Is Kalshi Gambling? The Billionaire Founder Answers | Fortune Daily

0:00Is it a financial market or is it gambling? The answer could be worth$36 billion. That's how much New York's Attorney General is suing Calci for. The state calls the prediction market an illegal gambling operation. And the amount it's suing for is more than the company is actually worth. Luana Lopez Lara is a former Bolshoi-trained ballerina, and she co-founded Kaoshi at the age of just 22. She then spent years getting federal regulators to approve it, and Kaoshi is now valued at$22 billion. That figure makes her the world's youngest self-made female billionaire. Today, we ask her where the line is between an exchange and a sports book.

0:53We also ask whether Kaoshi can go public before that pretty complex question is settled. I'm Ellie Austin in New York, and this is Fortune Daily.

1:11Luana, thank you so much for joining us. Thank you for being here at the summit. So I want you to start with explaining to us what exactly a prediction market is for anyone who doesn't know, because the differing perspectives on that have become a legal battle. So tell us what it does, what Kaoshi does and what it doesn't do. Right. So a prediction market functions like a stock market. So you think about it as there's what we're doing is we're matching buyers and sellers. But instead of them trading stocks or shares of a company, they're trading like shares of what's going to happen in the future.

1:42So, for example, if you have an election market, you're buying and selling shares of, for example, Trump winning an election. Right. And what we don't do is that we don't trade against our customers. We're just a matching engine. It's just an open, transparent, fair marketplace that people are competing for price and competing to get that trade the same way as a market operates. What we're not as good to differentiate and what a lot of the legal battles come from is the comparison from us to a sports book or a casino. know, right? And why, how do they operate? Their revenue is equal to customer losses.

2:14So the more that a customer loses, the more money they make. So they're incentivized to cut off the winners and, you know, get as many losers as they possibly can and keep them coming back and more bonuses, more incentives. And, um, and there is no price competition. There is no market. It's just the house and the house always wins because the house can set the price to whatever they want, them whatever margins they want, whatever they want to do. And because of that, it operates in a pretty much like a casino, but maybe gone online. But a prediction market operates very much like a futures exchange or a financial market.

2:46It is a financial market, but regulated federally as a financial market. And that's, I think, a big differentiator of what we are and aren't. So prediction markets have really evolved from being a niche concept into a major financial asset class of their own. How do you view the current state of the prediction business? And And what structural hurdles remain to integrate the, you know, prediction markets into traditional institutional financial portfolios? Right. I think it really, I would tell you, if you asked me this a couple of months ago, I would say probably margin was the biggest component.

3:20That was margin. Because you think about, you know, the big, like the big banks, the big hedge funds. What they're thinking about is like they need to be very capital efficient. And you can't think about like right now, for example, there's a 92%. I think that the Democrats would take over the House, right? In the midterms. In the midterms. So it's been like that for quite a bit of time. And you have to think like, is that if they're selling that, is that 8 % or 8 cents that they're making actually worth the kind of capital costs that they have? And I think that the margin has always been a big component to get these guys in and we got approval for it.

3:53I think the other thing is that they are kind of like bigger institutions. There's a lot of different teams that have to get approval and compliance and risk and all those things to see it. But I really think it's mechanical. I think at this point, like everyone understands the value of these markets. I think that everyone understands the value of these markets for forecasting, but also for trading and hedging that like a lot of companies like, you know, think about the tariffs, right? Like so many companies were impacted by tariffs coming to the United States. You've seen the impact on the stock market was pretty large.

4:22and there is no real way to hedge that risk in the markets right now. And I think a lot of companies go to the banks, go to the brokers, and ask to get access to prediction markets because they see it as a way to help kind of stabilize the portfolio more. And I think now it's just a matter of time and a matter of setup for them to get in. Because now we have margin, we have all the setup, we are ready to integrate with the back office, and we are seeing the customer demand. It's just a matter of plugging the gap. Yeah. And on that note, so the valuation has gone from$2 billion to$22 billion in under one year.

