Kalshi CEO Tarek Mansour - The Future of Free Markets

0:29You're not launching product. what's happening anymore you can go to calci and see the like the charts move in real time how big do you imagine prediction markets will become

0:40tarik mansoor welcome to the pod thanks for having me thank you so much for taking the time so we're coming off of a huge election season and a huge year for you already so it's february and And January 15th, you signed a new advisor to Calci. You signed Donald Trump Jr. How did you score him? Well, I mean, you know, maybe just before I got answering the question directly. So it has been a crazy year because we after the election, we basically try to keep the momentum and we're shipping actually faster than we ever did before. And so actually January was actually three different things. We announced Don Jr.

1:19We announced our entry to sports, which we can talk about. That was a whole big thing. and and then we actually announced our partnership the integration with robin hood who's going to be our first broker we actually announced our second broker we bull this week two days ago um on dodger i mean i think look it's we didn't qualify it is like scoring him i mean it's you know what happened in the election is i i think uh prediction markets i would say specifically also cal she went mainstream because cal she is sort of the america first onshore regulated prediction market um and where a lot of Americans were actually just using it.

1:52Like, you know, people at the DMV, people like you would find. And this is a cool thing about this. Like it's Americans outside of the sort of Silicon Valley and Wall Street bubble. Those two were using it, but like it's also just random people in random places. And so you had this kind of aspect that happened in the election where these markets went from something super niche to something pretty mainstream. And it got to the very top, right? Like the Trump family was using them. You know, I don't know if you saw his tweet, like they were actually using Kalshi that day. And and I think the beauty of it is that it actually aligns very strongly.

2:28And Don has actually been talking about these things for a while with this idea of talking directly to the American people. And some ways actually Trumps were forced into talking directly to the American people because the media was actually a bad filter, a bad intermediary for their message. The message was always getting lost with mainstream media. And Twitter was a very good outlet for that. And actually prediction markets are very good outlets for that because, you know, I think of it as Twitter is like the best way to get Aggregate like the user wisdom of the crowds for where the news like the past for what just happened or what happened and prediction markets are the way to Use it with the crowds for what is going to happen and and you know apply to elections people like realize like oh shit you know the Everything that was going on with the news actually was going on with respect to punditry how we view the future polling, how we think about the election and prediction markets were the antidote, the same way that X and Twitter were the antidote for the news.

3:20And Don was very excited about that. And, you know, that's, I think, why he decided to join and be part of this mission. And we should be excited to have him. He's been extremely helpful. Did you ever imagine when you started the company that the son of the sitting president would be a part of it? I mean, there's a lot of things I didn't imagine would happen when I started the company. You know, I think both good and bad, I would say, like, you know, I didn't I didn't imagine how hard it would be. I would say that's the headline. You know, the thing that I severely underestimated is like, like, I always thought we're going to be successful and do interesting and meaningful things, but like, I did not realize how hard it would be.

3:53And it was just much harder than I expected. But I mean, you know, I grew up in, I mean, I was born in California. I grew up in Lebanon, like, you know, the anecdote, like two, two specific things that tell, I mean, maybe summarize how I grew up. Like one, I grew up till I can literally I came to the US. I had never even thought that Google was a company. Like that's level of exposure I had. Like I just had this one shitty computer that we had at home that like barely worked. And like there was this box I would type things into, but like I didn't realize there's actually a company making money out of this.

4:26And so one, like very non-entrepreneurial, like I just knew nothing. I just knew math. And two, I actually learned most of my English studying for the SATs. So like I was totally not exposed to anything. That's kind of how I started, right? and and you know fast forward you know half a decade to a decade now uh yeah i mean i think things are very different i would never imagine any of this what does the partnership look like which one with don don well it's great i mean i think he's been extremely helpful what he he's helping us with everything go to market strategy i think we're expanding very aggressively um and thinking about new jurisdictions i think thinking about new types of markets and thinking about basically how to expand uh our user base so we onboarded two million uh people to our app uh last uh uh last fall and now we're basically scaling beyond that and it's really all about like how do we dig this even more mainstream like yeah like my vision is like i genuinely think and this is how we started the company like when i first got excited about the company with luana um it was two things like i i strongly believe that from first principles these predict like prediction markets or without even using some fancy terminology like a market where you can buy anything relevant any question about the future should be one of the biggest financial markets it makes sense right like if you're buying stocks or things like bonds and options are kind of complicated small percentage of publishing cares about like if i asked you what are like cisco's financials right now you don't really know right i don't well but if i ask you like who won the super bowl or who won the election or you know how did covet go or did it rain yesterday day, you know, right.

6:01And it's that's the whole premise. Like we're building a financial market that can cater to anybody on things that they actually know and care about. So that should be pretty big. And, you know, I think that like divisions, like I think this should be able to rival the stock market one day, especially with the rise of retail trading and so on and so forth. And I think Dawn can be pretty helpful with that. I mean, it does feel like the space is about to blow up Coinbase and Robinhood just mentioned prediction markets on their earnings calls. How do you feel about that? Yeah, a lot of I mean, Coinbase prediction market draft kings, I mean, a lot of people are excited.

