properly vetted way at a scale, at a scale of a proper exchange. So, yes. How do you pick which bets go on the site? And then, I guess, the follow-up is, can a customer place a bet up there, like a prop bet? You know, I've been talking to people on the show and we've made bets about V-toles, vertical takeoff and land. When will a consumer be able to buy a ride from Manhattan to JFK or LaGuardia or Newark, let's say, you pick those three major New York rates?

When will somebody be able to pay for a ticket and in the same day take a veto ride, you know, from Manhattan to a major New York airport? Like that's like an incredible bet to me, right? And we just pick a year. And then you say, I love this one. I think maybe we should put it on the, I actually, you know, I'm sure the market team is listening. So I think they will have them sort of put it up. So yes, customers can suggest markets. And I mean, the way we have a whole process, regulatory process, we need to vet sort of all these markets.

And the way to think about them is they are markets, right? They get a ticker, right? Apple has a ticker and it's listed on the New York Stock Exchange. It's the same thing here. It gets a ticker. It's reported all of that. And then people are essentially trading on this market. Now, you know, the mix is like we look at what is top, like what are the top risks today

that people are worried about, the things that are on the news, people that are, what are people thinking about? And then, too, is we essentially follow whatever, like, members are asking for. And actually, this is actually very well within the types of markets that we love footing up in the exchange because there's, yeah, people that want to speculate

and express their views on that market, but there might be also people that want to hedge or ensure themselves about this thinking longer than expected or these types of things. So in that way, if I have some risk in my business, I don't know, I produce a certain crop, or I need oil for my business because I run a private jet company, whatever it is. I could make a hedge here.

I could bet the opposite of what I'm experiencing in my day job, in my business, as a hedge to try to, hey, if oil prices go up, it screws my business. So I'm going to bet, I guess in that case, that oil prices would go up and make money from that. That would then, if I lost money in my day business, would make up for the business. would make up for that lost. I mean, it's a very sophisticated thing to do, I think, and crazy. But people are already doing this kind of stuff with commodities, I believe,

like if you had some problem in your business, I think actually airlines, do airlines actually do this? Do they buy these kind of things? Because I know they can buy credits. They could buy oil in advance and make a contract with somebody to buy oil at a set price for the next five years or three years. And they give the money in advance, I guess. And people agree on a set price.

But are people doing that kind of stuff? And what's a great example of it? Yeah, absolutely. Yeah, I'll talk to a few. So, I mean, I think one absolutely, airlines do this. That's one of the biggest, you know, they are one of the most natural use case for all the futures. And that's how the future market really developed to that scale.

You know, great farmers do this with great futures. And the thing with these, you know, I totally agree with you. People are doing this. It is not predominant. It's not something that normal individuals and small businesses are used to. But normal individual and smart businesses are more used to ensure. which actually our type of markets are a little bit more structured like insurance because it's like kind of an event that could happen that could hurt you. And if that event hurts you now, you have a position that can sort of offset that hurt, that, you know, risk to your bottom line that you get.

So one of the things that our traders are doing on the platform right now, if this market up is about student loan forbearance. You know, people have a ton of student loan exposure and they have a lot of exposure on whether the White House is going to sort of extend those student loans or not, right? And so on average, you know, the average sort of US students right out of school, they have like $30,000 of debt in student loans. So what they can do is like if they actually have to repay that, they put on a position on Cal She and if they end up getting hit by that $30,000 to $30,000 by a certain decision by the White House, they get compensated by that trade on Calci essentially. And that is a perfect type of hedge that, you know, some of our traders are doing currently on the platform.

There's a lot of things around the economy, like whether the feds are going to raise interest rates, you can imagine how many people are exposed to these types of things. things. Other things around tax bills, you could hedge some of your tax exposure down the line and a variety of other things. So let me think that through. If I bet that taxes were going to raise in California and I bet and I thought my, if it did raise, my exposure would be $10,000. And if I could find a trade on there and I bet, hey, I bet that it's going to raise by whatever $10,000, I know and I win that bet. I win $10,000 and I pay $10,000 more in tax.

