Prediction Markets, AI and the Future of Finance

20:54Raoul Pal:And speed runs them like no other industry. Because of the behavioral incentives embedded in crypto, they speed run everything to a breakage point, then learn what broke and it gets rebuilt from that. It's an amazing process. It's pretty amazing. And it's also, I think, just the nature of people that are in this space, they're just frontier. They're the frontier. They want to tinker with things. They're interested. And I think that's what makes the, you know, it took me a while. You know, Cash didn't really start as a crypto company, right? No. And we don't really say we're a crypto company. Now, it's interesting because actually our first growing category is crypto.

21:28People think it's sports and other, but crypto has grown 25x since the beginning of the year for us. Why?

21:36Look, I think a few things. I mean, a lot of people, especially when markets go one way or the other, you know, trading the spot gets much less attractive in a down market. Whereas trading the derivative is much more interesting because you can have symmetrical views. You're really thinking about where things are going rather than like, I'm just wrong Bitcoin. And as the market matures, that's going to be, you know, the derivative market inevitably gets bigger. So there is that. I think, look, Perpetual, the launch has been, I mean, it's the fastest growing product you've ever had because, one, it's regulated in America.

22:05So people, what we've seen always, I mean, our playbook is we take something that's generally in a theoretical thing, economic circles or offshore, like proven demand offshore. And we bring it in a regulated, responsible, safe way with the traditional regulated structure in America to make it go mainstream. And I think we've been very successful in prediction markets. I think we're seeing the early success of perpetuals because I think a lot of Americans, they prefer having the oversight. They prefer having a regulator they can call if something goes wrong. And I believe in that sort of division of roles.

22:36I am the operator and I have someone overseeing me, making sure that I'm not overstepping, which I think is a good thing. And I think specifically perpetuals, I think they're simpler. They're very accessible. The lower fees are very important. So anyone who trades future now, it doesn't make much sense to keep trading it with the rollover fees that you're paying consistently. and then a short and a long are symmetrical, right? Whereas it's kind of hard to short Bitcoin otherwise, especially for retail participants.

23:02Raoul Pal:Where do perpetuals just grow to everywhere? One thing humans love is leverage. They love sex and leverage more than anything else. And, you know, perpetuals are leverage as well. Yeah. So you give them leverage, which gives them a different ability to price risk return. Okay, great. But obviously some people are not very good with using leverage, but we have regulation for that. and certain responsibilities, but how far does this go? So a few things. One comment on leverage and sort of the principle that we abide by. So actually our perpetuals don't have more leverage in the traditional future that the incumbent exchanges like CME and LIS.

23:38We're using the same traditional and boring risk methodology. There's nothing new about that. And I think that's important and maybe putting aside the regulatory, like how do I think about leverage? Look, there are things that have inherent amount of volatility. You don't want to use too much leverage on that because then you may take it to an extreme. But things that don't have enough volatility, you want to get them to a baseline leverage so it's actively traded. That's right. You want to kind of normalize volatility. Normalize volatility is the exact term, right? You want to normalize volatility.

24:05And I think people don't think about that enough, right? That's why sometimes you see people that like 200x leverage. I think that's too much. That's, you know, you're taking things to the extreme.

24:12Raoul Pal:Well, that might work in euro dollar futures. I mean, sofa futures, right? Which they lose. Yes. Yes, that's exactly right. That's exactly right. And I think the asset class is something we think about a lot. There's a few things that are, there's a few structural complexities. So, for example, if you look at agricultural products, the community itself, the farmers and the art community is not ready for 24-7. And they're not ready for perpetual structure. And we, as a company, we're kind of respectful of that because we understand why they could be very anxious about volatility during the weekend coming into Monday.

24:47And, you know, these are products that are touching, like, food security and, like, the farmers. So I think we're generally careful with those types of products. Now, there's other products that, like, there isn't that sort of natural, like, I would say, like, counter argument, right? There isn't, I mean, the counter argument is usually in comments saying, look, this is bad for X, Y, Z and reason. But what the incumbent really cares about is, you know, making sure there's no fee competition. Like, a lot of people like to list futures on, like, perpetuals because the rollout fees are 20 % of revenue.

25:14So you're going to end up having to kill that revenue with the perpetual competition. That's something that, you know, I personally don't think about much. Like, that's not my job. My job is, you know, compete in the open field. So over time, I think anything that's open-ended, whether it's equities or effects or some types of energy, etc., I think they should end up moving to a perpetual structure. I think it's inevitable.

25:36Raoul Pal:What about the old kind of, it was very common in the UK, spread betting markets? Because you can take one football team against another. And with perpetuals, you can do that in perpetuity as opposed to over the season, which is a kind of interesting idea as well. It doesn't exist. It's a very interesting idea. And I actually, I mean, look, I think there's differences because I think the one is an OTC market, one is an on-exchange traded. And I've always found those to be different. And I also, I think they should be regulated differently because in one of them, there's a house. And the house incentive is basically to win as much money from the customers as possible, right?

