Tarek Mansour on Kalshi's Plan to Create Markets in Everything

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26:23Do that with the all new Adobe Acrobat Studio. Learn more at adobe.com slash do that with Acrobat. Let's talk about some non-sports stuff and the future. Like, you could sort of futurize anything, right? When you envision it, could we one day have a future for every single stock on the exchange? A perpetual future, a perpetual Tesla future, a perpetual Apple future, a perpetual, like, could it be a world that we live in one day and a perpetual 10-year treasury future i mean galaxy is everything in arabic right so so you know the long-term vision is like yes i mean i just think like you should have a market perpetual a future for private companies a spacex future yeah and you know like the idea of sort of like one i guess general and then specific answer generally and then specifically so the general sort of principle is like i think anything that has a difference of opinion, difference of opinion, qualitative opinion should basically have a mechanism to resolve that quantitatively.

27:25So like instead of debating subjectively or something like let's debate about it objectively and quantitatively, which is trading, you know, what's the money. And so, and then there's some limits. Like I think there are markets that do create bad incentives and I think actually the CA does handle them and like we really haven't done these markets. But to your question, like yes, I think that's probably what the next frontier looks like and I think that the concept of security futures has been like a very kind of like, I'd say it's been a very exciting concept for that. I mean, even pre-Calc. It's not like where, but I think the CFTC-SEC relationship historically has been a big part of the bottleneck because if you're on the SEC side, you don't really do futures.

28:03And if you're on the CFTC side, you do futures, but you don't do securities. And you have this question, like, should I get regulated by both? I mean, you already have one that's sort of, I mean, you're like daily in your operations already very tough. Now you're adding a second one and it doesn't scale linearly, it scales sort of quadratically. And so it's been really tough historically, but it may be now in this environment, I think it might be possible. And maybe we'll figure it out on Monday, so we'll see. On Monday. Okay, can I go back to the market makers for a second? Because this is an area where I think people have a lot of questions, but what are the actual obligations of market makers on your platform?

28:38And you talked about how in the beginning, maybe you have this really esoteric contract about throwing rubber objects onto basketball courts or whatever it is. We don't have that, but you know. That's the other guys. Theoretically. That one the CFC would block. How do market makers decide what contracts to actually support initially? And are they obligated to come in and provide liquidity for everything? No, because, well, not everything, no. Because like, well, you have fair access sort of requirements in a CFC regular exchange. so you have to have rules that like basically are generally like accessible by anybody in a certain sort of like tranche or tier or whatever but like if a market maker wants to come and trade on cash they could do that and they have no obligations they can make they could take they could do whatever they want generally what happens is like you know if a market maker wants like okay but then how do you kind of incentivize liquidity then you could sort of say like okay maybe you rebate you some fees if you basically commit to obligations and the obligations the way they look like is like if you make on the fed market so that's an actual specific example like you put like 75 000 contracts up on each side within like four three to four cents spread and you have like 98 availability so you're pretty much there every time you kind of probe you could for example get your fees that you pay rebated so you don't have to pay so that's kind of like actually our most common type i mean this is pretty much like market maker program i love them are public and people can sign up to which markets they want to participate in so some people sign up to economics, some people do politics, some people do sports, some people do a combo of both, a lot of people do financials.

30:10And the reason you want that actually is because without any sort of structure, then no one's going to commit to anything, right? Like then people will only do it when it's like advantageous for them. And they won't do it when it's maybe like a novel market where we need to kind of bootstrap liquidity and so on. So you have to figure out a sort of set of incentives, especially in the beginning. And those over time go down as the market goes more and more liquid as you need less and less of them. And are the rebates and incentives and I I guess the information, is that equal for all the market makers on the platform?

