Prediction Markets vs. Gambling: Where’s the Line? — ft. Tarek Mansour

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How are you, Ad? How are you? I'm doing very well. I'm here in London, and I had drinks with you last night, which was awesome. You know me, I like to get to know my staff. I like to spend quality time with them. We did spend some quality time. We did.

We kicked out after about an hour.

“The other thing is we went to a bar that we were very excited about,”

and I shot, because Scott, Scott said a little late, and I shot, but it turns out that it's comedy night. Comedy night, and there's some Scotsman on stage speaking, a dead language is only twin-speak to each other. And they closed the bar down, something out. That's fucking sucks.

Yeah, it's been the first 20 minutes listening to this guy. I got to tell you he was absolutely bombing as well.

It was not comfortable to sit there, but then we had a lovely drink. I got to know your girl from where to sat there and thought, "What is she seeing at him? I don't get it. I don't get it. I don't get an ad. I don't think young people should get married, but my advice to you is three things. First, lock, second, it, third down. Lock, it down. I think the world of you, you are so out of your way, class, my brother. You are so out of your way, class.

Anyways, it's good to see you. That's great to see you. She had a great time. I had a great time. You're good to be in London. Nice, right? Yeah, it is very nice. It's too dark, and it's a little late. But it's nice. Well, we have a big important interview here with the CEO of Kalshi. Shall we start to move on to that? Let's do it. Okay. Actually, before we do that, apologies. Let's not. We have to also say that Prof. Mark is returning to the Vox Media Podcast stage at

“South by Southwest. We will be there on Saturday, March 14th. So if you want to see that, come join”

Scott and me at 10 a.m. on the 14th of March at the Hilton Austin for a live taping of Prof. Markets. Live show. It's going to be epic. Scott and I, very excited. At least I and I think Scott's excited. You had me tell you said Hilton Austin. I don't, that's not what I aspire to, but you know, it's going to happen here. It's the same thing. We come in, we skirt the line, and a few people take a picture with me, and they're like, oh, they're like, oh, and by the way,

I have a daughter. She's at UT. Is that single? Is Ed single? Everyone is asking about your romantic status when we go to these things. That's not what happened last night where we're starting together. And then someone comes up and goes, oh my gosh, Scott, go away. He looks at me. He's like, I know you too, but Scott, go away. It's great to see you. It's all handsome guy. He's a tall drink eliminated. Like a nice young handsome man. Yeah, yes, I enjoyed that. I enjoyed meeting him.

That was good. It was very good. Yeah, but South by Southwest, and you can learn more and get a special discount. I love how they're already discounting us. That makes me feel good. I knew South by innovation badge at voxmedia.com/ssw. That's voxmedia.com/ssw. We'll see you there. I'm actually really excited. How many people from ProveGia, we bring an Austin ad? We've got a huge career. I think it's

I'm excited. Anyways, everybody, Ed and Scott are going to be at South by Southwest.

“Please say hi. We enjoy. We really do enjoy meeting our fans. And Ed not so much.”

Ed's sort of standoffish and a little bit arrogant. thinks he's better than everybody else. But not me. Not me. Not me. Say hi. Oh yeah. Oh yeah. Elpedo, E.L. Absorberdo, South, young person, young man. See it's up by Southwest. They're a comment. Here's a conversation with Tarak, miles or co-founder and CEO of Calshy. Tarak, good to see you. Welcome back to the show. Thanks for having me, Scott and Ed. I'm excited.

So it's been a little over a year since I first interviewed you on first-time founders. A lot has happened since then. Just looking at Calshy as a company, your revenue has grown by about 1,000 percent. Your volume on this platform has gone from $280 million to $2.3 billion. You also

recently raised a billion dollars at an 11 billion dollar valuation. Basically, we knew Calshy was going to

explode, but it's exploded in a way that is kind of larger than life and getting a lot of attention. I'll just start with this. Why is Calshy so popular right now and why a prediction market so popular? You know, one, it's just the exponential. The numbers are small. The exponential, you don't really feel it quite as much and then as you compound and compound, all of a sudden, everything basically happens all at once. And you tend to see that with sort of

a lot of consumer businesses that really hit the mainstream and they're growing at an exponential,

“exponential looking pace. And I think that's definitely happening in prediction markets,”

at least in the case of Calshy. The second thing where I think we're benefiting quite,

you know, I think that prediction markets are benefiting from an overall societal wave, which is sort of this general distrust and traditional news sources or information sources. And I think people are looking for an alternative. I think they found it in all of people have found podcasts. I don't think a lot of people have found in social media. I think people have, I mean, social media had this kind of kind of idea of, you know, crowdsourced wisdom,

crowdsourced truth, but social media incentivized clickbaits in a way that, you know, people over time are not feeling like, you know, news feeds are basically like split into two,

the word is basically dispersed, everything is polarized. And prediction markets are in

some ways some sort of anecdote where you get the crowd with them. You have a lot of people participating in prediction markets, but you have skin in the game. You know, people, people are putting money where their mouth is and that leads to some of the answers they get out of prediction markets to be more accurate. And that's been definitely a big catalyst to the growth. There are two things I want to kind of separate in this conversation. One is prediction markets as a

“content platform, which I totally agree with you on. It's been massively helpful for us. I think a”

lot of people have find it interesting because it just tells you a little bit more about the future. If you're trying to understand an issue, you will go to the prediction markets and you'll find the question and then you'll get to see like this is what the consensus view is. This is a probability of this event occurring or not occurring. That's content. It's also a trading platform, some would say a gambling platform, which is a different kind of thing.