So it kind of cancels out because I was able to make that bet. Exactly. So you're essentially buying insurance. You're saying like I'm going to pay whatever market price is to enter this contract. So I will pay today like $1,000 to get $10,000 shares of the income tax. It's actually currently on our exchange. And now if, you know, the government does actually increase taxes in such a way that your exposure now, you have to pay $10,000 extra in taxes.

that is fully offset by the payoff from the market, your 10,000 shares. And then to dig a little deeper, I could potentially, if I'm the airline or the person who's going to get hit by the tax thing, you're saying, as a consumer of this product, I can suggest this bet, if it doesn't already exist on your platform, what happens after that? Like, I can't just list it directly. It's not a go-fund-me situation. So what is the vetting that occurs after Jason is like, ooh, I'm a little worried about this taxing.

You know, it would be a cool thing to bet on is this. Yeah, so I'll say a great question. So I think there's two pieces. There's one, is this market going to be liquid enough and build enough volume, right? If it's something that's very esoteric for one person, it's usually very difficult to list it on the exchange because it won't build liquidity. There needs to be some, and that's also the things that we really, that matter to us. It's risks that are pretty predominant and prevalent for a variety of people and businesses. And so that's one thing that we evaluate.

If it is prevalent and predominant, okay, we can list it, we can build liquidity for it and build volume for it. Then it goes to a regulatory process where we vet a variety of different. things. And this is very, very crucial part of the process because we want to make sure it's not readily, what we call it from regulatory sign, what readily susceptible to manipulation, right? This is a financial instrument, right? And the same way that stocks, you have a lot of safeguards against insider trading and a lot of other things. We have safeguards around insider trading here, making sure it's not manipulable, making sure that someone cannot just control the outcome, make money off of it. And so that's a lot of analysis we do on the data. So what is the data source?

What are we going to use? This is a government reputable agency. Is it a private source? Do we have the right licensing agreements and right restrictions on how they use that data or how they input it. And then it goes to other things like making sure it has economic utility can be used for hedging. And you guys mentioned, right? Like this is, you know, one of the main things about our contracts is they are not betting or gambling or anything like that. And because historically the line and how it's been defined is, you know, financial instruments,

sure people speculate, people speculate on stocks, people speculate on grain futures. And it's an important part of markets. But at the end of the, you need these financial instruments because they have economic utility. So I guess in this example of like a V-TOL taking a vertical and takeoff landing, human flight to JFK to JFK from, you know, or to LaGuardia probably would be more apt from, you know, Manhattan. You would want to make sure that somebody didn't buy a V-Tol, sneak it on to a pier, land, have their friend give them $100 and take him there to win the bet, right? That would be a perfect example of market manipulation. and you would have to say a major company like Uber or Jobi does a flight and you could actually make the bet tight. So there's some rigor here in constructing the bet or the wager or, you know, prediction here.

Is that how you solve it like for that? That's absolutely correct. I mean, there's a variety of kind of use because it also depends on the different types of markets. But a lot of it is really checking what the data source and like what we call the source agency. the body that basically determines that outcome and making sure they have integrity around the process and how that outcome is determined and oftentimes if it's not a public agency

because public agency already have a lot of rules around don't trade on things like for example in the Bureau of Labor Statistics, you cannot trade ahead of the release of the inflation or jobs numbers. So those are really safe to use because there's a lot of restrictions on that. But if it's a private, we actually have data licensing agreements

where we enter into agreements where they have to prohibit their employees from trading, for example, anyone that's around the data source from trading. Same thing as kind of the rules that you have around insider trading. And that's really important to make sure that there's market integrity. So in that example, if you were going to do Joby or Uber's VTOL program, he'd want Uber and Joby to agree that their employees aren't going to place these bets because they have an impact on it.

And so in my case, if we did a weight bet, hey, J-Cal is going to weigh more or less than he does on this date, you know, a year from now, can he keep the weight off? and everybody wants to bet on that, which would be hilarious. I wouldn't be able to bet on it as the person who would be determining the outcome. But everybody around me could, and they could send me donuts, you know, every day. Absolutely, that's correct. Yeah. But don't do it.