30:39Because you also have - Depends on the obligations. Okay. So you're like, so finish the sentence. Well, I was going to ask about KT. Yeah, yeah. So people ask a lot about cashier trading. So fully, it's fully information, like we've operated for five years. It's fully siloed informationally. It's like run independently and so on and so forth. What I can say like emphatically, KT has absolutely no advantages, like in any way, shape or form of other market makers or market participants. And we've always said that, you know where we don't think of this as a flank because it's true and the cfc audits us and they see the numbers and the numbers you know are factual they're not the best performing trader let alone market maker on calci by orders of magnitude like you know i'll leave it at that they're successful because they're not that successful they're doing okay i would say and it's it's fine if they haven't even they you know try to kind of like boot shop equate and some markets are harder and so on and so forth and that's a good thing like otherwise these markets would sort of not be there but okay say for sure is they don't have any privileges or you know benefits out aside from anybody else besides from sig aside from we have some small teams two three people that sign up to market maker programs some of these teams are actually beating all the other markets they're institutional including ours institutional usually better than ours but like what we do is like there's like tiers so if you kind of like abide by certain conditions you can get more rebates than if you do lower conditions and less rebates and those are just accessible to anybody that basically would do the conditions uniformly.

32:04One, because regulatory wise, we have to. And then two, because otherwise people wouldn't trust the sort of marketplace. So yeah, there's no, like we get accused a lot about a lot of different things, you know, but like that's normal. I mean, there's like a lot of incentives and interest that are on the other side of this equation for specifically now sports at the time it was elections. But I think that kind of like we let the truth mean to revert over time. So obviously you have these sort of legacy market makers who are now participating on your platform. You mentioned Susquehanna, et cetera.

32:33Have you seen like I'm very curious about whether we'll see legacy institutions become actual sort of like use your markets for actual hedging purposes. Now, I'm sure there's some around the election, but some of these other things like I'm curious, for example, do you know other hedge funds that might have a particular trade on? and they want to hedge against the possibility of a negative NFP print because they think that a bad jobs report is going to bust some trade. Like that is the risk. Or maybe a sort of hot CPI trade, etc. Do you see institutions using these markets yet to actually take hedging or positional trades yet?

33:15So yes, but it's kind of a size thing, right? Like the main bottleneck is basically liquidity. And it goes back to the same question. It's like you have to incentivize more and more liquidity over time. So that like you get the larger sizes. So like a typical, I mean, the way I think about it is like there's a small prop shops and the smaller shops, like those are doing something. And like, because you can take millions of liquidity on cash. It's not that difficult now. Depends on the markets and so on. But then if you get sort of the buy side firms, like the larger, you know, like, you know, where you're just getting the top 10, 15 on the street, top 10, 15 hedge funds on the street.

33:48And then after that corporations, like, then you're talking like the minimum, minimum size, like for even to care is eight figures. but probably 50 to 100 million. And so I don't think liquidity is there quite yet. Like elections started flirting with that sort of level and we've seen some, but like we don't see that, like it's just a matter of time for liquidity to build up for the kind of like deep institutional use case to basically start kicking in. And I think I see this over the next two, three years. Like I think that's going to be a very big part of cash. It's always a part of the vision because you create a marketplace where you can price anything.

34:23What you're doing at that point is you're pricing risk. You're pricing any risk that's sort of happening in the wild. And then when you price the risk, it's much easier to create the liquidity. The same way it's easy to create liquidity for the option market today, that it's much higher for some esoteric event. As there's more and more price benchmarks, then you can provide more liquidity. And then after that, we can basically really cater to the sort of institutional risk transfer use case, which I think is kind of where the TAM really expands long term. I mean, I assume in addition to talking to regulators, a big chunk of your time is spent going out and talking to institutional players, either on the market making side or maybe buy side, who might one day potentially be interested in actually using this as a hedge.

35:00What are those conversations actually like? You know, you have this partnership with Susquehanna now. What are the concerns that they lay out when it comes to this new business? And what are the sort of, I guess, enticements that you offer? So I would say like right now, it's a little a lot more just like learning it's not necessarily like hey our approach is much more like let's we learn we learn and then we figure out how to build the right product and then people come it usually works that way not sort of like oh like did they approach you then we have it took a while i mean like we had a relationship like way kind of when we started like thinking about the company and this is we have a relationship with like a lot of the sort of institutional players and like the market makers and i mean i worked at citadel before and but like i don't know if like we i mean we just had a relationship and we started talking and you know they see the vision like sasquara really believes i mean jeff yes really believes in the vision of sort of like this idea of like to have some skin in the game to forecast any question about the future instead of debating about it and he's always a prediction market so there's a little bit of a natural fit there but like going back to the kind of institutional like what we learned is like it's there right a lot of them whether they price these specific events like nfp specifically or like a CEO leaving a company specifically or they're worried about it, like even if they don't price it specifically, but they're sort of like, this is something that I'm worried about on my thesis.