And it brings with it a lot of different issues. And I think as this platform has gotten so popular over the past year, it has also drawn a lot of criticism. And I think a lot of that criticism is reasonable, valid, worth talking about. So I guess I'd love for us to dive into those criticisms. As the founder of this company as the CEO, what would you say is the overall, let's say, the three or four biggest criticisms of the company right now. Based on what you're seeing,

based on how it's bit things are being reported, what would you say are the issues that people are worried about when it comes to prediction markets and calcium? Any consumer company, and this one of the things that we've learned in real time right now. Most consumer companies that hit the mainstream, they go from like really exciting new technology. And when they hit the mainstream, there's a sort of flip where all of a sudden there's this sort of like, let's just kind of

air out, all the risks, the dangers, all the ways that this could go wrong. You know, I think

with AI and many dimensions and many levels. And we're seeing it play out in prediction markets.

“And to some extent, I think it's a healthy thing. Like I think society having a debate about”

new technologies and how to kind of deal with them is a good thing. Right? If we all agree on everything, you know, we probably had it in the wrong direction. Look, my understanding is like, there's one, you know, this is this question of like, you know, is this gambling? Is this different, you know, are there kind of concerns about addiction? And social isolation, Changman, I know you guys got you talk about this a lot. I think number two is there's the

concerns of insider trading. Like, to me, I bucket in the kind of is the market fair? How do we police it? What is being done about that? But to me, I don't think it's totally

abnormal, given, you know, the rate of growth and how fast this basically has gone mainstream.

Well, just a double click on that. So there's a real fear that a lot of big tech or a lot of technology companies as a scale tap into a last mature, prefrontal cortex of man looking for dopa hits. And that essentially prediction markets are sort of the high IQ or graduate education version of gaming apps and that it prays on a dope, a hungry mail and that there's enormous incentive for, well, first let me start there. Who is your typical, what's the demographic

profile of your average customer? And what is, what is different from speculation or prediction markets from just a flat-out gambling site? You know, the vast majority of volume is really in the bucket of 25 to 45 years old and then we have a bucket and you know, 60 plus. So retired has sort of supposed

“well-income time on their hand. And I think that like, you know, when I think about the typical customer,”

there's been recent reporting which I think was pretty interesting about this. You might have, I don't know if you've seen the New York Times article about the rise of the prediction market trader and they kind of gone through a number of, you know, and the most active traders, the people that

basically, you know, drive a lot of the activity on the platform, you know, people that would kind

of consider like a super, like a super user, a power user. Those are the people that like, are spending quite a bit of time modeling. Like, you know, I'm passionate about the economy or we didn't use a lot and like, you know, I'm going to basically be forecasting in fish on daily basis. Or I like mentioned markets, you know, Joel, there was a whole profile on him on the New York Times piece. And the guy like his bill, like, you know, you know, pre-sophisticated models

like, you know, what words are going to be said in what, um, and what appearances. And those are people that like, you know, have had an interest in something and then they figure out an outlet to basically, like, you know, make money off of it or engage, you know, with a community that has kind of that shared similar interests. Like, these are the most engaged in our discord or we have

this calcium idea platform, which is basically Twitter, but you can only speak if you have a position.

So it's kind of a Twitter that is filtered for people that are positioned to take us. But to me, it's like, you know, I think the concern that you sort of outline is a real concern, right? Like, I think in my view, any financial markets and I think this concern applies to any financial market. I think it applies to, you know, day trading of options or these kind of idea of zero DT options that settle on any given day, retail trading, I think it applies to crypto

also the meme coins. And obviously, it applies to traditional gambling and sports betting. And that risk exists in prediction markets. And I think the way that I think of it and as I build the company and as this company scales, there are certain things that are intrinsic to the model and then there's guard rails, like things that you add to the model around your business model, to basically protect consumers from this sort of thing. So let's talk about the intrinsic piece.