What's your burden of enforcement? And to what extent does this slow down, you know, the number? It's interesting because, like, in some ways, you're a volume business. You presumably want to list a lot of contracts and have a lot of volume and liquidity. But it sounds like, because. you're adhering to regulations that allow your business to exist, it might sell you down a little bit. Yeah, absolutely. Actually, I see it as a very positive, very, very positive forcing function to actually build volume in the long term, not necessarily short term, I'm in the long term.

Because if you see a lot of, if you pop out a lot of markets and there's like a lot of issues in these different markets and things like that, what happens is like people might trade them, but they start trading them in very little amounts. So the example that actually Jason mentioned, it's a very interesting fun potential trade, but at the same time, people won't put very legitimate and serious money there. you know, people are not going to do a $10,000 trade on that because the first thing that's going to come to mind is, you know, Jason can just determine that outcome single-handedly.

And that's risky. So in some ways, actually, the markets that tend to be the most successful are the ones that truly are safe for manipulation, insider trading, and a variety of other things. And so it actually pushed us towards the right balance of like how many markets you push, build proper volume in them, and get them to sort of get to escape velocity because they are safe and, you know,

safeguard against a lot of the fraud. On the question of burden, the exchange has a big, big burden of enforcement, essentially. You know, so you see in the New York Stockshan, all the time like Goldman Sachs trader, charged for insider trading, we have the same thing. Our surveillance systems,

we've built in house over three years, vetted by the regulator. They check all sorts of weird patterns. They match with KYC, have all investigative team. And then those get referred. It could be a fine all the way to criminal prosecution, actually. Well, and we just saw that, right? People think, like, the DOJ and, like, the SEC are going to let people play games in crypto.

And here we go. You know, somebody at, you know, as I predicted, give myself credit for that prediction. The person at OpenC who was front running the market, the DOJ was like, yeah, that's a crime. And they're like, but it's crypto. It doesn't, it's not a stock. And the DOJ was like, yeah, we don't care. We catch people when they commit crimes. Do bad stuff.

Yeah. So I guess everybody's wondering in crypto Web3 land, like, well, isn't this on the blockchain? Why aren't you doing this? I guess it's because you don't want to go to jail? Like, you want to do it legitimately? Look, I mean, I think my view is, you know, I mean, there's a lot of interesting parts for it.

I just don't see any meaningful, today at least, any meaningful benefit other than if you want it to skirt regulation, which is very much not in line with our. ethos. And it's a little bit what you said. I mean, look, crypto can be great. The thing is like any financial instrument could be a weapon of mass destruction if done poorly. You know, there's a lot of scams in crypto and financial industry more broadly. And you saw what happened with Luna. I like, we are very big believers in regulation if you want to build a business that sort of built to withstand the test of time that, you know, it's going to be around for decades, not for a year and then, you

know, get in trouble and people get hurt. People have made prediction markets and gambling markets in crypto. I've been pitched on a number of them. Have any of them, reached any reasonable traction and are people doing prop bets on them, one-to-one bets, whatever. And what do you think of that space? What would you tell your friend if they were going to participate in those in terms of protecting themselves from manipulation from scams? Yeah, there's a lot of actually crypto-based. I think there's a few that probably a week now and it's like calcium on crypto or other types of things. I mean, I think it's kind of pretty consistent. It's like this is a financial instrument. It's a swap. It's,

a future and option, however you want to call it, a financial derivative essentially. And history has shown that when these things are done and without the oversight of a regulator, without proper safeguards and for customer protection and market integrity, people end up getting hurt. And we're seeing this in crypto right now. It is always, and the reason is because people love making money, right? And if you give someone the ability to make money with full control, they start building scams and Ponzi's and all these different things.

And so I'm actually pretty excited about the crypto space getting regulated. I think it's going to actually allow Bitcoin and crypto to achieve. its full potential in a regulated and safe way. So that's what I would say. I think the regulated alternative is always probably better for a company. If people can cheat, there's a number of people who will try and cheat. They're going to cheat. Well, you talked about the CFTC approval ensuring that kind of long-term success, right,

and the volume that you will need to be successful. It also gave the stamp of approval that led Sequoia to invest in you. Like there are a lot of signals, right, that regulation consent. Is that true that Sequoia only made its investment? after you got that regulatory approval? That is correct. I mean, I think we had talked to Alfred Lynn from Sequo at the time. He actually had done a PhD around similar things to prediction markets way, you know,

way back when he was going to go through it. So it's a market that has always fascinated him, and he's seen kind of over the years that unregulated piece of it. I remember he just, it was very simple. It was like one time it's like regulation. It's like that this is a financial market's regulation. And we were already working on the regulatory piece from day one. That's what we wanted to do.