6:35I mean, it's amazing. It's it's great. Like, you know, if someone had told me a few years ago, like this would be one of the main topics of conversation and earning calls like I'd be ecstatic. So, you know, we're extremely happy. Like, I think that, you know, we just announced. So because the way I describe so Calci has two business business models and it's a very it's pretty typical for exchanges. So the comp for Calci is CME. So CME, are you from CME? No. So no one is, but like CME is, CME and I, so the two largest derivatives exchanges on the planet. Derivatives is basically when you list something, a financial instrument that doesn't have like, you're not buying a stock or you're not buying a bond.

7:12You're buying something that settles in something more intangible in general. Those two companies are like close to a hundred billion dollar companies. And they have the highest net margin profile in the Fortune 500. And those people usually don't go to the New York Stock Exchange dot com or CME dot com to trade. You go to Schwab, Robinhood, you go to your brokers on Calci. Calci isn't new. We have Calci.com where you can trade on Calci. Like you go to Calci and you trade, but that's Calci Direct. And then, you know, the thing that we're really focusing on this year is launching the brokers. So where you can trade our products on your brokerage app.

7:48And that's because a lot of people like to do everything in their brokerage. That's where they have their account, their wallet and so on. And so, yeah, our first broker is Robinhood. And, you know, Vlad has been talking about that and, you know, Scott Weeble. And I think, yeah, I mean, I think over time, I had discussions with all the other ones like Coinbase, DraftKings, all the others and various stages of the pipeline. Hopefully also we'll get them at some point. How big do you imagine prediction markets will become? I think it could just look like the stock market, maybe even bigger. I guess like more taking a larger step back.

8:16What was the exact like evolution of prediction markets to today? yeah so I think it's been kind of a long journey the initial actually a lot of people don't know this so the first version of prediction market that was created was this thing called Hedge Street and it was created in in 2000 and it was like 2002 or something it's like way back like crazy like 23 years ago now I think it was way ahead of his time it had like it's it's it's kind of sick because like it was like you know very early internet and like and like the if you look at sort of what it looked like it's and the vision and like i i write some of the papers from the from the founder back in the day it was a lot of what this a lot of what this looks like you know and i think that was interesting because like um i didn't know after i i learned about all this starting after starting the company but like you know a lot of these people are actually pretty visionaries back in the day it was just too early for its time uh and uh and then uh the financial crisis happens and you had a huge deregulation wave so and there's this you know you might be familiar with dot frank which is the the big sort of uh regulatory thing that was put on on the financial services and then they blocked mostly basically they blocked prediction markets like it was made illegal uh and then you had a lot of like unregulated players pop up so in trade was actually the og they were awesome honestly but uh it was run out of like i think dublin or something like that and then they got shut down by the cftc and there was another kind of version of a decentralized like that was started by auger which is actually really cool like in the early days we inspired ourselves a lot by by auger because they're just like really neat interface uh and it was it was cool it was decentralized and actually people don't know like we we first two weeks of cash we actually started on chain so it was really yeah it was okay yeah people don't know this uh it was like uh uh it was crypto first i remember and like that was when we were doing this like yc hackathon thing and and you know michael seibel now is on the board but i remember we pitched it to michael and he was like well everything is great about this thing sounds awesome but like you have one problem it's illegal and we're like well like we're pretty naive we're like okay but we can figure this out and then we kind of went through we started talking lawyers realized like actually doing it on chain will be harder to get regulated uh so we brought it on chain or off chain i guess like we we just decided to build it in a normal and you know decided to go through in the three year like long process of um of legalizing it uh but i think and then there was predicted also which a form of in trade they got like this hey your research small research thing for university you stay non-profit and we let you exist what our unlock was was like i think we believe there's a demand for this but then we strongly believe that like two things like if we wanted this to be to get beyond a certain set of scale without regulators like shutting it down or like having it has to be regulated and two is like like any financial market you have to be able to work with brokers like the schwabs of the world the robin hoods and then the market like citadel susquehanna basically wall street to bring in the liquidity that is required to actually start a financial market right make it large enough right um and you see this even crypto right like once those institutional players came in the volume started to look like what you see in traditional markets and so we realized like we have to get regulated for this to happen otherwise we wouldn't be building something that could be as big as we wanted to what was the process like for you it was brutal like it was it was it was honestly the worst really it was the worst form of torture anyone could ever imagine like it was like and um uh i mean we talk about this often but maybe we don't talk enough about like like i i don't know i think like if if um we felt sort of an obligation so we're pretty missionary of our prediction markets like and so it's it's you know obviously we want to make money out of this and all of that that's obviously true but we also want these things to exist and we felt this sort of like we wanted to do it right basically like a lot of this community has been disappointed very consistently uh you know intro is a huge point for this community for example because you know it would get to a certain scale and then get shut down so we're like we need to actually solve this first and foremost the elephant in the room for this for these markets we need to solve regulation and if we do that then you know we've delivered we've already delivered something really big for prediction markets we've like we've made them legal and and then after that we can build a really big business um uh and so that drove us through these years but it was really hard because like you're not launching product you don't have any customers no one really gives a shit about you no one cares like you know what what are your what your investor updates on a monthly basis are like hey i'm still banging my head against regulated doorstep right like and i and it sucked it really really sucked because psychologically it's really hard to like what's cool about being an entrepreneurs, you make progress.