26:11Like the losses are going to the house and vice versa. And yes, there's a vagueness spread, but in Nashua, what they do is they limit the winners, people that are very good at it. And they promote the losers. Whereas I think an on exchange mechanic is more truth seeking in nature. That's right. Better pricing, right? Because you want the sharps, you want the smart people, you want the hedge funds, all of that. But the thing that you're talking about is very interesting, which goes back to Schiller's idea in the early days. So when he outlined a few examples of potential perpetual futures. So one is real estate.

26:41Yeah, that's right. Go long a city, go short a city. That's right. It makes perfect sense.

26:44Raoul Pal:Oh, filler index stuff. That's right. It makes perfect sense. You buy a home, you could basically hedge some part of that home. It's pretty amazing. Number two is human capital. So you could like structure a perp on your future earnings and how well you're going to do. I've thought about that because tokenization is quite interesting when it comes to future earning streams. You could take a basket of people from MIT. You could short a basket against Harvard, let's say, or Stanford, wherever you're betting. I like that trade. I like that trade. You can take a bet on a group of people and their future economic outcomes, which is a way of kind of creating an ability to, let's say, pay off student loans in advance or whatever it may be.

27:22Raoul Pal:It's kind of interesting. It's interesting because I think all of this goes into the bucket of efficient risk management and efficient resource allocation. Yeah. Right. It all goes in that bucket because markets, what they do is they add more transparency into any process. Yeah. Right. You can apply it to anywhere. Like how is insurance sold today? It's like you call the big boys and they give you a price. You don't know how that price was done and they get their premiums. Put that on a market, all of a sudden everybody's competing out in the open. Everybody can see it. It's transparent. And then the pricing gets better.

27:52Everything gets more efficient, right? And so there's a lot of potential in that over time in terms of having real-time pricing on a larger number of things. You know, one example is, you know, I think a lot about, and one of the things that I'm excited about right now is the biotech companies, like FTA approval processes. And I don't know if you've looked much into that, but, you know, it's amazing how like 95 % of these companies fail and they get funded for so long. Honestly, unnecessary. Oftentimes, CEOs have a lot of sales leverage and they're charismatic and they can, you know, kind of milk it for a decade.

28:27but what if you had an efficient market that predicts whether a drug is going to succeed or not right like all of a sudden now the leverage of it on sales is much lower you have a market that will say hey it doesn't look like this thing is going anywhere and it's also interesting for the patients because the patients the only resource they have right now is the people that are selling them the drug for the clinical trials so obviously they're self-interested in like pushing the drug and so on and so forth and I'm thinking a lot about what if we could structure a market in the right way that tells people and look you don't have to trust the market fully but it's an additional data point on where this thing is going and how it's progressing.

28:59And imagine buying that to a lot of other, like basically everything.

29:02Raoul Pal:The other thing that I've been sort of fixated on when I step away and think about where's the future of markets, and we'll talk about AI in a sec, but on a very core level, for us to move from AGI to ASI, we're going to have to take all of the data. I mean, literally from everything, right? Humanity scale data. And the Ribbit Capital article from Mickey, Malka and the team. He sent it to me beforehand and said, hey, can you critique this? And I looked at it and thought, that was brilliant, this token factory idea. And then I just said, well, but Mickey, surely this is just a gigantic, invisible marketplace of all of the information because the agents are going to buy it and they're going to have to price this stuff.

29:46Raoul Pal:And it's going to be valuable, whether it's for universities or individuals selling our data. And I just think there's something in what you're doing that relates to that, because that is going to be of a scale that we can't imagine. It's not the couple of quadrillion that the financial markets are now. It's probably much larger because the stakes are much larger because it's civilizational scale intelligence. And therefore, data becomes extremely valuable. And we don't really have a data marketplace. I do that with everything. I mean, the idea of a data marketplace has always been very interesting.

30:19And I think markets could actually help with a lot of that because markets are a way to surface and summarize data. I mean, I always say it's interesting. We're in a world right now where we don't have a scarcity of data. Like information is so abundant that actually we're at a point where like synthesis is becoming incredibly difficult. Like that's actually the core bottleneck to surface inside the truth and all of that.

30:40Raoul Pal:Yeah, compression is everything now. Yes. And markets are actually a way to compress. That's right. They're the most compressed single thing down to a single point in time. It's coherence down to compression, down to one moment in time with all information available. That's exactly right. You're getting one number, right? And it could be represented between zero and 100. And it's actually very simple to digest. And it's effective. I mean, you probably have seen some of the calibration plot. The Fed put out a few, the Federal Reserve put out a few months ago, and there's some reporting on it. The calibration plot are near perfect.