And I told him, okay, we'll come back to you when we got that. So that was definitely pretty much a very, very long. large piece of the investment. Yeah, and how many people are participating in the largest market, you know, that you have right now or the largest, you know, trade? What's the scale of this right now? Is it hundreds of people, thousands of people? Is it millions of dollars, hundreds of thousands of dollars?

What's the scale of the business today? Yeah, skills. Yeah, so I think some of our largest markets, so we're really focusing on what we call, I would say, like, traders today, options traders and day traders, people that are, you used to kind of the idea of trading and understand it. You know, cash is a little bit sophisticated if, kind of someone who has never traded before, even though we're doing a lot of learning education to get there.

To those traders, I mean, they trade quite a bit. They, you know, they, they're pretty serious about, and professional about their trading. And so often that's all our biggest market, we're talking thousands of traders, you know, we have millions of dollars trade on some of our biggest markets. Our markets, you know, obviously like, happen on like sometimes daily and weekly basis. So there's like kind of this refresh. But, you know, you have things like economics, like feds.

So far, it's, you know, been training like millions of contracts. We had some of a... You actually post the volume, right? Yeah, yeah, we post volume and transaction numbers. Yeah. So today, Fed interest rates is there. COVID wave, you can see inflation. These are some of the markets that are kind of featured for today.

Tell us about your raise history, because we touched on that briefly, but there have been big bets made on your success, right? Your Series A was $30 million. at $120 million post. What is the big long-term bet here? Is it just that everybody's going to want to do this? And by everybody, I mean, I assume, institutions, right? Yes.

Yes. Yes to everything. Volume institutions. I mean, the long-term vision is we want to build an exchange, a platform where that sort of dominates the size of class, this class of events. You know, the same way that CME has dominated interest rate swaps and general types of commodities. His eyes is very big on energy futures.

We want to sort of dominate events. And the way that we see it is events are very relatable, more relatable than a lot of the other asset classes that are traded everywhere. People understand politics, COVID, economics, things are around them. And two, they impose a lot of risk to the system. It's very real, right? And when Brexit happened, a ton of people got hurt. And they didn't know how to sort of insure themselves or hedge themselves. Same thing with COVID.

And so the idea is like we basically get to a point where institute. and businesses are using this in their kind of normal financial planning on a yearly basis. Same thing with individuals where they're like, okay, I'm going to hedge my volatility, my exposure to the future. I'm going to make my future more certain by reducing my volatility with respect to all these events. And so this is sort of the big vision. The second thing that comes out of vision, and Jason, you mentioned this, something that I particularly love, I feel like British markets or these types of markets are attacks on

bullshed. I want to mention this on Blubert last time, which is the idea that a lot of people, people just say all sorts of stuff, polls and all these different things. When you have money on the line, when you're actually trading on your belief, the market tends to be more truthful. Like pricing is truth. You don't lie when you're putting money on the line. And that's a very exciting.

Yeah, to sort of follow up on that, we had a conversation recently where we were, you know, where I was ranting, as I often do, about the fact that we run so much of our policy on what economists say. Yes. And economists are wrong all the time. With almost no accountability for that. It's like, wow, they don't even read or collate their own reports. And so I wonder, like, do you see a world where, ironically, like crypto, this is the type of tool that could decentralize economic information and pricing signals in a much more accurate and reliable way?

100%. I mean, we're already seeing that world unfold. So one piece of data, we have forecasted the inflation numbers more correctly than Bloomberg. We're an economist survey, which is the state of the art, seven out of the last eight times. And we are already seeing two. When you say you, the market of people placing bets has predicted. I'll never get the market. I don't know.