4:52Is that correct? Is that figure still accurate? I don't know if under a year, but yes, I think that's correct. That's correct. In the remit of around a year. So what's driving that beyond pure users? Well, I think we are growing at an insane pace. And I think there's two sides. I think that our numbers and our growth are really proving that the value should be going up because the business is going so much better. But I think the other side is prediction markets have for the longest time had there was a challenge in explaining why they would be big and why they would be influential and important for the world.

5:28And I think people just didn't really grasp that. They were like, oh, maybe you're going to be like, maybe some people are going to care. But I think that no one took a long time for people to realize how much people are going to care. And I think the valuation is going up because I think people understand how big this can be. We always said, if you asked this in 2019, 2018, we would say that we think prediction markets can be bigger than the stock market. and people would think we're insane. And I think now people are like, well, there is a small chance that they can get there. And I think if people are buying and believing into the vision more, which I think is why we're seeing so much demand.

6:01Are prediction markets good for society? Oh, I think they're amazing for society. Tell me why, because you've got a lot of people on the other side of the argument who would say that they're a real issue right now. Right, I think it's like, look, I think everyone's entitled to their own opinions, but I think prediction markets bring three things that I think are, you cannot get anywhere else. I think the first one really is the forecasting ability of these markets, right? Like the Federal Reserve put out a paper talking about how prediction markets forecast the economy better than expert economists.

6:31We had a paper come out last week talking about how prediction markets forecast the weather better than the weather channel. And why that happens is because we're incentivizing people to be right, and then we're aggregating all of that research, all of that information into a single number that is in real time. And because we're incentivizing people to be right and we're paying you if you're right, you just take out all the noise and you get a very good forecast of what's going to happen. And that's pretty much impossible to find in any other mechanic that isn't a market, like a real money market about what's going to happen in the future.

7:02And we talked to our users and they say that the biggest alternative to Kaoshi that they see is actually Twitter. They're coming, like over 80 % of our users are not actually trading. They're just coming to consume information. They're just trying to see like, did the 92 % for the house become 95 or did it drop? What happened? And because what they say is like, if I go to Twitter, I know, you know, what's going to get the most likes or the most insane takes. They might not even be right. And it's impossible for me to filter kind of information from noise, but they can come to prediction marketing and get that unbiased source of truth.

7:35So that forecasting cannot get anywhere else. It's impossible kind of by design to get that quality forecast anywhere else. the second part really is the kind of hedging that we talked about right it's like if you're a small business if you're even a big corporation or people you can't really find a way to mitigate a lot of risks that are helping in the future you can try to for example insurance right you have health insurance you have a car insurance but if you're worried about a tariff or if you worry about rain on your wedding day if you're worried about you know a lot of businesses have like you know if the nicks lose very early we're gonna have we're gonna make a lot less money and Now our bottom line is compromised.

8:12They're able to come to prediction markets and find a way to trade and protect themselves against almost anything that can happen in the future that we have markets on. That also no alternative for it whatsoever. And then the last point, which I think is like what I guess people would disagree with the most on is that I personally think it's a good thing for people to be able to make money on, on what they know, right? If you think about like amount of retail traders engaging in like zero day to expiration options and like day trading and all of that. I mean, I wasn't the other side. I was at Citadel Securities.

8:42These people are not going to beat, normal people are not going to beat Citadel Securities in the stock market or trading options, right? It's like they don't have the context on all these companies. They don't have the context of the multiple models and all those things that these big hedge funds have to trade. And what prediction markets are is they level the playing field. And now if you're an expert on something, if you've done a lot of research, if you know a lot about something, you're able to find a way to monetize that in a game that's fair to you. And I think that people kind of try to differentiate us from retail trading.

9:13And I think we're objectively a way better way for retail to engage with markets than like a day trading or options or whatever. So those three things together, I think the forecasting power of the markets, the hedging ability of the markets, and also kind of like access to a way to engage with the future in trade, I think you can't get anywhere else. And I think those are objectively very good for society. One of the arguments against platforms like Kaoshi is obviously the mental health element, the addiction possibility, particularly for young men who tend to be drawn towards these companies.