So I think, I think prediction markets is a much healthier mechanism to engage with something than a lot of these other mechanisms. I think a lot of the problems that we've seen with dopamine heads and addiction and a lot of the issues that we, you know, people generally pertain to as gambling have come from the gambling industry. And I think, and you ask why, well, you've got to look at the incentives in that industry. Like, when you go to casino or you go to, you know, traditional

sportsbook, the revenue of that company is equal to the customer's losses. The way that that whole system, the business model is like, well, if ad comes to me, the business model is figuring out

“how much money can I take from ad. That's how it works. So if that's your business model,”

what are you going to do? Well, are you going to figure out, it's like, okay, I have Adden's called as customers. If Scott is a winner, I'm going to block Scott from participating because anything that Scott wins is going to take from me as a business. And if Adden's loser, I'm going to figure out how to create a habit, how to get ad hooked in the platform and get them to come back pretty consistently. And that to me is a lot of where, like, kind of, a lot of where it's a

perverse incentive. And, you know, show many incentive, again, show you the outcome. Well, what the outcome is going to be is, basically, you're going to get people hooked and dopamine

Prediction markets just don't have that inherent incentives. You know, I take a small fee and ad does not trade against me, ad is trading and Scott. It's inherently just more social. It's inherently

“more, like, I think the model doesn't have to sort of embed it perverse incentive. And that enables”

me as a business model to just have much more versatility around solving that problem, or on creating

really good guard rails around that problem. Like, you know, when ad comes, he's not basically

facing an algorithm that's just sort of optimized to get ad hooked, ad is facing Scott. It's facing you and it's figuring out whether ad could be smarter than you, but they could do research, how can he beat you intrinsically more social and intrinsically more competitive, intrinsically more interesting. In terms of the guard rail, we focus on this a lot. And I think that, like, a lot of the guard rails are really what you want to prevent is excessive behaviors. I think anything taken to the extreme

is bad. And, you know, I talked about some of the trading, like retail trading, some of these examples, but, you know, you see it in other places. You see it with drinking. You see it with online shopping. Like, you probably have, I mean, I'm, I'm the first and like, I have a bunch of shit in my house, like, because I have these Instagram ads that keep feeding me all these like random trinkets that I keep sort of like clicking on and buying. And I, in that's a form of excess, like,

I somehow, like, find my, you know, I do the thing. And then five minutes later, I'm like, why did I just buy that? Like, I, what, why, you know. And, and I do this on Amazon, I do this on Instagram a lot. And, and all of these things taken to the excess tend to be bad.

“And so, how do you, you know, you have to create measures on, like, okay, how do you prevent”

excessive behaviors? You have to do a lot of customer education. We have tools around self-exclusions, limits, pauses. And then we also have surveillance where, like, when we do find someone, especially on the younger side, you know, we do have age gating, so we cannot participate as a minor, minor, obviously. But, some of the younger side, you know, repeatedly losing, repeatedly kind of taking aggressive actions, doing too much of their portfolio, we start showing warning signs. Like,

hey, you should not put more than x% of a portfolio and one thing. Because, you know, again, like, long term, you want to build a healthy ecosystem. You don't want these sort of behaviors to go off the rails. But then also our incentive is not misaligned with those guardrails. In some ways, it is aligned. We want people to be long-term participants in this model. We want them to be engaged socially. We don't win a lot if they come and lose a lot of their money very fast.

That's actually bad outcome for us. The pushback to that point, though, you make a point which I agree with, show me the incentive. I'll show you the outcome. The pushback for a lot of people to that would be actually the incentive might not be that consumers need to lose them with it, that the traders need to lose money. But they need to trade. And if you can get them addicted,

if you can get them to keep trading and get hooked, ultimately, that actually is a boon for your business.

So the guardrails you're describing, they are inherently counter to the incentives that are built into your business, which is we need people to trade as much as possible because that is our business model. We're taking a transaction fee on all the trades that happen. We don't want you to lose money,

“but we want you to put some money up. What would you say to that?”

I think there's a presumption in your question that's just assuming that all the trading is basically dopamine, type behavior, which is not the case. Again, majority of power users, the people that are really trading the most volume, all the people that are making these are actually necessary. Their trading is necessary to this because they're making the forecast more accurate. The stock market doesn't get efficient if nobody trades. You need the trading and you need the informed trading,

you need the well-research trading. The trading that grows the most over time is the winners. It's the people that are essentially very well-researched. They predict the weather because they're scraping satellite data. These are people that are building models. They're in the spreadsheets. They're doing math. They're building systems. These are people that are actually rejected from traditional for example, like sports betting because they're making too much money. They get blocked and limited

there. But they can come to prediction markets. It's a good home for that. So, yes, you want the trading, but the dopamine level trading is not necessary to think that makes the forecast the most accurate. It's not, it's part. You need that vibrant ecosystem. You need speculators. You need four cases and hedgers. We can speak to each other. We can talk about it. But you don't necessarily need the excessive behaviors. The excessive behaviors are the things that you can cap over time

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Listen, wherever you get your podcasts or watch on youtube.com/yourrichbff. We're back with property markets. I just want to go back to some of the criticisms. And by the

way, the reason I'm interested in this is because this is what everyone is interested in.