31:15It actually works. Like it is an extreme, like when we say something has an 80 % chance of happening, it basically ends up happening 80 % of the time. It's like pretty amazing. And so the more I think about it, the more it's interesting. I think part of why, I mean, one set that's very interesting here is, you know, out of our active users, close to 80, more than 80 % doesn't trade. They just look at it. They're coming in to use it as a news feed and they're looking at the data. Because I think you're in a world where like there's all these news articles and people on TV saying things and politicians saying things.

31:43And Twitter is sort of like, you know, a bunch of echo chambers that depending on where the algorithm takes you. And you don't even know what people don't believe things they read anymore. Like people don't believe anything anymore. Right. And so and this this idea that like, I mean, they come to what they do is they read the headlines or they read things. Yeah. You've become news. You've become a source of truth in a world where nobody understands. Become news with money, with money. Where people have skin in the game and they get punished if they say stupid things. Right. Like it's a tax on bullshit.

32:14and it's increasingly hard to find that. And I think that is part of the propeller of prediction markets over the last few years. I think when I think a lot about how did they grow so fast? I mean, right now, this is a fast-going industry. I think we're the fast-going company outside of Antropic right now. And I think that the reason is that, I think this idea that people are seeking better ways to filter information because they don't really, like we're getting overloaded with everything.

32:42Raoul Pal:So a quick break in your regular programming. If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible. And this guide will help you navigate what's coming. The link is in the description. Download it now. And how, so I mean, there's, when you break down a market, there's a lot of different component parts, right? There's people making instantaneous price decisions. Let's call those market makers, high frequency traders who are using algorithmic approaches to try and price this stuff. They're all learning because it's relatively new for everybody.

33:18Raoul Pal:So, you know, there's the market's quite inefficient. So I'm guessing the supernormal profits available for those who have better algorithms and stuff like that. We've seen that in financial markets in the past. We've got the individuals who come in, whether they're super forecasters or non-super forecasters, who are creating price points because of their reflection of that. How do we, again, I keep going back to the old macro issue of, sure, price is correct today, but the deterministic path to the future is where the money's made. Yes. Unless you're a market maker, in which case it's today's price.

33:49Raoul Pal:Yes. Can I take the bid from Tarek and offer it to Raoul and make a spread? Okay, yes. but the real money is to be made actually on that deterministic path and the probability forecasting of that. So when I think about the, so actually the people that are winning, you know, on cash and winning big, you know, it's like any competition. When you think about financial market, people always ask the question like, well, is it 50-50 of people that win lose? And the answer is no. If it was the kids, then it would be a random like game of chance, right? Like what do you make? There's no skill in it then, right?

34:20And, you know, it would be like, I don't know, we create a league like the NBA and then we randomly pick who's going to win the finals at the end. That wouldn't make any sense. It's usually like a small percentage of elite athletes, in our case, intellectual athletes, forecasting athletes, that end up being very good. The incredible thing about it, though, it's not the usual suspects. It's not the fancy institutions, et cetera. It's these people that have spent 20 years unbiasing themselves and being calibrated and think very critically about the world. And if you try to create uniform characteristics between them, it's very hard to find you know across gender age uh income levels ivily no ivily there's no

35:01Raoul Pal:clear patterns which is super forecasters was the same right it's the same it's it's beautiful it's actually beautiful it's like some random curiosity gene that they have that allows them to do this well yeah and some people and some people train themselves too some people what about this idea of because you said something interesting is the is the kind of super forecaster athletes that the the superstars. I wonder if there's something bigger in that where you can back the superstars. Yeah. And a lot of hedge funds ask us for the list and never share them. And, you know, but some people are really good at it and, you know, and they get rewarded for it.

35:36But these people, to answer the prior question, the way they think about it is fundamentally they're essentially trading value, right? They're not taking directional positions often. What they're doing is what is my fair value? I think this event has a 65 % chance of happening. So I will buy it for anything on 62 % and below, and I will sell it for anything at 67 % and above. And that's that exercise that the market is constantly doing. And a lot of super forecasters are doing everything that brings it back to fair value continuously. Right. And you have a lot of these. This is how the most kind of effective people and the people that are doing the most amount of volume do it.

36:15And yes, some people do it maybe with less research or they put less effort and some people do it for funds. Some people do it, you know, for arbing between different markets and all of that. But that motion that I just described is the most important thing to get the calibration that we get. And they've gone really good. It's like amazing. And, you know, for example, one of the traders, I mean, we had a bunch of traders that had bought it. But that's the trader, Domer, talks about it publicly. He bought the pope who was at 1 % on Calci, the American pope who ended up being elected or chosen. and he didn't think he was going to win.

36:46He just thought 1 % is wrong. And he described a lot of the process where humans, they don't generally, intuitively understand the difference between 1 % and 10%. They're dramatically different. They're dramatically different risks and we should treat them dramatically differently. The same way I think we fumbled COVID a little bit because, oh, well, we thought of it as a 1 % event. I mean, this whole goes back to the fat tail thing, right? But it was not a 1 % event. There was clearly a 10 % to 20 % event which should have been incredibly alarming back in December of 2019. But some people are so good at it.