9:46And it feels like we're at a bit of an inflection point right now with masculinity. Kaoshi has voluntary opt-outs. It has trading breaks. And it also has personalized funding caps. At the same time, you have a partnership with Birch's Health, which I think is really interesting to provide professional support for addiction. And is that a concession that people do develop addiction problems when using the app? Well, I think that those are very fair concerns. And we are, that's why we built all these systems. And I think it's less about prediction markets. I think it's about all retail trading. And actually, I think that the problem is that you have is that like, having a product to retail means that, as we said, it's like, I think it is great that we're democratizing access to these things and people now have access and a way to trade on them.

10:29But we also have a lot of responsibility to make sure it's done in a safe way. That's why we built all these things and we want to keep doing more and more and more of these things to protect our customers. Because as we talked about, it's like our incentives are actually aligned with the users that we, because we don't make money, like our sports book is like the amount they use. You want to make money as a company, obviously. Well, we make money on a transaction fee. So we are indifferent if someone is winning or losing. And I think that that's the problem in like a sports book or a casino, that they make money when the person loses.

10:55So their incentive is to get the losers to keep coming back. And that addiction, that's why they incentivized. You see that like there was a New York Times report about how DraftKings was using AI to target losers to keep coming back. That's something we would never do because our incentives are not like that. But I think in general, like I think that all retail trading, I think Robinhood, I think Coinbase, I think all retail trading platforms should go like in the direction of having more consumer protection, more like responsible trading things. And I think that it's a mistake for everyone to only look at prediction markets.

11:25I think we should look at prediction markets, but we should look at everything else. There's a lot of like, you know, a couple of years, I don't know how many years ago there was that case of, you know, someone actually like harming themselves because of losses on Robinhood with leverage. And I think that all of retail trading and all the companies that retail need to be, have a lot of responsibility here and need to do better. And New York's attorney general is suing you for at least$36 billion, I believe, which is more than the company is worth. And they've called Couchy an illegal gambling operation.

11:52What's your response to that? Well, I think that they're fundamentally misunderstanding how we operate. I think that we always say that if we wanted to skirt regulation, taking four years to work on getting regulated sounds like the stupidest decision, right? Like, we would be the worst business people ever if our way of skirting regulation was engaging four years of work with the federal government to get regulated. I think it's a fundamental misunderstanding of how the business works and how it's growing so fast. And also show kind of like a, I think a lot of it's politics at the end of the day.

12:24I think a lot of people are, you know, they have special interests and special groups that they're, you know, that they want to protect. And I think that at the end of the day, it's like, I think, telling if they're putting actual consumers first or they're putting all these special interests first. And I think it's just a complete overreach of the way that the orders, like the losses are even framed could get like NASDAQ to not be able to operate in New York. So it's like a very weird way that they're doing it. But I think it comes from a fundamental misunderstanding of the business. And I think they're wrong.

12:58That's why we're worried about that. Well, I worry about everything, but I don't think we're very worried, worried about it. No, I think that at the end of the day, we're very, very confident in our legal argument. I mean, it is a it's prediction markets can't really operate if they're not federally regulated. Imagine if you could only buy stocks in the New York Stock Exchange. If you're in New York, the market would have no liquidity. The prices would be terrible. And also you're making sure like you're making a lot of Americans not have access to something that is great, which are companies listed in the New York Stock Exchange.

13:29Prediction markets need federal liquidity. They need to be able to operate federally. And again, the concerns that people should actually have about prediction markets are things like market manipulation, insider trading. Things are very like how the market operates. The federal government has regulated for like 100 years pretty much. and they have the expertise to do it. And these are really the things that we should be, like everyone should be concerned about. So we're not concerned. I think it's just a matter of like, you know, the courts will play their course, but yeah. I want to talk about your personal story.

13:59So you trained for years as a competitive classical ballerina in Brazil. And I imagine that came with a pretty strict regime. How does that foundation that you had as a young woman show up in your work now and also in your leadership style? Right. Right. I think maybe the team would tell you I'm very intense maybe. What are the times like? How many hours are you working? Right. I would tell you I'm probably in the office like 12 to 14 hours a day. But I think the world ballet really taught me was I think the first thing is discipline. And I think that it ties to what you're saying, like, are you stressed about something or not?