13:06You tinker with stuff and then you grow and sometimes you make mistakes, etc. But this is no progress. This is a promise of maybe a binary kind of outcome that you get regulated one day. And actually, all the evidence was pointing in the other direction. Yeah, I mean, we were just a little crazy. We were just like totally nuts. Well, they do say psychosis is the effect of doing the same thing over and over again with no different outcome. Yeah, it was a little bit like insanity. It really was. like i mean we would go back and like they would get we would get back and they would look at us and like no and these are all the issues and we'd come back write another a bunch of like few hundred pages you know i became a legal expert like i am i actually can safely say i'm one of the foremost experts in derivatives regulation like like financial regulation i'm actually and because i had to like there was no other option and um uh but that that period was really really tough it was really really really tough and but we had we were lucky enough that a few investors in the and the seed believed in it and they were like we'll do it uh uh you know and and they're all awesome like you know neil ali partovi is like crazy guy just like you know i believe like he had one meeting he's like i think you're gonna figure it out somehow even though i remember i was in the meeting at the time i was like i have no idea what the we're doing but like um justin martin is also in that same i mean there's a few other people in the early days that funded this and then when we got regulated things were actually much easier yeah so i guess uh how much has the company raised to date who are your investors how did they exactly help out with that process it's raised close to 110 um um we i mean the main investor sequoia yc um uh schwab uh kravis um and uh i mean a bunch of others um no one can help with the regulatory thing i mean it just became such a strong muscle for us like you know the policy aspects the working with congress working with the administration, working with regulators, like that's just something that I do, you know, and Luana does.

15:05And we have a whole team for now. But yeah, I mean, all the other typical stuff, like, you know, and I think we go to investors for various different things. Right. Yeah. So I guess fast forward today, we talked about this a little bit already. The election was huge for you guys. Yeah. The Super Bowl just happened. I will admit I used Calci. I lost all my money on it because I guess I'm not good. You recently launched sports. What was this like for you?

15:34So, I mean, I would say like a few things. So we got insane momentum last quarter. And, you know, and like we started the year now. It's like, okay, well, we're just gonna, we have two goals, I think, for the company, like separate ones. Like we want one, grow a lot. and then two we want to become one of the fastest shipping companies in Silicon Valley okay one is obvious two is because like we have an incredibly strong product and engineering team we've always like I think we've built an incredible team from a bunch of the top hedge funds and so on and so forth but we were so hamstrung by their prior administration like we couldn't move they like blocked us on markets they were like you know we had the lawsuit with the election we didn't have our own clearinghouse we had the third party that was you know fucking with us left and right and not letting us do anything and what happened in like last fall is like we got unleashed like we got we won the lawsuit so the universe of like the set of things that we could do just got 10x like we had 100 markets back in uh in september we have a thousand now and i think that trend is going to keep going in that direction um um we we got our clearing house which people don't really know about but like now we own the whole thing and like we're one of the only tech the only tech first entire exchange clearing ecosystem like we have the whole thing we can list any financial market and so on it's like okay now we can actually we we have control of our destiny so we can actually like ship insanely fast like we can just do everything and anything and do it extremely fast so and then you know we ship a lot of like a lot of improvements to the products the big one i think is sports um

17:13it's people want sports i mean they really wanted sports it's a huge market i think we have we we there's a few things that like I believe this is forever gonna shift the landscape basically a little bit like what we did the election it's the first time that sports like trading on sports actually legal in all 50 states because we are regulated by the you know by the feds like at the federal level not state by state and the federal regulation like the law actually supersedes state law so anything that you do on Calci on an exchange like state law doesn't actually quite apply. Okay, so that's how you can go across all states versus, let's say, like, DraftKings.

17:53Yeah, correct. Because we have the federal regulation, like we're regulated by the CFTC. It's a bit like, you know, there are some states, for example, that say like, you know, like if you read their law narrowly, like buying stock is not allowed, but you can do it because it's SEC or CFC regulated. Like if it's federal, it actually supersedes state law for financial services. and so um i think it's been incredible i mean i think we got like something like seven percent of the handle within seven days of launch uh which is huge like it's a testament to how big this could be um and i think we were fourth in handle so i think like it was it was draft i was looking at something that was shared on twitter yesterday like i think it's like fanduel draft kings badmgm and then us uh in fourth position then fanatics and a few others but like this is like amazing It's like, and we haven't marketed that much.

18:38And I think what people really liked, like other than kind of the novelty that's all 50 states, like you can live trade. I think you probably saw that. But like, it's kind of sick, right? Like, it's incredible. Like, I love live trade so much because like it was the same as the election. It's like when you don't know what's happening anymore, you can go to Calci and see the like the charts move in real time. And actually know, okay, like was this last run, what was the impact on the odds? Like, was it bad, good? and a lot of people don't exactly know how what's going on in the game but they can see the odds and now they understand like what's happening uh and then the last thing is like people like the idea that you're trading against other people because you're like you can buy and sell and exit and enter it's more social it's more like you know your counterparty is not like the the bookie it's someone else and so that's more interesting uh i think sports is probably going to be very large for us yeah well it's definitely fun i know i mentioned this before we started but I bet on two things for the Super Bowl.

19:32One was a halftime show. So I'm a huge Baby Keem fan. I really thought Kendrick was going to bring out Baby Keem. I think that was a huge miss. I think he should have had more people up there with him, some more artists. And so I lost a lot of money on that. I lost$45. It was pretty brutal. After that, I was like, you know, I have like$45 left. I put in like$100 in total. and we're like halfway through the game and I've got to use it, right? I've got to bet. And if I bet on the Chiefs at that, or no, if I bet on the Eagles at that time, I would have only made like$9. And then if I bet on the Chiefs, I would have made like over$200.