36:21Like I have a thesis, but these are some of the external factors I could like screw it up. That's a real thing. And like they would use it for hedging. And I think the requirements of like, okay, some of them that are like solved, like compliance regulatory, like you have a clearinghouse regulated, all the kind of usual stuff. But then there's liquidity, like how much size can I take for it to be worth it for me to kind of allocate a desk can put resources into it. And then the second one is margins, which today, it's fully cash collateralized on Calci. So if you want to trade$100, you have to put it up.

36:49That's very difficult for, let's say, a Citadel. Well, I was going to ask, actually, do you anticipate on the roadmap sort of buy-side traders when there is perhaps, if it happens, sufficient liquidity? Will they be trading on Calci or will it be something they trade through their prime broker or their futures broker? Keyboard. But are you in talks with the brokers? Yeah, same exact sort of reason. So what do you need, basically? And how does it work? But yes, I mean, the prime brokerages are very important because you basically get, they have the full portfolio. So you can get a bunch of margining benefits if you kind of do it all with one prime broker.

37:30And that's why usually prime brokers are the gateway into financial markets. And the same way as our broker strategy for retail, right? Like with the Robinhood and Weibo and some of the other brokers, it's very similar, actually. because you have your portfolio with a prime broker. And then as you're thinking about your portfolio, it's like, hey, I could add on a hedge. It's much easier for me to do it through my prime broker than do it on a separate platform. But by the way, it's pretty crazy. If you go to the app store and you just look at Robinhood, the first thing is the image of the football.

37:57Oh, really? Yeah, because they're trading through you. Anyway, just an interesting cultural. I mean, on that point, I mean, there's a social utility question here, right? Like if I download Robinhood, Okay, yes, I could get into zero or one day options and we can talk about the social utility there. But maybe I'm going to invest in an actual stock that generates some income. But now I'm seeing ads for football and sports betting. And I don't know. I'm sure there are some old fashioned people out there potentially like me who would say, who would say like, what does this do? What's the value? Do you think that sports, like, let's even forget about like.

38:36I mean, first of all, I don't like sports, but. Well, I mean, but like, you know, I mean, a lot of people love sports. Right. And like, you know, I don't know. I think that like my job with these things, I mean, I'm a free markets person, like building a company where the name is, you know, we want to have markets for everything. So I'm much more in the camp of like, you know, you figure out what people want to do and figure out how to do it in a safe, equitable and fair manner. like you know make sure that like it's done with fair rules of the road for everybody to participate and they want to get smart and do their own research and if they don't that's on them and they figure it out and and add some sort of checks and balances around it to make sure it's safe and there's customer protection but i'm a strong believer that you know sort of the the job of regulators should not be dictating what people should do with their money or their lives like i i'm a very very strong like staunch sort of opponent of that sort of view of what a regulator should do and I think that's fits there I mean in some ways maybe that's like like if you look at Robinhood like there's all these these choices now and like it's a bit weird to me that like the decision here is sort of like don't let them make the choice like if they want to invest in great and if they want to do football then also great I mean and the solution to that feels weird to me which is like hide that option because the 50 year old or 30 year old man so Robinhood needs me to figure out what to do with their money.

40:00And so that to me has always felt weird to me. And I think that's where financial regulation has sort of like gone too far in the last, or even to call it regulation. I'm very pro-regulation. We chose to be regulated upfront, right? So, but it's sort of like, I would say like, I would say, I mean, people like lawfare, but whatever. Like the financial regulators, I think have taken it too far in that dimension. So as we've mentioned a couple of times, there's this big meeting in DC. next week there's going to be a roundtable. Incidentally, so Tracy mentioned earlier in the day, we interviewed Terry Duffy for an episode, and that'll be out in a couple of weeks.