I have no idea, but I trust the markets. The markets forecast, the probability has been more accurate in seven out of the last eight times. And we're already signed the pickup in press and TV. We're asking us and asking some of our people on the team to come and just show the market forecasts because people are starting to trust them. And that's very, very exciting to me because, and one thing that you pointed, for example, with economists, the way they made their predictions, there's this kind of a herd mentality thing where, like, they all kind of group the same predictions because, you know, if they're

right, they're right, but if they're wrong, no one wants to be wrong alone. So they kind of tend to always converge towards the wrong position. Whereas again, if you tell them, put your money on where your mouth is, put your money on the line. Things are going to be very different. It's really interesting to look when you, when you have a prediction market for the Fed interest rates or for inflation, there is a time and then there's also an amount. So if you were to look at the Fed interest rate, you know, you say, hey, the Fed interest rate at the June 2022 meeting

will be greater than 1%. 99% say yes. Then you drop down to 1.25 and you get to 95% say yes. So, okay, that's where things start to break. But then you get to greater than 1.5, Molly. And it's like six percent say yes. That's going to happen. You have to. to inflation, not as an abrupt because it's not as predictable, right? And so you look at something like, hey, the inflation rate being greater than, you know, I guess this is the increase in inflation being greater than 4%, 0.4% in May. So that would be the increase from the previous month or from the previous mark, right? Yes. Yes. So whatever the beat was in April, if you say, hey, greater than 0.4% more than that, it's 91 cents.

Now, you drop down to 0.6, and all of a sudden it drops down to 80 cents. And so you kind of can like triangulate, you know, and being going up 0.8% I guess month over month here. It's down to 33 cents. So you really start to get a sense of like what people think. Like inflation is going to be increasing. and it looks like on the order of the consensus is 0.5.6%. Correct. So it's really interesting when you start thinking about this for a discussion, Molly,

like, that's a starting point to your point. Like, who are you going to trust? People placing the bet with skin in the game or economists whose job it is, ultimately to appease the person who gave them their job. Yeah. Like to stay employed. You know, and this is the problem. like who what is the motivation of the people at the Fed, right?

Is it to keep their job? Is it to be independent critical thinkers? Like, if their net worth was based on the bet, they'd be making a different bet. And, you know, what they did in 2010 and what they're doing now, it doesn't seem to match, to your point, Molly, like maybe the best decision-making process. Well, and it looks like you are drawing conclusions here too, right? You've got a now a Fed interest rates forecast powered by Calgary like, time. Tell me about how you're doing some of those data insights and how you, is that a product in the future? Yes, absolutely.

I mean, the idea, what we did with this, and we're actually launching a new inflation dashboard as well, is like, you know, people have Bloomberg that gives the Bloomberg economic surveys, and that's $29,000 a year. We're like, how about we just make this public and let everyone see what the market is forecasting in real time? And the other really important thing is if you see there's a scroll bar, we let people see how the forecast has evolved over time. So you can take it from today till this is how the people's expectations, have moved based on what the Fed is saying over time

about where are we going to land, right? And this is incredible. How, I mean, how the economy has evolved, right? This is a revolution. This is a revolution, and I'm here for it. Yes, I'm very excited. Economists. Yes.

It's really interesting. If you move the slider, like you're saying, you can see, you know, if you go back a couple of days, if you go back into November, December, I guess is that? If we're just move the slide. This is March 1. So if you go back all the way back with the slider, this is the expectation. So this is March.

Yes. And this is predicting going forward into November, December of 2022. Correct. Correct. So from the month of March, in the beginning of the month, people thought November December would be at 1%. Yes. Then they think now 2.75.

So over March, people, I guess, are believing what the Fed is saying. Yes. It was being clear. Exactly. Exactly, because at the time, you know, the language was still very dovish and inflation is transitory and the problem is Russia. And now the language has changed. And you can see how we could have avoided this. You know, this could have been a lot smoother than what it looks like right now.