37:20And I think you want to figure out how to get more and more of these people, incentivize them to do what they do best. And on Calcio, they've gone from being hobbyists, they would do it like hidden from their partners or something at the beginning, then the full-time job, then now they have companies dedicated to doing this, which is part of what I find fascinating because you have a huge community that's incentivized to truth seek. That's basically what they do as a job.

37:41Raoul Pal:It's also interesting to see how biases stick over the probability, the distribution curve. Because like after 2008, everybody bought tail risk hedges for like five years. Yeah. Right. And you always had that left tail was overpriced. Yeah. Yeah. So even with a huge market like whatever you were using the tail risk hedging in, that still maintained for a long time. It left a lot of people the ability to sell puts or calls on whatever it was. There's different ways of expressing that trade. But it's interesting how biases stick in even with giant markets. They always exist, right? And there's a lot of people that are in the business of finding these biases that exist in the market and then trying to counter them.

38:28Like sell the premium, basically. Sell whatever bias premium exists. I mean, one of the biases that we always see, there's always a yes bias versus a no bias. People just like saying yes more than no. So you always see more natural flow, which is a good thing. That's an optimistic thing for society, right? But then there's one interesting phenomenon that actually Kevin Hassett also wrote a paper about. And it was in theory. He had actually wrote a mathematical proof about it. And then we see it in practice today. So that calibration plot that I discussed has a little bit of deviation around 50%, 45 % to 50%.

39:00It deviates a little bit. And that paper, what it argued, and I think we show it in practice now, 50-50 actually means one of two things usually. It either means that people really believe it's a 50-50 event or it's a high entropy event. We don't have much information. Yeah, they can't price it. So we naturally, like when we don't understand something very well, we naturally go to 50-50. But that doesn't actually mean it's 50-50, right? No. But we just say, well, I don't know. It's 50-50. I don't know. It's usually equal to 50-50. But that's usually not right. That's a human bias.

39:28Raoul Pal:Oh, that's super interesting. And we see it in the markets. 50-50 is where, like when we say something is 50-50, where the least accurate doesn't end up having 50-50. Yes, it makes total sense. That's fascinating. So how, as you keep rolling out new products and new prediction markets and new ways of doing what you've built, how do you find the liquidity for all of this? Because, I mean, you've got to be a huge liquidity suck because you need a lot of pricing. I think this is why, you know, And there's obviously the regulatory journey we had to go through that was a very long one to get to where we are.

40:03But the second challenge is really like liquidity. It's a marketplace, right? You have a supply and demand problem. Now, financial exchanges have a uniquely difficult marketplace problem because, you know, like the analogy I like to give is like if you're on Airbnb and you find a house, you're good. You got a transaction, you're good. And adding more houses to Airbnb is not going to make you transact more. whereas on a financial market adding more houses adding more liquidity will also make you transact more so you get like multiple second and third order effects of lack of liquidity and of abundance of liquidity so it makes a very hard problem to get rolling but when the ball rolls it's much easier and I think it took us a very long time to get that ball to kick but now we have enough of a large community of market makers and super forecasters and active users that put limit orders that it's easy to point them in different directions because they make profits in a variety of different things in our markets like crypto or sports or politics.

41:01But if you have an interesting question about AI, we can point them in that question and then they can price it pretty effectively. And that's what happens with scale. You can start playing with incentives and you can do a variety of different things to point people on the things that you want them to trade.

41:13Raoul Pal:And what about all of the competitors who've come up? Do they grab liquidity or add liquidity overall? UK arbitrage markets or, I mean, you're so much of a monster in the space in terms of size, but let's see how it develops in five years, whether it broadens out or not. Who knows? Maybe not. Yeah. I mean, we're over 90 % market share now, and it's going to reduce a little bit over time. It's inevitable. I mean, right. It has to. And then that's a natural course. But what we found, I mean, it's just it's a bit like crypto. You know, people always like, oh, there's so much competition. But like, I mean, liquidity begets liquidity with these markets.

41:48It's just that's by far a strongest force and the driver. And so I don't think we're anywhere near the level of saturation or maturity of the market where like, you know, you're going to start seeing like cannibalization across people. Like, I think you're going to see competitors come and innovate. You do new interesting things that will push our boundary and our understanding of these markets. And that's why I've always, like, I think being in a big market, a lot of competition is very good, much better than being in a smaller market with low competition, much, much better.

42:16Raoul Pal:One of the things that we've been thinking about at Real Vision for a long time is, okay, we all agree on the rise of the super forecast. We also agree that retail has been empowered finally. And crypto markets were one of the key drivers of that that pushed everybody forwards and opened up everything. And part of this is now me thinking, well, what we can end up doing is turning anybody into a hedge fund without all of the complexity that goes with it. And therefore, I could buy a TARIC token that gives me an economic representation of your performance, right? That's collapsed everything from being millennium with the legal regs, the operations, the capital allocation, the risk model, all that goes.