40:37And I guess you haven't met, he said. You've never met, but I guess you're going to meet on Monday. But like, what should we ask Tarek? And he said, I think if I'm getting this right, he said that Kelsey characterized itself as CFTC approved. and he says it's not, that it's instead not CFTC banned. That actually, because it's the self-listing, are you CFTC approved or is it just that the CFTC has not said no? Well, it's factually incorrect. I mean, I don't know. It's like, I mean, I'll meet Terry. I'm very excited about meeting Terry. I mean, Terry is a legend. But we got a license and then a second one.

41:18So we got the exchange and then the clearinghouse and then the broker license. So the exchange was like in 2020 in the clearinghouse in 2024. And then the broker one was in 2025. Those are all approvals. I mean, it's not like, you know. But for instance, the individual contracts that go up to the CFTC, are those each getting approved? Well, the election was obviously actually disapproved, right? Like, and we had to sue over it. And we were clearly right on the law given that we won at the district and then the appeals court. So maybe there's like a separate dimension here, which is also the regulator is not always right.

41:51but you know there's a whole other thing there but self-certification is a regime which by the way CME is also operated within and they you know so from that specific perspective for each market yes it's not that every market goes through as a prospectus like in the SEC and then gets approved it's actually like a disapproval regime but the CFTC has authority to state things and it's a very broad authority right so maybe it's a good question to the CFTC because you know I can't speak on their behalf oh you can ask them on Monday yeah I don't know if they'll be on that table, but you know. Oh, what is the...

42:24Well, we talk safety all the time. So, you know, obviously, Polymarket is a major competitor to you. What do you see is like, what's your vision for what is traded on chain? And what are, like, could you imagine, you know, we just talked to Don. He said he could see in five years almost everything being on chain. Like, do you see that? Yeah, maybe. I mean, well, it's interesting because probably now is what they're doing. So there's kind of the on-chain strategy and then the kind of what we did, the regulated, you know, normal clearinghouse, like regulated clearinghouse strategy. And like now they're doing is sort of they're pivoting to ours, basically.

42:59That's it's. And so our view generally is like, well, it's a pretty positive sign for our strategy. Probably. Right. Because, you know, but. But even setting aside. Well, my point is, like, they're regulated. To me, it's a regulated like front. It's more. So. So, OK, there are a lot of benefits. I really believe that. And I think the - To being - Onshane. Okay. Yeah, because like one of the ones that I'm less interested in is sort of like skirting regulation. Sure. But I think that like there's a number of things, which is like my mental model for it is a bit like, you know, the banking rails were set up in the kind of early 20th century.

43:32It's like JP Morgan, a bunch of his friends were like, hey, how do we dominate this whole thing? And, you know, they set up a bunch of regs and then they closed the door behind them. And that was sort of that. And there's a bunch more complexity to that. But to me, this sort of whole on-chain thing is, imagine a bit like having given that problem to a bunch of smart, hardworking developers without any limits and let them build. Obviously, there's a lot of good that's going to come out of that. And then there's going to be some bad that comes out of that, obviously. But to me, it's like, well, there's a lot of liquidity on-chain today.

44:07So that's something that we should access at some point. And two, I think the clearing side, there's a lot of benefits for, you know, how like you have to do novation and you have to do immutability. And usually right now we do it from an operational legal perspective. And obviously there's some tech. But on-chain really helps with that. That's like basically what it's designed to do. And so over time, like I think, I hope as sort of regulators get more permissive, like I see some parts of clearing going on-chain. Where, you know, it enables some of these use cases and also more transparency. It's like the trades and the transactions are all transparent for everybody to see.

44:41And then people can build interesting like UIs and interesting projects on top without us having to sort of this whole permissionless sort of concept. And so I'm very bullish on it. I do agree with Don actually that like over the next four or five years, you see companies like Robinhood, like companies, like a lot of companies are leaning in. Well, Cowsley is also leaning in. So we're pretty excited about it. So obviously the trajectory of your business has changed enormously just over the past year, less than a year, really. If you were thinking about it now, today, as we sit here, what's the biggest, I guess, blockage to further growth for CalShield?