When it comes to prediction markets right now. I was just on a PBS panel. This was the entire conversation. It was a focus on young men's issues. This prevalence of addiction and this trend towards gambling. And this question of due prediction markets sort of fit that description. And so what are we supposed to do about how we supposed to feel about them? One thing that I found interesting, I want to get your action to, I read somewhere that almost 90% of the volume

“that is happening on these prediction markets. I think on calcium is related to sports.”

So, it's prediction markets trading, but if it's trading based on what color is the gatorade going to be at the Super Bowl halftime show, that to me fits the bill of gambling. It's to me as a kind of a different thing from the looking at satellite data and figuring out how will this affect where the patterns? So I guess my question is, one is that right. Are you seeing that amount of sports prediction markets trading? And two does that not fit your definition

of gambling? So we're seeing a lot of sports. Sports has gone astronomically last year. We don't have the gatorade market. Again, it's unregulated regulated. So, but we don't have the water tires and assassination markets either. The insider trading is also not the meduro trade and the capture, it's not regulated prediction markets or calcium. But look, I think there is sort of definitional, like, okay, maybe like, let me just align on some definitions so we can have a precise

conversation, right? When someone is buying an option that expires end of the retail participants, buying it against Citadel and the open market on traditional, you know, the most boring names like NASDAQ or Chicago Board of whatever. Duke considered that to be gambling or a form of gambling.

“I think it's something different from investing. And so I would consider it, I would call it gambling”

yes. And that is why I'm very interested in the regulatory rules around options trading, which are strict than buying a stock, for example. So long as it's short answer, yes.

So let's just establish a definition and then we can like basically, you know, have a principle

conversation here. So there's a few definitions we can basically take on, right? It's like one definition could be, there's a threshold of research or understanding in a certain market that needs to happen for this to be a trade or not gambling. And obviously you see kind of the problems with that definition from a, from a, you know, delineation perspective because how do you know what does research and you get into any state questions and like now you have access, you know, open access problems,

et cetera. One other one that I believe to be too broad is, is one that a lot of states in their state rules rule books hold or just like you're sticking some money and the hope of making more money on something you don't control. That's one, you know, and now you could see where that lands, right? You know, if you're not, just leave this call and open shrub and buy stock, even if we're investing in that stock, that's gambling, right? Like we just gamble. So what is the

line? Like, how do we define that line? And you know, I'll tell you how we do it, but it's actually kind of grounded with how historically the lanes and the regulations of physically landed on this piece, which is one, is there a natural underlying instrument that, you know, where it's, it's helpful to price or forecast the thing because some people in society care about it, whether social

“or economically or other. And, you know, number two is the mechanics. And I think that's the most”

important thing when we talk about addiction, all the issues, the mechanics is this, you know, to me, gambling is the negative incentives, right? It's the incentive where I'm walking into a casino,

basically going to incentivize all bad behaviors that we're talking about because that's how they make money.

“Whereas an open and open marketplace, like a marketplace where I'm a marketplace, I'm a neutral,”

fair exchange, where I provide the rules, I provide the guardrails, I provide the technology, I provide the structure, but then people are engaging with each other, and they're figuring out the pricing, you could be a price taker ad, or you could be a price maker, and then you're figuring out how to beat others. That is historically fell on their definition of an exchange, a marketplace, you know, whether stock market, commodity market, etc. And that same principle was drawn, you know,

in 1905 by the Supreme Court for grain futures, and then they delineated, like, there's the bucket shop, so if you go and, you know, trade directly or bet directly against, like, a company on the grain on grain futures, that's like bucket shop laws, it's going to go state by state, and if you do it in an open fair marketplace, and the Chicago Board of Trade, and now see, I mean, that's considered, like, a federally regulated financial market, and then the same thing happened with

the election market for, for calcium, and then, you know, what we're seeing kind of play out in sports, also exists by the insurance, you know, you have state, like, regulated insurance, which is, like, one insurance company is the one that gets you the price, and you just take it how it is versus hedging, which is on CME if you go and want to upload some risk and an open fair marketplace for anyone can compete on the price, that's also like, open and fair game. So that's kind of like, where,

“you know, we, I think, draw the line, and to me, all prediction markets, they squarely fit under”

kind of number one and number two. I mentioned the Gatorade, the halftime show, what color is the Gatorade going to be, which is something that you can bet on on gambling apps. You say, that's not something that we provide on calcium, which I didn't know that. I assume that that was kind of fair game. That raises an interesting question of, where does that fall on the line? Why does betting on the color of the Gatorade not work for you guys? Well, I think it's kind of the pillar

number one is like, is this like a natural thing, a risk, or an occurrence that, like, okay, trading on Brexit? Like, if you're having market on whether Brexit is going to happen or not, that is extrinsic consequences to a lot of people, government, businesses, people, pricing that thing is relevant, people care, right? Like, pricing, whether this is a 20% chance,

there's a 60% chance, that's a very important thing that can be, that can be basically

traced back to asset prices, that can be traced back to how we price the SNP, to how we price the footsie. That's a very important thing to have. That has extrinsic consequences outside of the speculative activity that is going to happen on people trading on whether Brexit is going to happen or not, right? The Gatorade is a harder kind of argument. I think it's, I would assume it's 50/50, right, or coin toss is the same similar sort of setup. So, so this is where, like, when you go back

and if you all take a step back, you know, on kind of like, this sort of, what is the purpose, and maybe we didn't talk enough about this so far, like, about prediction markets, like, why does it so important? Well, I, you know, I'll say like, what they do is they apply a market-based mechanism to questions, to these key, to a lot of questions about the future, some of which may be