20:14So of course I'm going to take the$200 gain and I lost it all. Yeah, well, the Chiefs are less likely to win. Yeah, no, I think it's interesting. I think like it's interesting also that like there's a lot of interest in, I mean, this is the thing that excites me about cal she is you know one of our fastest growing segments right now is is actually especially in january um is so obviously politics is big i mean i think sports will end up being pretty big we have crypto and financials are really large but but the fastest growing right now is actually entertainment like culture okay and uh was that always the case or how did that i think it's more recent because we've expanded our offering more recently like we didn't have enough we didn't have much on that category before but it's things like you can basically like you know trade on who's going to be like top of the spotify charts on a daily basis like who's going to top the billboards um uh um you know like how much like who's going to drop an album and when and like how successful it's going to be and and um how successful is the movie going to be like what's the rotten tomato score etc and what we're seeing is like actually it's extremely sticky like people are doing it religiously like on a weekly basis and two it's it's growing it's going really fast and what we're realizing is actually and this is the thing that I love about what we're building is like okay there's a subset of America that cares about stocks and sure they want to do their day trading they can do that that's fine and there's all people that do sports and okay sure but there's so many other interests like there's a lot of people that care about so many other things like culture that don't really have any product that appeals to them today.

21:49Like, most America doesn't care about options. Like, that's a very weird, esoteric, like, you know, why would anyone do that? But, you know, some people do. But I think a lot of people care about, you know, music and movies and all these different things. And I think I was saying that with the Super Bowl because like there were all these markets that were like not exactly about the outcome, but like related to it. Around it. Yeah, around it. They're like, were extremely, like they ended up being something like 30 of the whole like pie that's pretty big oh wow yeah yeah like that's really big on like you know what the commentators will say or like we have markets on what trump is going to say on a weekly basis and people love these like it's i mean they love these because they move markets right like he says crypto and then the crypto market goes up like you're gonna actually hedge your position like every time he doesn't say crypto in one of his uh uh appearances like the crypto market tanks and it's kind of insane uh but uh we had yeah like what the commentators will say like how many um um yeah who's gonna show up to the to the halftime show um and a bunch of other things and people love those yeah it was super fun um i could see this going really well for the bravo crowd and all the housewives and um i think the oscars are coming up or did that just happen they're coming up grammys oscars and they're usually pretty big for us yeah i would imagine um so i guess going into that like what other areas would you expand into i think right now I would say like three things like we're gonna spend our sports offering we're gonna spend our financials offering I kind of I think I heard that you might go into stocks betting on stocks well I mean we have already like indices so like S &P and crypto and a few other things where you can like basically that gets a pretty it's a prediction market so it's like is it gonna be up or down for today and like is it gonna be above or below a certain level and And we have dailies for those.

23:39We have weeklies, we have monthlies, and we just released like hourlies. So it's going to be the first time that you can do like sub one day, like intraday where the thing is going to be. And they're extremely popular. Like they're like, they're big. These are going to be very big. And those are also, we're also putting them on the brokers. So one of the brokers we bought is starting with those. I think Robin will pull some of them as well. I don't know about single stocks yet. I think at some point, yeah, maybe this year, I don't know. But we're figuring out what the plan could be for that. But yeah, I mean, I think if you let people kind of predict where Tesla is going to be on a daily and maybe even shorter term basis, like it's going to be very effective.