43:04Raoul Pal:I can now have 50 pods of people. And this is what we're thinking through for Real Vision is like, well, we can have 50 pods of real people that we can then allocate in real time to, depending what time horizon, what risk profile we want. It collapses all of the structure of the pods at Millennium. It collapses all of the structure of the mothership of Millennium. And that applies to all asset management. And then you're adding in even more to that, which is like, oh, and here's a gazillion new instruments for people to express it on. I mean, this gets very, very interesting very fast to the future of what is asset management?

43:40Raoul Pal:Not just trading where you are today. I think asset management is upstream of everything. Performance, excellence. Correct. I mean, you know, there was a, I forgot which news publication last week. They sort of called it, or apparently, I mean, I don't remember, but either I said it or they were quoting me, but they called it like this idea of the rise of the new Wall Street. Like we're building a new Wall Street. And I think what you're getting at is exactly what I think this means. When you broaden out the universe of instruments, you're broadening out the universe of where people can play and win, can participate and win.

44:12Because a lot of these are customers, you ask them, could you go and trade on traditional S &P options today? And they're like, look, I think there's no way to be the information asymmetry with the hedge funds is impossible, but I can win in forecasting the inflation. I can win in forecasting politics, sports, culture, you name it. All these instruments that there is no reason for the Wall Street incumbents to have a natural edge. And actually, we're seeing in our data. This is what's so amazing. Like our best inflation forecaster is a random dude in Kansas, and he's unbelievable.

44:41Raoul Pal:Is he systematized? Is he kind of AI driven or is he intuitive? He doesn't share much. It's pretty, but I think he's just been reading the news about it coming for a long period of time. He's become very effective at it. He's become so good at it. And when you broaden out the universe, the aperture of what can be participated, and you take out all these kind of gates, make it simple for people to get started and do it, you're seeing a rise of much larger number of people that are actually very competent. And you see like thousands of people that have become small pods, like you described on Kalshi.

45:11that generate incredible returns, basically truth-seeking, like doing the work that they're doing. And they don't need much. They don't need all the infrastructure that you mentioned. They don't need a lot of leverage.

45:18Raoul Pal:Could they run capital for other people? I mean, that's the interesting point. Over time, it's happening. They're raising... And on Elshie, could it be a marketplace of super forecasters? That's what's in my head. And that's what we've been working towards with Real Vision as well. Because I think bundling and unbundling is a kind of core driver of the universe. And what we need to get to is the unbundling of all of this. all over again because we've now got the tools to do it. We couldn't do it before. Agreed. Unbundling a lot of Wall Street. I mean, a lot of people are funding, and a lot of some of the customers that have kind of graduated to be doing this really full-time are raising money, external money, because their track record speaks for themselves, right?

45:55And this is the beauty of... Yeah, but there should be a marketplace for that.

45:59Raoul Pal:Yeah, that's the efficient way of pricing capital. Because it's kind of you're driving things towards a meritocracy more and more, right? Like if someone can show results and put in the hard work, they don't need all the means of access. They don't need to get through all the hoops. All the things are gatecapped from them right now. Because the reality is if you are grown within the millennium circle and the hedge fund, the big boys club, you're probably going to end up being one of those hedge fund managers. And you're pretty geared to win in that traditional sense of the term. But there's a lot of talent out there.

46:32This is what's amazing. There's so much talent out there. I mean, crypto did a lot of it and has surfaced a lot of it. And I'm a strong believer in that not everybody will win. Not everybody wins the NBA. Not everybody wins an election. But I think creating as much of a, like break down as much of the core barriers, create as much of a level playing field and a neutral playing field for giving anyone a shot to win is I think what I'm most excited about when it comes to prediction markets.

46:56Raoul Pal:I mean, I totally agree. And breaking down all of these barriers allows a wider opportunity set, which actually goes back to your point you made in the very beginning is politics gets a little easier if people see that there's opportunity. you know people are frustrated and we get that um the question is is how difficult is the fight with the incumbents to do it because the regulators are in the path you know you've had to work with the regulators and we know there's i'm not trying to get you into trouble here but it there's a lot of friction in your path and a lot of hurdles that will get put up because gatekeepers make a lot of money and what you're doing is creating a new business model and that's difficult.

47:39You know, what I've learned over the years and I've been kind of transparent about this, like our path has been very hard, especially if you want to do it the right way, the regulated way. You want to like change the system. If you want to do it outside the system and go, you know, that's easier because no one like no one cares and it's hard to go mainstream. But if you want to change the system, it's very hard. And what I've learned over time. look I'm a pro-regulation person to be clear like I'm I think there's my view is generally like build a highway that is wide enough for competition and innovators to thrive and do the things they want to do and make sure there's a fence you don't need to build a narrow highway where people are choked you want to build it wide enough but you have a fence so that people really you know make sure people cannot do bad things you know misinform customers people you don't want people falling off the cliff Now, what I've learned over time is the regulatory equation is much more complicated and it's fundamentally business interest driven.