For those of you who are listening to this, if you use Spotify for video or YouTube or YouTube or YouTube or YouTube or YouTube or YouTube. Or YouTube or YouTube or YouTube or YouTube. Or YouTube or YouTube or YouTube. Or YouTube or YouTube. If you search on your podcast player for this weekend, you can download the video version. We have a video or RSS feed. So that's available to you, YouTube.com, such, this weekend. But there's a slider on this.

you know, prediction of the Fed Funds rate as a really powerful. Yeah. Yeah, it's really powerful to see the consensus change over time. We're doing the same for inflation and a variety of other things. We might do some things around like, you know, belief around how bad the recession is going to be. Is it going to be recession? Is it going to be recession? Is it going to be depression? And see how kind of market is going to evolve and that perception is going over time. A variety of these different things. And I think this is very important because it's the first time we're going, I mean, at least myself, you know, from a professional summer, It's the first time I'm going through kind of a proper bubble eruption and a potential crisis.

And it would be interesting to see how the public sentiments evolved throughout these crises and have a kind of on the record, public record, like public record and audit of how that sort of evolved over time. Here's a crazy bet, Molly found. Tell them about this bet you found. Yeah, I'm definitely all in on the interest in inflation and the recession conversation. But what I really think is amazing is that apparently 87% of buyers do not think that we are going to land anybody on the moon for 2025. What is this? NASA's been late. They've been sort of missing a lot of deadlines consecutively. And this is what's so interesting because on the news, it's like, oh, we're doing great

and government is launching. But NASA's been missing most of their deadlines. And traders were not going to put money without research. They do their research. They know what's going on. They look at the state of our technology, everything. And right now they're pressing it at 10%. I mean, exactly what you're saying.

That's like a larger, this points to a larger question, right? Like, it's super fun to ask whether we're going to, whether we are going to, We are going to send someone to the moon, but the real question here is, what is NASA doing? Where is that money going? What does it say about the state of American innovation? What does it say about privatized spaceflight? Like, if you infer from this that you should buy SpaceX, you know, you've had a really contextual, complicated conversation based on a pretty funny headline. Yes.

Agreed. Yeah. Love it. I think I'm buying no. Yeah. I would pay 10 to 1 that they don't get there. I mean, that's basically the odds right now, right? Yes.

But you're paying 10 to 1 or whatever that they don't get there. To Molly's point, I mean, one thing I would say is the interesting part of markets, even for stocks market is kind of this idea of price estimation or price spacing, right? Like you're getting a lot of different traders to go and research and bring information out. They figure out how to do. They model it. They do their own research. And then they bring it all into a market.

And it's all getting aggregated to one single price that beautifully and elegantly sort of aggregates all this kind of valuable information that we're drawing out of the world. And I find that really, really exciting. I love that you can bet on the New York City high temperature in June 2nd or TSA check-ins. We forecast it better than meteorologists, which is also cool. I will say, as a climate investor, I'm also very interested in all of the stuff you have in there about temperature and rain. I mean, I would like to make a bet on China invading Taiwan. If you think about what economic insanity that would cause, if China took action against Taiwan, our portfolios, everybody's retirement, the economy would go down 50% or something.

Like, if you could actually define, I don't know how you define a war with Taiwan, but military action, who would be your source? Who's your Oracle, I think is what the, in smart contracts, they call it an Oracle. Yes. In Web 3, who's the Oracle that China invades Taiwan, the New York Times, you know, Congress saying it's an act of war, the president might say it. How would you define that one? Yeah, it's a great question.

So if we were to do it, it would be something around the government, the U.S. government, but there's a big pot. So this is one of the things of regulatory. There's a few things that we do not touch. War, violence, terrorism, assassination. And then we also do not touch, and this is funny. We can get back to it, Onion Futures, because Onion Futures is the only vegetable where you cannot trade derivatives on. It's illegal in the U.S.

I can tell you that story. But so anything around violence? Violence. because that can incentivize. Xi Jinping can place a bet and then just be like, you know what, I'm going to make a shit ton of money when I have paid a lot. We would not like that to happen. So those types of things we avoid.

That seems like a good rule. But can we go back to the onions? Onions, yes, yes. Yeah, I can't let that one. I know, I'm like, slide by. Onions though. So in the previous century, two brothers actually. Let's chop it up on onions.

Yeah. Yeah. So onions, only vegetable, you cannot trade derivatives. It's actually in Dodd-Frank. It's illegal to trade derivatives on onions. And the reason is because in last century, two brothers actually cornered the onion market. So what they did is like a lot of people put on short cells. And what they did is they short squeeze it.