24:21The last part is like more broad, like we want to have a market for anything that's in the news. And we have some room to grow there. Like I think we're at maybe like 15, 20 % of the relevant news on any given day. Like we can get to 100. it alex paul wanted me to ask you what your favorite market was favorite market uh i i like the tick tock band one the tick tock yeah it's been an amazing like it's such an amazing i i think yeah it's for me that's my favorite because like there's just no other way to get any truth about that like really like how what like you know how else would you know if it's gonna get banned or not what's your take i just trust the market i mean i don't know just look at the market i you know don't trust me you're not allowed to to use your platform right no i can't use kalshi yeah unfortunately that's a bummer yeah it's no one in the team can use it which actually makes it hard to develop product but um uh take talk ban is definitely my number one because uh i'll say two things like one it's just such a good representation of like with the power of friction markets where like you cannot like there's no other way to get truth about the probability of this thing happening and it's actually important like the TikTok being banned versus not is actually super important yeah and so that's one number two uh i mean we have we have a very deep partnership with Susquehanna i don't know if you've ever heard of Susquehanna which is like the largest is they like Citadel so it's the largest option i have but i'm sure others haven't Jeffy asked from the company is like you know um you know one of our partner with Sig and um and i think that's a kind of big question for them obviously for for TikTok and so there's a little bit of this sort of like i i personally feel like kind of like i i just want to know what's going to happen and i i monitored a lot yeah going back to the start of founding calci um what was the what's the difference between equity exotics and consumer trading retail trading yeah so i you know i when i was a goldman 2016 and and um i was at this task uh the equity exotics task um and and what we did is basically i mean i was very young i was like an intern and and uh a lot of the questions and the flow that was coming to us was essentially like hey will it what people didn't care about buying a stock or buying an option or whatever i mean some people did but not not a lot of them they just wanted to get like exposed to brexit like i want to bet on brexit i want to hedge against brexit i want to trade on on trump winning versus you know losing and three things like we would package a thing like bunch of options stocks etc that should give them what they wanted but it was not actually it was not actually it was a proxy so a lot of times like we'd say hey here's a bundle and this should go up if Trump wins and then Trump won and it went down or vice versa and so bad like that was a you know bad way non-direct way to do the trade it was two is very expensive three is like you know most people don't have access to Goldman Sachs or an investment bank and so that was really the idea of like well what if we could just like let anyone participate in this and also make it more transparent instead of like you going to one person and ask them for a price and having them structure something for you what if you can trade on an open marketplace that is transparent that is like you know open so that's where we came at it from it wasn't like this prediction market notion it was more like how about we build a financial market for these events for these questions about the future that clearly everyone cares about right they're just doing it indirectly right now they're not doing it directly and that was really the genesis how does that lead to starting this company like i i understand that but like that's real institutional trading and this this is this is abstract it's new essentially like the way that you're doing it so how do you deal with not knowing the certainties around trading events and like dealing with did you have any doubts yeah i mean i think like i mean it was like a lot of you know i think we were young and sort of naive and so a lot of it was like you know you just have to like we reason a lot by sort of i mean actually it's a good thing but like we reasoned by first principles like you know and and and and we reason so to reason my first principles and i was kind of like very much like a mathematical proof it's like hey like prove to me that this doesn't work otherwise it probably should work right and like then you think about it then it's like well if institutions care about events then definitely retail cares about events like you know if the institutions don't care as much as we thought about like all these complicated financial instruments then retail definitely cares way less so the overall i think that the amount of interest or caring about events is actually pretty large um and and so because yeah people don't think like hey i think this this option should be trading at you know four delta instead of five delta like they think i think brexit is going to happen right like that's how people think naturally um so from first principles it felt like there should be a lot of demand given how much demand there is for traditional assets for uh these types of markets um the second issue was regulatory maybe this word we were the most naive but like i i got you know i got extremely obsessed with the law i read everything i was like well nothing i read in the actual law should make this not allowed like i think there's probably a way to convince regulators to do this and it's a people problem at the end of the day and like you can work through this whole thing and might take a long time way longer than expected and so on but we did convince them and then three there's a question of liquidity like that the idea that's one of the big things around prediction markets like they're not liquid like and what liquidity is basically like okay you can easily take ten dollars you can easily maybe take a hundred thousand but if you want to take like ten thousand a hundred thousand a million it gets harder like you can't take that freely but then the interesting thing is like that's true but like two things like most financial markets didn't start liquid like you know it's it's a bit of a chicken in the egg like yes it's true like you need you need supply and that brings the demand demand brings supply it's like airbnb you need all the houses and stuff but that's not a like there's not an intrinsic property like of like if you figure out how to build that flywheel then it should work it might work and then two not all the events need to be equally liquid like you know tesla for example you can buy any size you don't move the price much but if you buy some random shitty stock like it's not as like you know if you buy like a 10 million dollars you'll move the stock pretty drastically um and so it's the same thing for events do you have any goals to institutionalize are you dealing with very large customers i think over time yes we have demand we have a lot of demand we should make sure that when we go after it we cater it pretty effectively so right now it's like launch a broker's expand our offering really kind of like grow the retail business i think but i think we have goals for institutions because the the view the way i always think about this like prediction markets are extremely cool and very useful society in terms of like being able to engage with the news more meaningfully and see the future better but it's not just that like the core unlock that could happen in prediction markets is like if you forecast the future better you are pricing risk like you price any risk and what i mean by that is like now we have a better way to measure all these risks that could happen to companies to government to humanity to anything, whether it's, you know, climate, COVID, health, the economy, you know, politics, all these different things.

31:34And if you can price risk, then you can make better decisions about the risk. Like if you understand the risk better, you can make better decisions about how to manage it. And then also you can like transfer it, like you can hedge. And I think that's where the institutions will, the market really, really becomes very, very large because institutions are very exposed to all types of bad things happening in the future. They don't have control over. Well, so what is the line between gambling and investing and hedging? yeah i think for me it's actually been very simple and it's interesting because um here's what i would say the line has always been debated forever it's like amazing it's like incredible like like when in in the south sea bubble um which was the first form of bubble that was that happened in the um uh uh i don't know if you remember there's this thing called the dutch east india company yeah yeah so like they you know they the first version of kind of like really retail stock market people speculate like crazy a bunch of people lost money and then people were saying like well maybe this whole retail speculation thing is actually gambling and and now you know fast forward very few people think that the stock market is actually like a gambling thing like some people do like there's some some fraction of the senate that still does but but like the point here is like speculation and gambling yes i understand why they like they can have very sort of strong ties and it was the same thing great futures used to be thought gambling and then they got legalized in 1905 it was supreme court decisions very similar to our election the the difference is actually about whether the underlying thing like the thing that you're actually engaging in has actually some sort of economic social cultural relevance outside of the act of placing the trade right like and so so it's like is it artificial versus natural right like if if i roll a roulette spin right now and uh we bet on it that's artificial like that that doesn't exist outside of the purpose of us recreationally speculating on it but that's very very different from like whether brexit is going to happen or not like yes you can speculate on that like you you're you know taking a bat or trade or you know whatever people want to like you know criticize it for but like that's a natural risk that's something that exists It's independent of us doing it versus not.