“existential to humanity, some of which less existential, and you have to build a marketplace of”

diverse range of participants and diverse range of sort of opinions, and all of that. But I think to me is like, what this does, and I don't know if you've seen there's a Fed paper last week that has kind of, in some ways, confirmed a lot of stuff that we've been seeing over the last few years,

and the fact people were seeing basically, cashy fills a lot of holes. One, it's more accurate

than Fed funds for forecasting Fed decisions. It's more accurate than any other, like, survey, like the Bloomberg Congress survey, forecasting CPI, or inflation prints. But it also gives us a full distribution of outcomes and it does it in real time. It gives us like a much better understanding of basically the economy, or better understanding of the economy. What excites me about what we're building is like, over time, if we get a very liquid marketplace about all these kind of different

questions, you will basically just have a better light about our future, which enables better decisions, better resource allocation, and then better also better asset pricing for all the kind of assets that we're currently pricing. So there's a, there's a pair from Kevin Hassett about this idea of as society gets increasingly more complex. And, you know, you used to be agriculture-based economies, so as long as you understand the agriculture, you understand where we're heading,

then we added, you know, industrial, then we got into service-based economy, and now information economy, all these different, now AI is happening. As you add more and more complexity to society, it argues that we need infinite number of markets. In some ways, need prediction markets to price, all these different aspects and facets of society, so that you can actually price the core asset prices, like homes and S&P, and the rates and the big sort of ticket items that we currently price.

some people are kind of a doomerism, AI paper, from what was it called, Citrinia? Citrinia, yes. And what we're doing is we're launching a market this afternoon on, like, whether the Citrinia outcome is going to happen. Because in the Citrinia paper, like someone put it up in an opinion and it actually thanked a bunch of stocks, the market actually reacted to this. And, you know, I want to release that market to price that specific outcome, like, price, the outcomes that people are

talking about when it comes to AI and get a better understanding of AI. Because if you have these markets getting us better prices about these things, those will end up basically helping us price the bigger things, like the S&P and the stocks. And those are things that are basically exactly what we're building.

“When I think about dental forensic training, which's got a lot of reporting, I think eventually that”

will be starched out when people realize that you never want to bet against someone who has more

information. So I see that probably going away organically. Why would you say that? This already happens. I mean, inside of training is rampant across many markets, including the stock market, the way we prevented us through regulating it and making it stop. I just know, or godically, stop itself. If I'm betting on the speed of a baseball pitch and I realize I don't know, but someone in the audience may be giving hand signals to somebody or it comes out that this is highly

susceptible to insider trading. I think fewer and fewer people are going to bet on those things that aren't that don't have access. My friend Todd Benson once said to my, one of my classes at stern, never bet on anything where there's, if you can, where you believe there's people who may have much greater information than you. I think a lot of the most ripe for insider trading markets are just going to quite frankly die a slow death because people are going to realize there may be

betting against people who I don't understand why anyone would bought what anyone would bet on a figure which got all the markets where on someone's saying something on a TV show that's already been pre-recorded unless you are engaging insider trading. Because it's fun. Well, then it's consumption. It's not gambling. It's, uh, and in your better, make sure you're having a lot of fun because it means someone with a lot more information is betting against you. You're on the wrong side of that trade.

And it was Eric, what would you say? I mean, look, there's love consumption and I like that frame too. It's like the consumption bucket to think about a lot of these different things. And I think there's consumption or impression markets a lot of traditional like financial markets and

and that's not necessarily bad thing. But, but so I give us caught. And I think the way I always

think about this is, um, let's think about why is insider trading ban in the first place? You know, some would argue, well, if you let insider trading happen in stock markets, shouldn't that make it even more accurate. But the reason it's banned, and actually, in some ways, we've tried this, is that it's what happens is exactly what Scott mentioned, is that like if you let insider trading kind of go lose, uh, people start trusting the market. And if people start trusting the market, they stop trade.