48:35Unfortunately, we've got to a point where regulation oftentimes there's like two types. Right policy, make sure we're actually protecting consumers, etc. But the huge part of the equation is actually incumbent protection. Why? Because incumbent has been lobbying and doing decades long of exactly that, regulatory capture and moat, etc. And you're seeing with perpetuals, you know, the CTC just got sued over the perpetuals approval. And I find it to be a validating sign, right? Like when an incumbent is suing over a product instead of embracing it, that's kind of a good sign for the innovators.

49:07Raoul Pal:Yeah, if it's proven to be a good, high-quality product and it's been tested, then it's telling you a signal. Is that scared of it? And look, some incumbents, I would say, it's not all incumbents, because some incumbents choose the path of competing. They break the innovator's dilemma. They figure out how to invest in those new platforms and participate in them, or they hire a team. they figure out how to compete, which is a good thing. Like, that's actually what you want because they keep reinventing themselves and not rely on like, you know, the innovation from two decades ago. But then others, unfortunately, like sometimes choose to litigate and try to squash the innovation or the competition out.

49:40But that's never the core. I mean, at least in America, that's never how, like, you're never usually on the right side of history there, right? Like, it's hard. It's hard to compete. It's hard to innovate. But there's a lot of us, right? And a lot of us have the incentive to do it. And that's the beauty of America. That's why this country works.

49:55Raoul Pal:And how do you get around stuff like, I presume the binary options are banned for retail in the US while prediction markets are binary option markets? They're not in the US. There's some parts of Europe, but I think a lot of Europe is reconsidering that. Yeah, because there was a lot of kind of those bucket shop FX places that were wildly mispricing binary options. They were unregulated, right? There's a lot of unregulated. I mean, this is the thing also. So it's like, and crypto has survived a lot of this, right? Like in a lot of these markets, honestly, this exists in financial markets, this exists in healthcare, exists in a lot of markets.

50:29Oh, yeah. There is bad actors. There's unregulated actors that honestly don't worry about risks. Like what I always tell any type of technology, AI, financial markets, perpetuals, they all come at risk. And when operators are not aware of these risks or care, you're going to end up having bad outcomes. And that's why, well, let's not trust all the operators. Let's have a good regulated regime so that we have a regulator that's, you know, got, you know, elected by the people that essentially is creating an oversight regime for these types of products.

50:56Raoul Pal:Yeah. Then the issue is we've got global regulation and that's a mess. So, you know, as you're pushed globally, you know, the U.S., you guys have done a phenomenal job. But outside of the U.S., it starts to become complicated because you've got that. You know, I had Yoni Assa, you know, Yoni from it. And Yoni's like, you know, we've had to deal with every fucking regime to deal with to get some of this stuff done. And you kind of have to go that same journey. We have to do the same. I mean, we're always going to be regulatory first and we're going to go through all the hardship of making it happen because it's the right thing to do.

51:29And that's what it takes, right? If it was easy, everybody would do it, right? I mean, and I think it's not. And, but... That is the opportunity, but it is hard. It is a part of the opportunity. There's part of the opportunity. And the other thing, I still think that our principles are clear. Bring innovation, do it the right way, and have sound policy principles, right? On the long-term horizon, That trumps the incumbent politics. It trumps the politics because you're being sound, right? Now, if you're being extreme in one way or the other, like you're saying unreasonable things, that is not going to withstand the test of time, right?

51:58If you're being sound on your principles, like how much leverage are you giving? Are you asking things in the right way? Do you have a proper risk model that works? All these different questions. If the answers are yes to all these different things, that will essentially over time. Now, maybe it doesn't happen as fast as we would like it to, but you win over time, right? because you have the right answer. I really strongly believe in that. And we're living proof of that. We spent four years, and you remember, getting regulated based on principles that most people didn't believe in. They said this would never be allowed by the government, but we were right.

52:26We always said this should exist, it can exist in a safe and responsible way, and here we are. What was the thing that cleared that? Well, we had to sue the government, so that was part of it. But we won, right? We won, and it was hard. It's very hard to sue the government and ask the government to rule against itself it is hard no matter what people say but um if you're right you're right you know and and at some point you get vindicated in one way or the other the question is are you going to wait enough to be vindicated and we waited and and i think that's just the path of uh that's just how these things go you have you have to pursue it for a long period of

53:00Raoul Pal:time another thing i was just thinking talking to you is you're sitting on a gold mine of data yeah yeah well how do you think about that because right now it's obviously contentious but it's not contentious i mean markets sell data and you know if you think about the big exchanges they make more money from selling data than they actually do from they do other stuff you know right now we're in mode of like give it away for free as much as possible and as open source as possible because we want like this part of the mission i want people to use data i want it needs to grow first it needs to grow and i i want to train and it's happening this is the amazing thing like when i talk to parents for example that there's a 25 year old son or daughter are on cal sheet the consistent thing that they tell me that they're most excited about when they see that is that all of a sudden they're seeing their uh they have more um kind of like um substantive conversations about different topics with them because they're reading more they're researching more they're like what's happening with polish what's happening with the economy and they prefer that over like you know spending time on instagram scroll do scrolling and and seeing some crazy stuff on there, right?