33:44And some people may actually want to manage it and want to be more informed about that risk. So that's actually economically important. That's socially useful. And I think that's how the line between financial services and gambling has been drawn by law historically. But I think it also should be how it's drawn ethically, basically between the two. In terms of real world, real time events, these are super irregular and the business might flux a lot. So how do you manage, you know, the roller coaster ride of like trend driven events? Some things happen, some things don't. Elections don't happen every year.

34:20So how do you manage that internally as an organization? Yeah, I mean, definitely it's a tougher business than like, you know, maybe like a, like a B2B SaaS maybe like because, you know, there the revenue is much more forecastable and, you know, you can really think in terms of ARR. For us, it's harder, you know, it's fluctuating. and ebbs and flows and so on and so forth now i would say two things like that's true for consumer in general like yeah you know i mean if you look at the pnls of robin hood coinbase uh even door i mean it's just not as stable like you know consumers are finicky like um you know they're kind of like erratic um uh but consumer businesses are very large if they work like they generally like you can scale them faster you can do you can get better economies of scale you don't have to you have a huge sales or like there's all sorts of interesting things in consumer businesses um so and then the ones that figure out how to kind of create retentive consistent usage obviously like are the ones that can go supernova um in our case i think like so here's the thing that's interesting like most of our revenue it doesn't come from these kind of crazy exciting events like the breakdown of revenue right now for this month for example like how much was it the super versus the other things like it's actually much smaller than people would think like really yeah because like it's not repeatable like the things that like do do a lot of like yes the election as a one-off was huge like this one market was so big but then we have a thousand markets like you if you have thousand markets some of them repeat on a daily basis on them even repeat on an hourly basis like that adds up that adds up like drastically right and so the cool thing is like The way you think about the business is like actually these exciting events are ways to kind of generate brand and acquire new customers.

36:11Right. But then the consistent stuff, the stuff that's repeatable on every day, every week, is the stuff that actually builds up revenue and volume and like consistent business over time. And I think the two can gel pretty well together. How do you keep those consumers engaged after their first initial introduction to the company? I think we just like, it's really about like expanding the offering. like just having a very large diversity of things that people can do like on the go-to-market standpoint like how do you can you like creating i mean for us it's like creating this kind of association between the news and twitter and coming back yeah uh to calci and it's it's when we see it like there is this kind of habit sometimes like you know someone makes a crazy prediction or says something dumb on twitter and then people go and check the odds and then they place a trade and like you know there's this loop that happens and i think we need to keep working on basically strengthening that loop but that that that behavior is happening and so as long as we create that behavior it's a bit like you know how like you know during sports games all the like sports bettors they like are used to now like opening up fanduel and draft kings and like they you know engage with the game in it by placing a bet and that's a used like that's a habit they have they're used to it i think we can do the same thing but for all the news like all the categories everything and i think that's you know that could be very very large i will say i was reading through the Kalshi blog and it's hilarious.

37:30Kalshi ideas? It is so funny. People are so funny. It's like insane. It's really funny. And then like the one on the website too, I forget what are your writers? I think his name is Tyler or something, but he's hilarious. Real old Terry. Really funny memes on there. You have to reign him in. I think it's spicy. Yeah, it's a lot. The Diddy one was pretty spicy. It was a lot. Yeah, I mean, he does, you know, I mean, there was one also in the election that I think blew up because so that was a time where like Trump odds were up and then we were getting slandered in the press. I don't know if you remember that time.

38:01There was like the Times article and there's a bunch of articles that people came out which is like, these prediction markets are like totally false. Don't trust them. And like it's normal. I mean, look, you know, not to make this partisan. Like I think like it is either side. Like whenever the odds were up for either side, like that side was excited about the markets. And whenever they were down for that side, that side was way less excited about the markets. And that's fine. That's how everything works. That's your neighbor. But so but but like we were getting like a Taiwan Trump was getting very attacked by the media, like, you know, and like, I mean, the whole thing range.

38:35There was like such a vast range of outcomes. Like also like, you know, I was I remember I was personally getting called like an Egyptian billionaire, like a Muslim Egyptian billionaire to like to like a Mossad agent. And like, that's quite the difference. Yeah, I mean, how the you know, it's like I'm neither. I got my, you know, I was born in California, Lebanese Christian, like, no, no, you know, and so but but like it was fun like you know but but the um like like in that period i think like you know um we we like we we tried to tell people like you know like it just trust the odds like they're they're not um like this is not being manipulated there's nothing going on here it's just you know what the market odds are um and i think that's just like an education thing over time i'm just waiting for a subscribe button on that like blog internally because it's really so basically like he came up with a this blog that day when they kind of said and like well if you really believe it was basically the tale there was like if you really believe that this whole thing is false like you know you should pony up or shut the up like basically it was like you know you should put money where your mouth is if you're so like if you're so convinced that you know then you can make like a 2.5 x right now on your money like what are you doing right and and And I think that was great.

39:53Like it was such a good response to like, maybe then you should make money on it. Basically, it's really good. Yeah. What are what are some like other events that you're looking forward to this year? Like any any big ones we should be looking out for? The thing that's cool is like, I don't know, because like there's you don't know. Yeah, because like there's all these new like it's very hard to anticipate what's actually going to be like really large. Like two examples that I've never expected. So one after the election, one market that actually absolutely blew up was basically the margin of victory.