Like no one wants to participate or very few people want to participate in a game or a structure or or a mechanism that is rigged. Like that is, there's just like, you know, unfair. So, but, but,

“and so, but, but that's why we actually, you know, we are regulated. There are rules against”

insider trading. So, so, you know, and these rules are very similar to stock market rules. And the mechanism of how we police it are very similar. And, you know, this has been a big topic of discussion and it goes back a little bit to the regulatory versus unregulated situation. There are unregulated players, you know, and they are, you know, uh, offshore. And there is, or at least allegedly, there is a lot of insider trading going on,

like the Maduro trade that a lot of people have talked about. Um, and, you know, that is brought kind of decision to light, but at least on the cash aside, like we have a very strong position, which is, we ban insider trading. insider trading is not a good thing. It makes the marketplace on healthy long-term and it creates an unfair field. Can I ask how you do that? Because I think, in the stock market, insider trading, I mean,

insider trading was a very, very strict. And, I mean, anyone who's who's worked on Wall Street, will, will know and will tell you just how intense everyone is about making sure, I mean,

the problem is the executive who told the cousin, who told the cousin, right? And, and that stuff

does happen in the stock market. But we have such such airtight definitions in the stock market, such airtight regulations, or you're saying you had as much as, as, as, as we could make them. Yes, sure, but, but the, the, the, the definitions are airtight here, too, and the regulations are

“airtight here, too. So I, please explain that. And I think it's an education thing. So it's,”

it says thing that over time we need to get there as an industry, and look, are they perfect? I don't think they're perfect, and I think there's work to do with regulators and policymakers, and that's something we're very committed to. But the, so, how is it defined in the, in the stock market, right? And, and, and, you know, let's just sort of attack that problem first. I think at a high level,

which is basically, let's make that even simpler. It's like, add, if you have a legal obligation,

“not to disclose information that you have that you've received, you cannot trade. The trading”

is a form of disclosure, right? Disclosing information, you can, you know, one way to disclosing information is you can cause caught and tell him. One way is go on CMBC and tell them. Or you can trade it. And that's where, that's one way of disclosing it, right? That same standard applies to prediction markets. And our rules benefit the same way, right? So if you have information that you received that you legally cannot disclose, you're not supposed to tell anyone, like you work at the BLS

in the Fed, you know, allowed to release the report beforehand, you cannot go into the marketplace and trade it. And it supplies to any of the other markets that we have. Isn't the reason that it's that it's, there is a legal requirement, not to disclose it because of the inside of trading laws

in the first place, which says, you can't disclose this. And just to explain this for people,

this came up in your interview with CNBC, where Andrew Rosorkin was providing to you the hypothetical,

“like, what if there's a dancer at the halftime show, who knows what's going to happen in the halftime”

show? And there's, I mean, there's no law requiring her to not, him or her to not tell someone would about it. But then he or she does. And that seems to me to be inside a trade it. The stock market is not the only market that exists out there, right? We have markets on commodities, we have market on rates, we have markets on, I mean, we have all sorts of markets, not like we add the stock market and then also in production markets happen. But those markets also have rules

around market manipulation inside of trading and so on and so forth, right? So, so yes, there's some reflexivity, I agree with you. Like, maybe the companies in some ways, the underlying, got more strict about some of these things because of the existence of the market. And this could happen in our market too, it's possible, right? But like, the way I have described it is like, and by the way, I do also want to address how we actually police it, how do we actually find,

so let's just finish, so let's finish the definition, let's move on to that. But the definition is like, if there isn't a problem with disclosing the information to people, then there isn't a problem with disclosing the information to people, you can trade it. Like, you know, and you know, you can tell a friend who can tell a cousin and then that's completely fair game. And that is not a concern inside of trading. There's no issue with that. And if people feel like, hey,

maybe too many people may be around the stadium and can look at it, they, you know, that's like an unfair market, they would stop trade. Like, they would just like, you know, if you over time feel like the subset of information is too important or too prevalent, like, to deterministic for the marketplace, and they would start trading like Scott, Scott basically was saying.

“But I think that the line, like, you know, you don't want to be in a position where you're like”

blocking information because it is actually totally fair game to go and sit around next to a stadium and figure out what the next song is going to be. And listen to rehearsal, that's like doing research outside of Walmart. It seems to me, my mind starts spinning around the different types of synthetic applications of this or different things you could use prediction markets for whether it's hedging existing positions. Can you give us some examples of different applications

of prediction markets that people have not, have not hit the mainstream yet? One example, you know, and every time around hurricane season, we get a lot of calls from people that live in the keys and they want to basically buy our hurricane contract. They buying a hedge against hurricane sitting in their city. And it's super interesting because historically what they do this is they go to state-regarding trends, right? They go to an insurance company and the insurance company

ensures their home against hurricane. They're sort of like two issues with that. One, it's an efficient marketplace and it's a little bit goes back to how when I started the company when we were like structuring these trades around Trump or Brexit, like there's one price, which is the insurance company and usually don't get a very good price and oftentimes they don't pay out the policy, where it's having an open marketplace enables competitive bidding. So if Ed wants to buy this hedge,

you know, Scott or other people can basically, you know, competing for that market. So you can get price improvement. The number two issues for this specific, like use cases like entrance companies have pulled out of the keys because they've had a lot of trouble in a lot of difficulty pricing hurricane risk. It's been like a very difficult thing for them to put in in their balance. She usually reinsert with reinserts, but reinserts have pulled out of the market. And so this is a

very good alternative that people basically go to. And we see this in a bunch of other places like, you know, the fed interest rates, inflation, geopolitical events, bills passing, where kind of regulation could now get every impact and industry or other. And we even see a lot in sports. I mean,

sports, the reinsurance or insurance industry for sports is around 10 billion dollars today, nine

10 billion dollars today. And same sort of thing applies. So, present them, there's a lot of teams that

all teams like to ensure against those performance bonuses. And they do it oftentimes with reinsures.