45:17You know, right now, it's a question I haven't been really thinking about. It's growing so much right now. It's like all about how do we like not break, basically, because like, I mean, honestly, like we grew way more than we could have possibly imagined, even in the most bullish scenarios, even post winning the election lawsuit. even like December 2024 with like a forecast for 2025 like there's nowhere near what it is today so and it's interesting because we're not it feels like we're sort of like halfway through like there's still just the current structure I think we're not even halfway through like we have more brokers we have a very deep pipeline of brokers so that's great and more sports I think it's the frontier is the SEC thing so I think it's like more markets like and I think we have a lot of what we want I think over time is like how do we started doing company-related prediction markets.

46:06And we're very excited about that. I just have one last question. And it's kind of a softball. But after years of fighting all these different battles, regulatory battles, states, et cetera, how good does it feel? It must feel really good to actually kind of know that the business is real and have these battles. Yeah, I mean - Just describe that feeling. It's weird because I don't know if I feel that much better this year than last year. I mean, Lua and I, when we started the company, we really build a company around I love this book have you ever read the book like Discord Takes Care of Itself?

46:39I don't think so it's a great book about life like everything honestly like I really it's just sort of you know like so John Wooden was sort of basketball coach he was like most legendary about it I mean the whole thing was always about like never mentioned winning about training the teams like focus on the process and like day in day out like just fall in love with the training and like if you do you just start winning and like I would say a few things I see these things are sort of there's good times and bad times for all companies. And so, yes, right now, we're having a pretty great time, like as good as it gets for a company.

47:10But I don't feel that different. I think it's just like solutions bring new problems and then you focus on the new problems. It must be so much nicer. I will say the one part I feel pretty good about is winning the election lawsuit. Like that one, because we were so, there was some pretty big time vindication there. Like I think we were, you know, because imagine like in 2020, like three going up to our board, you know, like Sequoia and a bunch of others. And it's like, hey, like, yeah, we're not really figuring this out. It's been two years of like, you know, pouring money into this and like, you know, and nothing's working.

47:42We lost half our team over it. And like, company might die. And actually what we're going to do is we're going to triple down and sue our regulator now. So, you know, that was a, they looked at us. They're like, well, that, that, that doesn't feel right. You know, like, and we still went through with it and like, it ended up being absolutely the right decision. So that I think maybe like October 7th, the day we won the election lawsuit was probably the day I felt happiest. What did you do when CFTC dropped the lawsuit? That was not that important. It was the one where we, the appeals court. Were you actually, sorry, that's what I meant.

48:12Yeah, that was important because, well, I first screamed a lot and like we just like, you know, all got a shit face in the office and like, you know, it was amazing. But then, you know, then we got back to work because we got extremely anxious about like, you know, launching the thing. Yeah. That was a brutal three weeks because we had to ramp up really aggressively And I mean, we really went from, we really grew a hundred X overnight. Like it was crazy. And so that was the three weeks of where I worked the hardest in my entire life. I was sleeping in the office. Like, you know, I was like, I was given this chance.

48:42Like I would have to basically like, you know, utilize it to the fullest. And it was, and we didn't charge fees on the election market. I don't know if you knew that. It was an intentional decision because like the KPI here is we've got to show the world that these markets work and it's done safely and nothing bad is going to happen. And democracy is going to be totally fine. And you'll see, we're announcing a few things with some big news organizations pretty soon. We'll see the shift that's happened in culture, the level of embracing that's happening with prediction markets now. That's pretty nice to see.

49:09Plus South Park. And South Park, yeah. Tarek Mansour, thank you so much for coming to Avon's Live. Thanks a lot. Thanks so much, guys. That was our conversation with Tarek Mansour, recorded live on stage in Chicago. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at CarmenArmondDashleBennett at Dashbot and KaleBrooks at KaleBrooks. For more OddLots content, go to Bloomberg.com slash OddLots. We have a daily newsletter and all of our episodes. You can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots.

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