40:23like by what, by how much is Trump going to win? And that thing was insane. It was like a little bit like a, like a, like a GameStop moment because it was like, so it was interesting because you can pick like 1%, 2%, 3%, 4 % and so on. And then there were like discord communities that were created called the ones, the twos, the threes and the fours. And people started identifying as like, it was like tribal war. They started like, like, you know, we don't accept twos here. And like, you know, the twos are like actually like, like snakes. And like the threes are actually like, you know, thieves and like, and people were fighting like hardcore, like pushing the price against each other, like buying all this, you know, it got insane.

41:06Like I was like, wait, what? Like, how could you become so emotionally charged in this? Like two or three, like no one actually cares. And like, you know, we had these like communities that were getting set up, like where they were fighting about this. And then like that generated insane amount of volume. Like I couldn't have predicted that before. Same thing happened with the executive orders for Trump. Like when he was signing a lot of them per day. Yeah. Like how many is going to do per day? Oh my God. How many pens could he use per day? Like the number of executive orders was blowing up. Like it was like totally nuts also.

41:31And so I don't know, like, I think we just need to make sure that like there's chaos and volatility in the world. And I think we're probably going to have a lot of it in the next four years. One thing that I just learned is that insider trading is not illegal in commodity derivatives. And there's nuances around this. But can you explain this? yeah yeah it's uh because like so the original like commodity like type of derivative is basically like for example like grain futures right like the way it works is like farmers are hedging their grain prices and you know that enables them to produce more and so on and so forth but like the grain price itself the way that it's actually calculated is like you survey a bunch of farmers so farmers obviously have insider information on what they're trading on like like by definition that's the whole point so like yeah you can there's no insider trading in commodities like it's all insider trading actually like the whole thing it's interesting because then like they have inside trading on the prices they think that they're gonna sell and then how much they sold and so on but then there's weather events that could change things and but but yeah insider trading is in the law actually is not very existent directly it's it's true for securities like uh stocks but with events like we had there's all all these questions so the last administration took the position that we should enforce insider trading this administration is revisiting that um on whether we should let insider trading happen or not i'm kind of in between i don't think i don't think it should be full-on insider like i think some people should not be able to use any information uh to trade i think there's some subset of information that should like if that is non-public that they cannot trade on uh but i think we're being a bit too restrictive right now yeah how do you prosecute against that oh we're like well we're like so we are an sro like we are think of it as like a pseudo extension of government where we have our own set of rules and laws so we have a whole investigation department we actually have to do that by law like if i don't do this i'm violating uh the law um and we have to prosecute people like monitor all types of bad behaviors and then we prosecute them it can be from fines all the way to criminal prosecution so they can go it's like insider trading all the same so if you if you commit fraud financial fraud on cash is the same as committing financial fraud in the stock market or anything else it's the same thing so you come from the trading world world yourself um goldman and citadel what's the difference in the opportunities of making millions of dollars there and the trade-off of doing this yeah i don't know it's hard to think about that i mean um it's just different like it's it's a i mean it's just different i think that's the way i i'd put it i mean i think like what do you think it's a bigger like long-term opportunity between the two yeah i don't know i think about i mean you know i think about this recently i mean like it so i like purely monetarily wise like it's hard to know i think from an expected value perspective like definitely citadel it's like hard to beat that like i think uh uh especially with now like like ken is just giving ridiculous like it's insane like uh the types of packages and so on so so from an ev perspective like i do i think so um but yeah i think a building company has more variance so you you could hit you know hit punch bigger uh and go really big and i think that's um i would say that's the difference like um the rest is like kind of lifestyle like i i like trading a lot actually i think so that was a great place to work i really liked it i like the culture i like everything about it the thing is like it's just different lifestyle like you're trading you're getting very specialized very narrow you're focusing on this one asset class you become an expert in it and that's your thing um whereas you know being an entrepreneur is very like very different you're all over the place you're doing all sorts of things like you're learning a bunch of bunch of stuff and you're building you're building something that like you can put your name on long term whereas that's not quite there in trading so i i don't know i have a view like i think either are fine it really is maybe the broader answer is like i think being an entrepreneur is um is oversold like i think there's this kind of notion that like being a founder or being entrepreneur that's like the the highest form of like you know social status yeah like it's the most important thing to do but like i don't know i think that's like kind of like you know i i i think it's kind of the board i really think it's the boring answer it's like it depends like you know i i think it i think if you're kind of broken you you gotta be a founder otherwise you'd be very itchy in life.

45:52Like I think and that's me like I am I'm in that I'm unfortunately in that category. Like most people I often tell me like people do not want to be in my brain. Like I really really like I'm extremely anxious. Like I also things going on in my head all the time. And I unfortunately don't have an option like I'm actually stuck doing this. But like and I think that's fine. Like I think you can get asymmetric rewards and outcomes doing that and so on and so forth. But I think if you know some people can have like a healthy life, well balanced life and be happy and be reasonably successful at a bunch of different like, you know, the FIFA, like when you play FIFA, you had all the sort of like attributes, like speed, like whatever, right?