They bought all the onion supply in the market and got a lot of people to go bankrupt. And at the time, you know, I think the solution was like, it's a problem that is endemic to onions. Instead of the conclusion being, it's a problem that's denying to human beings. You know, human beings are sweet. So they buy all the onion farms. They corner the market on it or buy all the onion supply. And then they crash the price of onions. I do.

They don't know. There's a lot of shorts. People that were short, they needed to re-buy the onions at some point to basically satisfy their shorts. Got it, got it. And then they controlled the full supply, so they were like,

onions are expensive. I mean, it is beautiful to me. It is so human nature to then make, are you guys familiar with the Simpsons episode where an asteroid is coming for Earth and they sort of barely escape destruction by the asteroid?

And they're like, let's make sure that never happens again. Let's burn the observatory. Like we're just going to make a one-off law about onions and that'll fix human nature. Like, what the hell? I mean, it is. That's delightful. What I like about what you're doing and think as we get ready to wrap here is, you know, human nature is to try to get an edge. Right.

So if you're a farmer, you want an edge to produce more per acre. If you're an entrepreneur or you're a podcast or you want an edge to get a person. better guests. Everybody's looking for an edge, right? We're performance-driven creatures. We're competitive. That is innate in what we do. That is why capitalism as an operating system tied to democracy, two forms of competition has resulted in the greatest country in the history of humanity, the United States. That's why we keep winning. I hate to get all MAGA here. No triggering anybody. But listen, there's a reason why we win so big here. And it's because competition, we accept the reality of competition. Now, if you allow people to be competitive in an unregulated market,

it's going to result in cheating. Correct. It's going to result in a lot of problems because humans can't stop themselves. Most humans cannot stop themselves. Or if some percentage of humans can't stop themselves, depending on how cynical you are or how much you believe in people's better angels, people are going to try to get in. And I've seen it at the poker table. I've seen people, we had this discussion with a bunch of poker players. They said, if somebody keeps exposing their cards at the poker table. In other words, they're looking at their two cards, their whole cards, and you can see it. I always tell people, protect your cards. I can see your cards. And if I'm in a hand, I don't want to play that hand. I will ask the dealer, like, you know, if it's a home game,

I saw his cards, can we just muck everybody's cards? There's been no action yet, right? Or I'm out of the hand, but, you know, if I've seen their cards and I have much better cards, what are you supposed to do there? It's like an ethical issue. I would rather just tell the person, and somebody said to me, the right thing to do is, and I disagree with this, but I understand where they're coming is, you tell them one time. They don't protect the cards after that, it's on them. Yes.

Yeah. And I understand that. I disagree with that. I'm going to tell them every time. I can still see your cards. I can still see your cards. But some people are like, listen, if that's the edge they want to give me, I'm taking it. And there was a case of Phil Ivy, you know, considered one of the top poker players.

He had found a deck of cards, specific deck of cards that had been cut a certain way so that, if you were to look at the cards, you could look at the edge. It's called edge sorting. He found this edge where he went to casinos to play Baccarat, I think it was. And he said, I want an Asian dealer. I want to

have this type of room, this temperature. And he gave them a bunch of conditions. These conditions were done to obscureify what he was actually doing. And then he said, I want the cards placed and then I want them turn twice. Because gamblers are suspicious. And when you're a big gambler,

you can say whatever you want when you go to the table. I want a dealer who's this height, I want this music playing, and they will do whatever you want. So he gets this all set up and he hits a London and an Atlantic City Casino for $10 million each or something to that effect. And it turned

out he had found an edge in the cards that told him the probability of a face card. It gave him a super edge. He won. And so then they sued. He couldn't go to jail, but they didn't have to pay, I think, was the outcome.

And this was a huge question mark. And because it was the casinos losing, people said he was well within his right to find that edge and to exploit it. And I said, no, it's unavoid it. Should be ashamed of himself for doing that. I don't care who it is, you know, like a casino or an individual. You shouldn't, that's not the right edge. But the people were doing this also with roulette.