54:02And you're training a generation of people to think more probabilistically about the work, to think more critically about what's going to happen. And I mentioned, I told you, more than 80 % of our customers use it for looking at the probabilities of different things happening. As long as we train that, I think we win long-term because our cultural win is starting to happen where people are, what's the cashier on this? What's happening here? Instead of this idea, like I've always found that math would be the solution to all these heated debates that we're having, whether it's your dinner table on Thanksgiving or we're having a debate stage in politics.

54:31It's all have become extremely, extreme, emotionally charged. And maybe it's always been that way. But I think this is the solution. That is the potential antidote. And as long as we get there, I think we're going to do more than fine.

54:43Raoul Pal:What about, I was just thinking through the banks then, how do the banks think about all of this and what they can do with it? Obviously, some of it's super interesting because you can hedge different risks and all of that stuff, or take different bets on different stuff. There's also about the bullshit economists who get everything wrong for years. There's a bigger truth mechanism here, even though, obviously, there's always the CPI print or whatever the thing is. I don't know. There's something in that. And this also reminds me. I don't know if they used to do it on the trading floor in the US at Goldman.

55:15Raoul Pal:But on non-fum payrolls, we would get the yellow stickies, and we would post them from the top to the bottom. Everybody on the floor. You put five pounds in at the time. and anybody was there and we'd have like a hundred of these things up the wall and it was a winner takes all market. I just think there's something, I don't know how the banks are going to deal with all this, but it's super interesting. I think, look, the banks, my sense, and we talked a lot of them and actually a lot of them are actually starting to embrace it faster than I think they embrace crypto and you're going to see that trajectory.

55:43So if you predict that out a year or two, you're going to see much, like the banks have embraced prediction markets much earlier than they have embraced crypto in the crypto journey because I think prediction markets, I mean, again, remember I started from the bank side. This is where I really got the idea because they're pretty disruptive in nature to their business model. Oftentimes they are pricing. They are doing a lot of work pricing these non-traditionally financial risks, whether Brexit is going to happen, non-farm payable, like all these different questions. And now you have a liquid marketplace to price it.

56:15So at least on a data integration, they're going to have to use it. Otherwise, they're going to be left behind. But we're starting to see a lot of demand to trade the products because that's how a lot of their trades are formulated. A lot of people want to get the J.D. Vance position, the Rubio or the Gavin or the AOC position for 2028. That's the thing that they're trying to figure out how to position themselves in. And instead of doing it indirectly, like how about you just buy the thing and don't take any basis risk? That's too obvious. It's a better product. And so that I think by as we look at getting to the midterms of next year, I think you're going to see a lot more.

56:45I mean, the institutional adoption is happening, but you're going to see it throughout the banks as well.

56:48Raoul Pal:Yeah, I mean, elections are going to be amazing for you in this whole process because it gets very interesting. So what's next for you guys? So you've launched the perps. It's taken off like nobody's business. Where do they go? And then where does the business go next? Yeah, I mean, we're very excited about the petrols. I think that we're going to expand the number of perpetual futures that we're listing. We started with digital assets, Bitcoin and a few other currencies. And why have people used CalShare as opposed to Hyperliquid or other exchanges? Is it because you're regulated? Yeah. I think ease of access, it's regulated.

57:23I always say whenever there's a regulated product, an alternative, people prefer the regulated product alternative. They do. Yeah, it's just easier. It's easier, but I think it's just safer. People don't like taking counterparty risk in general, and you're not really taking much or you're taking significant counterparty risk with a regulated business. That's important. Then, obviously, that's holds true for institutions. Institutions generally are much faster to... They don't really adopt on regulated products in mass. Yeah. But expanding on perpetual offering to more products is a huge priority.

57:55I think international expansion is the second and third is accelerating the institutional attraction that we're seeing right now. I think the growth in the first six months of the year has been great. I mean, now it's just like got to drive it home and integrate the banks, kind of halfway through the broker dealers and the FCMs, the kind of futures brokers, and then we basically need to just get the other half.

58:18Raoul Pal:And the other people who price probabilities, I mean, there's two groups of people. One is the actuaries. And I guess the insurance companies are still actuaries at heart. But there's something super interesting in those markets as well. You know, we do price hurricane risk and stuff like that. But it's a pretty underestablished market because you don't have super forecasters. So you have, you know, only a few incumbents who are pricing markets. And if you've got 10 different insurance companies, you haven't got an official market. You're taking it, what we're doing is, you know, every time an over-the-counter market has moved to on-exchange traded, the market grew by like a factor of like 10 to 50x, right?