46:30Like I've never played. You know, in any of the video games, there's like attributes, right? Like out of a hundred, like Messi is like, I don't know, like 90 here and like in Ronaldo is super high at shooting and whatever. And I think entrepreneurs are like extremely spiked in one thing. And then everything else is kind of like close to a zero. actually like completely incapable of anything else uh whereas a lot of a lot of people that live a happy healthy life are actually more like rounded it's more balanced um and so i think that's fine too yeah a little dark but i get it i get it yeah i i no i think it's not bad i just think it's more like the choice basically i think you like you're probably happy and you're probably healthy but it's not like what a standard definition would be because it's not so stable yeah i think i think just like what you need based on who you are and i think like a lot of people i think just wouldn't be happy with the kind of roller coaster on a daily basis and it's pretty taxing right and uh but for me it's like i can't do anything else so yeah i get that um we like talked about it a little bit but before we're closed up i know we have like a couple a couple minutes left but how does the business model actually work is it trading flows fees like regulatory costs how does this work yeah so i think uh one is we uh really it was predominantly like we take trading fees uh so like you know if you put like if you trade a hundred dollars we take a fee on top of that and that's how exchanges usually make money i think since the election we're learning actually there there's a bunch of revenue sources that we can scale and focus on over time like i think you know one is we get interest on the float so now we have a shit ton of deposits uh after the election especially like it's and so he's like oh shit like we can make like a bunch of revenue out of that as well so that's that i think um uh uh and then last is over time i think we can uh well then like market making like we can just make money basically market making so we have a separate fund that trades on the exchange they make money as well and and then last like we don't charge right now for data but i think data is always a good part we can charge like there's a lot of people that want to pay for it now now we're giving it for free but over time we can charge yeah i think changes are very profitable the hard part is like actually just getting it up and running and like making it work that's very very difficult but if if it works if the flywheel is working it makes a lot of money right yeah switching to the personal side yeah so we have a really great question from our mutual friend christian garrett 137 ventures hey christian um she's great he's awesome most extroverted person ever i don't know how he does it which is awesome uh so he mentioned to ask you what your mentor taught you about viewing life everything in life as a trade-on risk and calculating expected value that's a great question actually he's zero for you specific mentor or I'm sure he is yeah so like I I think I look I think it's interesting because you know I would say I'll tell you things Like, yes, my brain is naturally fits with that sort of view of the world, which is like I try to price everything.

49:38And a lot of people in Wall Street, like they do function that way. It's it's so different from like Silicon Valley, where everything is actually priced. It's literally priced, you know, like the way that law, like these big funds. I'm sure it's true for Renaissance, but Citadel, Susquehanna, like they it's incredible. they have like these very sophisticated ways of pricing like things it's not just like hey like i'm doing this deal and a bunch of things could happen and and we'll see how it goes it's actually like we're gonna list the things that could happen we're gonna um you know good and bad like risks here and there opportunities here and there and then put prices on them like actually attribute the probability of it happening and what's the impact if that thing happens and so what happens is you have a model like a mental model where everything that you're thinking about you're thinking of it through the lens of like probability or expected value or actually an option like a literally like a like a so when you invest in something i'm actually buying an option uh of something that on on an ecosystem on something else and whatever and i think for running a business uh so actually i think for being an investor if you want to be really great I believe it's actually a very, very good lens

50:55to basically just make a very good decision for building a company. I think there's like it's twofold. I think it's important to do the to do it, like to apply the framework so that you have a pretty good lay of the land of all the options ahead of you. And like you can price them, you can actually like put a dollar price on each option and like, OK, which one should I go after? And I think that's a pretty good thing to do. The flip of it is it can actually make you a bit too cynical. And I think that's actually something I learned over time. Like if I had priced the probability, like if I had done the math on the election lawsuits, but I did do the math on election lawsuit and the math didn't make sense.

51:31The expected value was like, it was bad. Like we shouldn't have sued the government. Like it doesn't make any sense. From a legal perspective, we should not have sued the government. And it's funny because like, you know, when I talk to some of our like partners on Wall Street, like Sig and stuff, they were telling me like, they think it was like less than 1 % chance that this was gonna happen. And then after we won, you know, like the outcome was like well maybe this is like you know why entrepreneurs actually do sometimes things in a different way like sometimes in a select certain set of times you have to take a leap of faith and just forget about the numbers like because the numbers look very bad in the election thing like it was not gonna like there's no way to rational rationally think about this and actually end up doing it like the board was like this is a bad idea yeah and we did it but you know that was more of a fucking fucking like let's just let's just see what happens yeah that's good example okay well thinking about 2025 what are your goals yeah i think like expanding our market offering launching the brokers um and i think our product could could be a lot better still uh in what way i think the app is just okay like i don't think it's great i think it can be great like i think it can be much much better like we and it's interesting because like we've been fighting regulators and doing all this regulatory stuff for so long like we act we really started working on the app for like you know six months now it's not been that that long that really focused on it and so i think we have a lot of opportunities to make it better easier to understand simpler more fun um i think our social features can expand a lot like if you've been reading some of the comments like it's actually really fun to be on uh uh on we have this thing called cash ideas which is like twitter but you have to have a position and it's so fun because it's like it's like people have actual money on this thing like they're not you know so they can only and you know people say all sorts of crazy things and it's like you know and i think we can like do a lot of work on expanding that making it better all that but yeah i think those are the three um three main main things it's exciting yeah well thank you so much tarik yeah thanks for having me great conversation