There was a whole roulette scandal. And I think it was the 70s or 80s. Somebody had gone and recorded every roulette spin before they had the digital things. They just recorded everyone in their memory. They would then write in a book. And they found out, for whatever reason, the alignment was off on a series of wheels in Monte Carlo somewhere in Europe. And they exploited that. And they took down the house for millions of dollars.

And it took them a long time to figure that out. So anyway. But yes, clearly the man loves gambling. But Tariq, this is so interesting. So great. Just anyway, great stories. I don't know if you heard them before. Can't wait to disrupt all of economics with you.

Let's go. Let's go. No assassinations, please. Is there anything else that's a no-no? We said assassination wars. We are betting. Would you bet on debts from COVID? I think that's fair game.

Well, we have stayed away from it, generally speaking. COVID is kind of a little bit of a different. Like, you cannot actually manipulate COVID. That would not work. And if you did actually try to spread COVID, there would be significantly, I mean, it would be obvious. It would be, you know, it's a kind of a different thing. It's a pretty serious crime, right?

Yeah, it's a little bit of great futures. I mean, you could, too, like, manipulate great futures by burning a bunch of farms. But, you know, I mean. Yes. That's a lot. So I think those are some of the kind of thresholds that we look at. I mean, just to kind of wrap up to your point, I mean, I think the whole point, and this is what excites me,

we are believers in kind of information. Like the thing I love about Calci is like, you can gain an edge by gaining information. We see some of our traders kind of finding correlations in traffic lights and kind of like things around the economy and how much, you know, density is going to. Just like crazy things are being brought in. I find that very beautiful.

And I think the very important thing, as you mentioned, is like there needs to be a set of rules, ground rules of how this marketplace is going to function. Otherwise, it ends up being all cheating. And that's what I love about CFC. The SEC, they've done a great job over the years. I figure out what the rules of derivatives and securities markets need to be to make the game fair, to make it fair and reasonable

and for everyone to be able to participate on equal grounds. So yeah, we're very excited. We're working very hard to make this a reality. Wow. And elections, I guess you're going to do that for sure, right? We can't comment on specific markets in the future. Ah, okay. But we're essentially trying to speaking, working on...

I mean, you're doing Biden's approval rating, right? So, or that's starting soon? It's already there. Biden approval is on the, on the, on the, we do it on a weekly basis and people are do a great job on forecasting the approval. And it's been great to see kind of how it's evolved over time as well. Amazing. Amazing.

Yeah. Targ, Monsor. Thanks so much for the time. This is... Tarak, thanks for coming. Please come back. Yes, we'd love that. Maybe during the election cycle.

Who knows? If you had an election prediction market, maybe you'd be a guest. If there were any reason. It did exist. I don't know. To come back then, it could be really interesting timing. I do this all the time, Molly. I just, it's so obvious to be the product roadmaps that I spoil people's launches.

But I can't help. I can't help myself. All right. Listen, great job. We'll talk to you soon. Thanks for having me. Thanks a lot. Take good care.

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and you think the philosophy I've explained here about how I invest in companies, I'm invested in over 300 of them. If you think this is an interesting way to meet startups early, help them and invest in them, well, you can read my deal memos as we invest in new companies and you can join us on that adventure. And I do this through a

course called Angel University that has raised close to $200,000 for charity. And you can sign up for Angel University at angel. We do it four times a year. Great program. And it's just me and my partner Mike Savino talking about how we pick companies, how we evaluate them, how we diligence them, how we source them, like Founding University is a source of investment and deal flow for us. And that three or four hour course. Actually, I think it's more like four or five hours. It's well worth your time. All the proceeds from Angel University go to charity. And again, over $175,000, I think at this point, it's gone to charity. I'm very proud of that work. And founding university is free. But you do have to apply,

and we do pick people who have built a little bit of something. So we're looking for you to have some skin in the game. We have a Founder University 12-week program, which you can also see at Founder.comer. We'll be starting our cohort shortly. And you can apply for that program. If you have not started building or your very early stages haven't incorporated yet, you're nowhere near the Series A. You're kind of in the solo or co-founder situation and you're just starting to build. Maybe you've incorporated, maybe you have it. And that's a 12-week course. And that's another great one that we do. So please join us, founder.com. And if you want to invest in these great companies, angel.university.