58:54And that's what we're doing. We're taking it from an over-the-counter where you call one broker or one person and they tell you what the price is and then you transact to an on-exchange traded product. And we're actually seeing it over the last weeks. I mean, there's been a lot of buzz recently on the sports hedging on CalShift because people, you buy sports insurance. Now they're just doing it on the exchange because it's much better prices. And like there's teams that do it. But there's, I mean, a bunch of bars that stock up an inventory ahead of the game. And then that's an economic risk that they're taking.

59:21If the team loses, nobody's going to show up. And it's going to be, you know, a buzz. So they hedge out these risks. They're getting used to hedging out these risks, which is great because, you know, they're soft smoothing their P &L to be able to, you know, against sort of different outcomes. And actually a hurricane is we're seeing across weather. We're seeing economic indicators, et cetera. People prefer coming to us because it's much cheaper, much faster. And specifically for hurricanes, with traditional insurance, oftentimes it takes two years to get paid and you have to show the damages.

59:49And people really want a fair instrument that tells you this parametric. If the hurricane hits this town, I want to get paid immediately and I want to be worried about how much I'm going to get paid. And people really prefer that product. We see this a lot around hurricane season, which is pretty cool.

1:00:05Raoul Pal:Yeah. Listen, what you're building is huge. I think people still underestimate the size of what you're building. I hope so. You know, I just think of it. And again, I go back to the conversation, the rivet capital idea of token factories. And in the end, you are a gigantic token factories of global probabilities of all sorts of things. That is an incredibly valuable thing for whatever. Outside of the revenues that it makes and everything else, you're building a token factory of. That is almost unassailable in terms of what it has, the information that holds within it. and I just think that that's the start of something maybe much bigger overall is what this allows for.

1:00:49Yeah, looking at this as token factory is amazing but I agree, I agree. I think like the idea of infinite markets token factory is this idea that like, could you create an efficient market for all these questions? Let's stop, you know, debating them or doing them in all these like obtuse, obscure ways. Could you build a frontier model?

1:01:07Raoul Pal:Yes. Because you have a very different data set. A lot of data, different. And anybody else has, right? You have a, because one of the hard things, and I'm training AI in bits and pieces now, in predictions, it needs the falsification and did the prediction hit so it can learn. You have that at a scale of which nobody else has it across such a diversity of stuff. That's an interesting idea. We've been thinking a lot about what to do with our data because a lot of the labs, right now we're giving them the data and they want it, but there's a time where this could change. So we're thinking about that a lot.

1:01:40Don't give them the data. Yeah, it's a unique data set for sure. I mean, you know, and it's unique in the sense it's the only one that's forward looking in this specific way, right? But it also trains models

1:01:52Raoul Pal:on what it takes to predict. Yes, yes. That's the thing, because I'm having to do this with a model I'm training, not for short-term price stuff, but kind of long-term, very complicated stuff. But it has to meet these prediction points and how did it do? And then it has to learn from why it failed and all of that. you've got that at scale. Yes, sure, people can do that from the S &P futures and all of that stuff. But you've got a lot more granular information than anybody else has in a way that the world is desperately going to need as you go through intelligence models beyond AGI. I don't know.

1:02:26No, we're on the same page. We've been thinking about this internally. So it's definitely been an interesting topic of conversation. And people should not be surprised if you end up doing something on that front. So that's something we're thinking about. Yeah.

1:02:39Raoul Pal:Well, listen, well done. As I said, we followed this journey. I thought it's never going to happen. I thought CME and the CBOT and everybody's going to kill you. And you've done it. I mean, you've done it. And it's amazing to see. And, you know, it's just fantastic. So well done. Well, I really appreciate you. And thanks so much for having me again. Not at all. And I'll get you back at some point as well. Absolutely. We'll talk soon. Thanks a lot. Thanks. So there you go. I mean, brilliant conversation. Just there's so much in it, so much to think about where the world is actually going. Because what Tarek is sitting on is signal.

1:03:11Raoul Pal:He's sitting on so much signal of what's actually happening, where the world is going, how people are thinking about it. And not just the signal in terms of price, but the signal in terms of, again, we go back to that democratization idea, how anybody can become a hedge fund manager, how anybody can become a super forecaster, how anybody with some experience and the application of their intelligence can do really interesting things, and how the structure and nature of markets is changing, and how we're preparing ourselves more for the machine age as well. Anyway, great discussion. See you next time.

1:03:48Raoul Pal:You obviously enjoyed the episode because you're here with me at the end. But listen, don't forget to go to realvision.com forward slash join and grab a free membership. It's an incredible community packed with alpha, great investment ideas, and the research that you need to help you unfuck your future. So get started now, go to realvision.com forward slash join.