The price is really bad. And so now that they can basically all floor their exchange,

they get better pricing and they get more efficient pricing. They actually know what the fair price should be for this thing. And that's generally a good thing because it increases the clearly in the acquisition system for all these types of use cases. We'll be right back. And for even more markets content, sign up for our newsletter at profitimarchets.com/subscribed. With that, with property markets. My understanding is that you're revenue 10x in 25 relative to

“24. Are you assuming that same level or ballpark or growth in 26?”

24 to 25, just to kind of talk about the number. I think we grew, it was closer like 35, 40x 24 to 25. And this is like an FY basis. An annualized basis much more. It was maybe like 60. I think we could do, I don't know if 10x, but maybe half of that is I think within the realm of possibility for this year. It is pretty mainstream now, right? It is very, very mainstream. I think like the so obviously, as you get more in the stream, the growth, you know, at some point,

I mean, you know, 45% of people up to the age of 45 of men up to the age of 45 are like

basically active users of production markets now. Like like some part of them are trading

pretty actively. And the other part is like consuming it as an information feed, as a newsfeed, to the use next to acts and other places. Like that's a pretty large number, right? You're starting to kind of like flirt with, I wouldn't say you're flirting with the boundaries, but you're starting you know, you're starting to start accelerating as you kind of get closer to the boundaries of the

“time. But yeah, I think it's possible. I mean, I think, you know, we're growing it. The additional”

business starting to pick up traction. I think going international is exciting. The first thing into more market place, the markets, types of markets, and there's a lot of categories that are growing. So, you know, I think there's a lot of, a lot to be excited about for 26. Tara, I've grilled you. I get about in this episode. I think, as we just close here, I would separate two things, as I said at the beginning. On the content, calcium production markets,

as a content machine, as an information machine, I don't think it can be disputed. Everyone is looking at this stuff. Everyone is interested in this stuff. This is, by the way, one of the great things about markets in general. This is kind of why I love markets. It has this really awesome thing, which is that it tells you a lot about the world. You can look at a chart, you can understand things. It tells you about the future. This is the great thing. It's even a

great thing about options trading as well. Options trading also is an interesting and helpful information machine content machine. At the same time, I am personally someone who thinks that the act of trading options is not a good or wise investment decision most of the time. I would

grant you that there are a lot of people who make a lot of money who ultimately are doing well,

but something I wouldn't recommend. I don't think it's great. Now, the law generally agrees for the most part, which I think is why we have these stringent laws on things like gambling, on things like options trading, where we say you're only allowed to do it if you prove this in this. You're only allowed to do it if there's sufficient education. That's not true for gambling.

“For gambling, we need to express to you. If you're advertising as a gambling, you need to say”

you need to gamble responsibly. We kind of recognize that that is built in you need regulation, which brings me to I view calcium as kind of the only platform in prediction markets that actually is embracing regulation. I think prediction markets are here to stay. I think the genius out of the bottle this is happening. The thing that I think is really important for you and I guess I want to hear more about is how will you embrace the regulation that so many tech companies throughout history

have tried to shock off because it eats into margins. It eats into your bottom line. It can be an annoying problem. How do you deal with that? I don't think of the other that way. Look, I think let me just adjust it in two folds. First, the model. You may or may not, you know, people may or may not agree whether trading an option is a good or bad thing. I strongly believe that trading our prediction markets is a good thing. We've seen the results. People are being more

engaged in the political process. They research different things. If you talk to our traders, you see, it brings them community. Going back to the Joel example, I think one of his best

beauty that's coming out of these markets where you're seeing this sort of subjective debate that

usually happens. People insulting each other on Twitter and, you know, this polarize an Instagram, happening more quantitatively, more objectively, more in a more engaged way, more intellectually

“on prediction markets. I think that's a good thing. I think we're not talking about when you have”

a position on something you get more self-calibrated. When social media is incentivizing clickbait, victimizer, incentivizing truth, calibration, objectivity, pursuit of truth. All of these things are good things. When I think about people, even when we think about our generation, we want people to value things like being accurate, being precise, thinking critically about the world. I think prediction markets brings a lot of that. Our regulatory position. We spent four years getting

regulated before we launch a single product. The reason why you heard about polymarking a lot of other, you know, polymarking is where you primarily, and they just launched. What that relies on is about anything else. We were committed to, like, we'll get the license upfront no matter what. And let me tell you, like, when I was 22, the idea of spending my 22 to 26 year olds just doing regulation and law and legal stuff without a product, it was horrendous. It was really difficult, but I

I'm very, very proud of that decision because, you know, it led to the outcomes that we're seeing now, we're reading in the market, but I want to build an enduring company, and I just don't see a way to build a financial services company. I can't talk about social media and other places,

“but a financial services company without proper regulation. I think that's, you know,”

I think it's not right. Like, I think you need a regulatory overseeing every step where the money is going, reporting on transactions, everything needs to be public. But then, you know, I also think that, like, there are questions like the ones that we're discussing that, you know, over time, we need to get better at solving, and it's something as a company I can do alone. We need the regulators, and we need the regulators to work with us.