14:31And I think what ballet is very good at teaching is that it doesn't matter if you have great news or terrible news. You need to go up the next day and train the exact same way. And because it really is compounding. It really is. You need to train every single day for a year to do a good job for an hour. And that is very good at kind of like setting the pace and of how fast we're executing and making sure the company is very kind of focused, laser focused on what we need to do. And I think that discipline is very hard to get on in other things. I guess sports in general, you can get some of that, but with ballet, it's very, very good at teaching that.

15:07And the other thing is the late gratification, which is similar to what it is like you can train for a year to be on stage for an hour. and you need to be okay with like how you know your legs are hurting and you're in you're in pain and all those things and you need to you need to be okay with all of that for a long period of time to have like one hour that you're very happy on stage and I think that for us for example why we took four years to be regulated and we're able to wait for that so we have this kind of like it is going to work out it is going to pan out we just need to keep going and eventually like the score will take care of itself.

15:37December of last year you became the world's youngest self-made female billionaire which was uh plastered across headlines i wonder what your relationship is with that title what does it mean to you if anything it doesn't the title itself doesn't mean much i mean it's it's very weird it's kind of like a surreal kind of thing that you just like you it's kind of like like i don't know i think about it as a kind of it doesn't feel like it's me in a way um but i think what it does do is that it is another indication of how all our hard work has paid off and like how much our like users like the product and how much how the company's doing very well it's just another data point like our valuation right they're all vanity metrics at the end of the day um but i think it's another example of like how how much we're growing we've crossed over 30 million customers now in the us and it's just i think it's just testament to how much people like the product but it's very weird and what's i'm interested in how it's impacted you personally and your personal relationship with money oh not not I mean obviously like the thing is like the the stock it's not like that it's not in your bank account yeah it's not in your bank account psychologically it changes how how you think about moving through the world and your financial decisions um not really I've always been like it doesn't when I say it didn't change my life much it's because like I think that I've always been laser focused on like that's I'm like 12 to 14 hours in the company right like okay maybe I'll get a fancier lunch once in a while because I want to eat some nice sushi that's as big as you go I mean I mean if I like I I don't know I mean I just try to like I I think that most like I don't really think about like like a lot of like how to spend my I don't think I have like the time to do that in a way I think for for me it's always been like the company's first is the biggest priority and obviously like one thing that I do do is like I uh my parents in Brazil um so for example for Christmas, I took them to go to the Vatican for Christmas mass, for example.

17:33So those are things that I think are very good. I can take my friends to dinner and I'll pay for dinner and stuff like that. But the thing is, we really think the company can go so much farther than what it is now. And it's just about us focusing and doing our best every single day. So it doesn't really, it didn't really change much. I'm from a middle-class family. So I guess it's like, maybe with more years, it will change, but it hasn't changed much, to be honest. And final question, do you ever take a full day off? I take days that I'm not in the office. I do always have, like on my phone, I'm always on.

18:05I mean, I will always answer the phone. I think on my birthday this year when I turned 30, I did try to take a full day off. I just took one very quick call, actually from my co-founder. But otherwise, very off. Celebrate 30 is a big deal. I was very happy to turn 30. That is a big deal. You really went into it in style. Right. Luana, thank you so much for speaking to us. Thank you for having me. Your job interview may never be the same. You won't have to show up and neither will the recruiter. Editorial director Kristen Stoller shares how AI twins have entered the hiring process. Kristen, we're back from California.

18:44We're back, baby. So are you telling me that I can now send my AI twin to job interviews instead of going myself? Yes. So the theory here is that the recruiter interview is the most blah, boring, annoying part of the job. And pretty much it's just like a fact-checking job, right? You worked here this time. Tell me about this. So it basically feels like a reread of your own resume. So I spoke with the founder of Twin Cafe, which allows job seekers and truly anyone to create a digital twin of themselves to send to the recruiter screen instead of themselves. I have many questions, but first of all, talk me through the process of making the AI twin.

19:26Yeah, so fair warning, I have not done it myself yet. However, how he describes it is you feed it your resume, your LinkedIn, any bodies of work that you've done that you're really proud of. And then it creates a link that you can put at the top of either your resume or LinkedIn profile. You can ask the recruiter to click on this link, and then they will be in a chat room with you, your digital twin version of you. Visually, is it that sort of a photo of you? It's a photo of you, but it's just a chat. So it's not a live one-on-one. It doesn't scream like high effort, high investment to me. Am I wrong?