Taurak Mansour is the co-founder chief executive officer of Kalshi Taurak, the guy in his career as a quantitative trader, Goldman Sachs, and as a global macro trader, at Citadel, he went on to co-found Kalshi in 2018. Taurak, thank you very much. Appreciate your time. Thanks, Taurak. Thanks for having me. What do you think? What did you think? Can I throw it back to you?

Well, you know, me, I'm pretty quiet. I don't like to share my viewpoint. It's just sort of reserved. I think they're trying to be the clean, well-lit corner of this environment. I mean, I struggle with the concept as a whole, and the tension between you can't infantilize young people. People, Paul Tudor Jones, one of the great investors, will say that 80% of the stock market is speculation, that if you look at there's $3 trillion

in transactions, it's like 300 billion of secondaries and equity offerings, true financing.

So technically 90% of it is not investing. It's me betting against you. That the stock's going to water down and you take any other side of that trade. So this isn't much different. But at the same time, it does feel like it has more of a gambling feel to it. So I don't have more clarity around that. What I am absolutely fascinated by is the opportunity for so I am a resident of Florida. Basically, Floridians are struggling with they can't

“get insurance. And it's not only, you have to go naked in terms of risk. If you have a mortgage,”

a lot of, because the mortgage industry isn't bad with the insurance industry, in order to get a mortgage, you have to show proof of insurance. And now homeowners in Florida can't get insurance. So is there some sort of synthetic where they basically, every time her can Claudia pops up, they basically agree to buy or bet for you that this will hit. And if it hits, you get a bunch of money to cover your damage. I just think there's so many opportunities here

as you know, we are constantly using this information because as it ends up, the wisdom of crowds really is wise that this might put pollsters and investment banking analysts out of business because the guy covering Apple for JP Morgan, JP Morgan wants Apple's next

debt offering. And it's always going to exaggerate the upside or have a bias towards the upside.

If there's nothing to get to get to how you really feel about something when you ask people to put their money behind it, I hope that he does appear to be sincere about not embracing regulation but at least being relative to his peers. He gets credit for embracing regulation as opposed to trying to skirt around it. So I think he gets some credit there. You know, be interesting to see if he, I thought it was 10x. He said 40 to 60x. Obviously, 26 is going to be a pivotal year for

wanting to comply with regulation. I think there are so many of these companies that ideas,

“let's just like skirt around as many rules as possible to make as much money as we can. That's not”

the group that he is taking. I do think he needs to get more clear on what are the lines that you're drawing here. What are the lines between speculation versus investing? What are the lines between speculation and gambling? These are hard lines to draw. It's not very clear. As you say,

options trading, you can make the argument that the entire stock market at least 90% of the stock market.

If you're not directly participating in the fundraising and investing in an actual company,

“if you're just trading the stocks around, maybe that's speculation, maybe that's gambling. I think”

it's a harder argument to make. But the point being, there needs to be a lot of clarity on what are the definitions between these different things? What I can tell you is that betting on, say, the color of the Gatorade is flat out gambling and there is no real benefit to society, other than it's fun and it's a form of consumption. If that is the case and if that is happening on the platform, he says they didn't do that, do the Gatorade on the platform. But maybe there

are some others. If that is the case, you got to regulate it like it's gambling. You got to

“have disclosures, you need to add, if you're going to advertise, you need to say gamble responsibly,”

trade responsibly. It's the same way that we have real robust regulations around any other addictive product around cigarettes around drinking. I mean, the rules are there in place because bad things can happen. And so what I would love for Torek, I think he's doing this better than anyone else in this industry, which is happening, sorry, it's happening, whether you like it or not.

He is embracing that more than the others are. And I think that is going to be crucial

to minimizing the very real potential for downside risk here when it comes to speculation, addiction, and gambling. Unfortunately, that is happening on these platforms. So now it's on regulators to figure out how to make sure this works forever. This episode was produced by Claire Miller and Alison Weiss and engineered by Benchman Spencer. Our video editor is Jorge Corti. Our research team is Dash Lawn. It's about a kinsel Krishna Donahue and Mia Savario, Jake McPherson is our social producer.

Drew Barrow's is our technical director and Katherine Dylan is our executive producer. Thank you for listening to Prof. E. Markets from Prof. E. Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday. [Music]