20:02I think you're totally right. They want to talk to a human. The whole reason they're reaching out is to talk to you. However, how the founder, Ashu, envisions it is ideally there will be a world where the recruiter will not even want to show up to the recruiting screen. They will make their own digital twin using this platform, and the recruiter's digital twin will talk to the job seeker's digital twin, and they will skip the recruiting step entirely. And then once you get to the actual interview, it will be more human, less fact-checking. What do you think the limitations are? You don't know what this digital twin is going to say on your behalf, right?

20:35And yes, the technology has it so you can go in and you can check first before they reply, but you don't want to have to be monitoring it 24-7. You might as well just turn up yourself if you want to be doing that. Exactly, exactly. Does the founder see any other potential use cases for digital twins beyond hiring? He does. And I actually spoke with one of his current clients, a professor at a school in India. And it's a business school. And apparently, he's the most popular professor there. All his students are saying, like, we need help with the job process. Can you sit down and do a mock interview?

21:06And he's like, I don't have time to do that with 90 students. So he created a professor digital twin to do these mock interviews with the students. So it can help on that like practice job seeker role too. Do you see yourself ever creating a digital twin? Not that you ever want to leave Fortune, you're here for the rest of your life, but hypothetically. Hypothetically. Oh, that's a great question. I think, you know what? I want to just because I'm curious what it's going to say. And with this, with the professor I talked to said it, like he put in all of the videos and podcasts he's ever done.

21:37And he's like a kind of like a funny, quippy like professor. And it captured his essence perfectly. I wonder, would it capture the Kristen Stoller essence? And that I want to test out. Kristen, well, let's stay in touch on this one. Let me know if you do create that digital twin. I will. They can talk to each other next time. They can talk to each other, and yours would have to be very keen on karaoke. I would love it if it could sing. America is apparently done being lectured by CEOs. Senior writer Phil Warber has the report on falling support for corporate activism. Surprise, surprise. Americans are tired of hearing about politics in every sphere of their life.

22:14And that includes from CEOs of the companies that they patronize. Stanford University just released a survey. It found that 55 % of Americans are happy with CEOs weighing in on social issues. And that compares to 65 % eight years ago. So there's a shift in attitudes. The survey's author's hunch about why this is, is that there's just a general fatigue in the culture of being lectured at. or also just how ubiquitous political discourse is. The survey was released when Ed Sheeran was having trouble with his opening act, McLemore, and then the whole debate is, okay, well, we go to a rock show not to hear about politics, and a lot of people feel the same thing about companies that they buy from.

22:55About eight years ago, people sort of wanted CEOs to weigh in on social issues, but then sometimes it seemed a little bit disconnected from what was going on. Levi's at one point was very vocal about gun rights and keeping guns out of stores, Starbucks founder Howard Schultz at one point had invited Americans to talk to their baristas about race relations, a disastrous idea. And so now, you know, the pendulum has swung. Issues that really aren't at the core of a company's business is not something that Americans want CEOs to weigh in on as much anymore. There's one group of Americans, though, that does buck that trend.

23:29The Gen Z, young customers who might not have much purchasing power yet, but will. Gen Z actually does want to hear from CEOs. but the topics they want to hear from are not the same as they did just a few years ago. It's really focused on climate change, the environment, and much less so on things like abortion and LGBTQ rights. And at the other extreme, boomers really don't want to hear anymore about anything. They just want to consume and be left alone. So the takeaway here for CEOs is know your audience, know your business, and know when to zip it. For more insights affecting business leaders of today, please sign up for our newsletter, CODaily, at fortune.com.

24:09That's it for Fortune Daily. I'm Ellie Austin. Please remember to like today's episode and subscribe to our Fortune Daily YouTube channel and tell us what you thought about today's interview with Luana Lopez Lara. We'll be back tomorrow. Thank you for watching.

24:36Yeah. If the age-truck person gave an AI twin, I'm not going. Right. Exactly. I'm going to send my own AI twin. No two robots can hash it out. Let the robots hash it out.