When co-founder and CEO Tarek Mansour received a call from a lawyer two months before the U.S. election, screams erupted in Karsh’s office. Kalshi wins. Despite the odds, the small startup defeated regulators in court and forced the government to legalize election betting. Now, for the first time in nearly a century, U.S. investors can make nearly unlimited bets on a presidential election, and it won’t be long before the money starts rolling in. Money that will help Donald Trump win in November.
when wealth I visited Kalshi’s SoHo headquarters in Manhattan last Friday, just weeks after its newly legal Presidential Market opened. The Sequoia Capital-backed company has been gearing up since its launch in 2021, and now Mansour claims the platform can handle up to $100 million in a single transaction. The office is buzzing with activity as employees scramble to implement the company’s latest strategy—and X. Elon Musk himself has become a supporter, posting a Kalshey chart that puts Trump’s chances of victory at 58% with the caption “Making Progress.”
Mansour would not make his own prediction on whether Trump would win. “You don’t need to ask that question anymore,” he said. “That’s the point.” The answer lies on Kalshey’s website, in the cold logic of cash.
“People don’t lie about money”
Here’s what happens with prediction markets: pollsters have a stake in the game, but for all the wrong reasons. They are politically biased, can be manipulated, and have conflicts of interest. Most importantly, the method is outdated and inaccurate.
In contrast, markets are both pure and efficient. They compile information and convince people to invest real money. They are motivated to tell the truth. “People don’t lie with money,” Mansour said.
This view is increasingly recognized by academics, investors and even analysts. Renowned election forecaster Nate Silver now offers advice comprehensive marketKalshi’s offshore and unregulated competitor. For a growing portion of the political class, betting on the wisdom of the masses trumps the experts.
Whether you agree with the argument or not, this is the first large-scale test of it in a U.S. election. Thanks to Calshe’s victory over the Commodity Futures Trading Commission in federal court, users can now bet on a range of politically themed contracts, from Senate races to margin of victory.
Most importantly, though, people are watching and betting on the presidential election results, with a majority of Kalshi users overturning November poll predictions and betting on Trump to win. But as electoral markets face their first real test in modern history, critics warn that a Karsh-like gamble will put further pressure on democracy.
From trader to founder
At just 28, Mansour looks every bit the prodigy of a tech founder—with his messy hair, enthusiastic talk and disdain for tradition. He came to the interview wearing a T-shirt, then rushed out of the room to grab a hoodie so he looked “more formal.”
He founded Kalshi in 2018 with Luana Lopes Lara, whom he met while studying computer science and mathematics at MIT. They bonded as part of the international community on campus—Lopes Lara is from Brazil, while Mansour, who was born in the United States, lived in Lebanon until he was 17.
In the summer of 2016, while still in college, Mansour was working in Goldman Sachs’ exotics unit, the bank’s unit that manages complex financial instruments like options and swaps. There, he often meets investors seeking to hedge against disruptive events such as Trump’s election or Brexit. These are large institutions – hedge funds, family offices and corporations – but they still can’t find financial products to help them offset the impact of such an event.
That gave Mansour an idea. He thought of how futures contracts for commodities like grains and oil allow investors to hedge against price swings. Why not build instruments that have the event itself as the underlying asset—effectively letting investors bet on the election like the price of pork belly?
After working for a while at Citadel Trading Company, Mansour and Lopes Lara took Kalshi’s idea to the famous Y Combinator startup incubator. Their betting market was launched two years later. At the end of 2020, the U.S. Commodity Futures Trading Commission (CFTC) gave them permission Launch event contracts with binary options for a limited set of questions, such as whether it will rain tomorrow in New York City. However, election-based betting remains prohibited.
Kalshi is not the first company to venture into this space. There is one in the United States rich history The history of the presidential betting market dates back to the late 19th century, when trading moved from pool rooms to financial exchanges and eventually to Wall Street firms. According to a 2004 report, during the presidential campaigns from 1896 to 1924, all major New York newspapers provided quotes almost daily from October to Election Day Paper Economic historians Paul Rhode and Koleman Strumpf argue that the rise of polling companies such as Gallup has led to a decline in the popularity of betting markets, which nonetheless do a “remarkable” job of predicting elections.
The CFTC has sought to limit the pop-up election betting market, arguing that they are closer to games than other types of financial derivatives that Congress tasked the agency with regulating in 1974. The CFTC allows limited academic use cases, such as Kalshi competitor PredictIt. agency quit The project, which will be implicitly supported in 2022 and is currently mired in litigation, is a collaboration between Victoria University of Wellington and political technology and data provider Aristotle.
The U.S. Commodity Futures Trading Commission also follow Polymarket launched its own prediction market based on crypto infrastructure in 2020, forcing the Peter Thiel-backed company to move overseas and pay a $1.4 million fine.
litigation
In June 2023, Kalshey stepped in and launched betting contracts on which party would control the House and Senate. As the agency expected blocked product. Months later, Kalshey filed suit.
Kalshi’s legal strategy focuses on legislation that would give the CFTC the power to prohibit contracts for activities involving illegal activity, terrorism, assassination, war, gambling or “similar activities” that it deems “contrary to the public interest.” Kalsi believes that election contracts do not fit into any of these categories and offer financial benefits to investors who want to hedge against volatility in political outcomes.
In its lengthy objection, the CFTC responded that it did not want to play the role of election police. What happens if investors cry fraud? Should the CFTC, as a small and chronically underfunded agency, conduct an investigation?
Although it seems like a new cryptocurrency company is suing a government agency every week, Kalshi took a gamble last November when he decided to challenge the CFTC in court. “From a model perspective, it never really worked,” Mansour said. “It’s cool to do it now, but the first guy with some balls is basically like, ‘We’re gonna fucking do this.'”
Kalshi prevailed less than a year after he filed the lawsuit, with Judge Jia Cobb issuing a one-page order in early September ruling that the CFTC must allow the platform’s congressional contracts, among other things. “Kalshi’s contract does not involve illegal activity or gaming,” she wrote in full. point of viewreleased a week later. “They involve an election, but they are neither.” The agency has appealed, and experts say the case may go to the Supreme Court.
John Phillips, CEO of PredictIt backer Aristotle, said the emergence of election markets to hedge political risk was inevitable. “It’s amazing that this waste of taxpayer money is still trying to prevent Americans from doing something that is now clearly legal because of the lawsuit,” he told reporters. wealth.
risk
Mansour may have founded Kalsi with the goal of upending U.S. financial regulation, but he insists he is a conservative at heart. “As time went on, I became more and more risky, but I was smart,” he told me wealth.
After his lawyer, Jones Day partner Yaakov Roth, called Mansour to tell him of Kalshi’s win, Mansour didn’t want to celebrate. One of his investors, venture capital firm Neo, brought a bottle of champagne to the office. “I was kind of forced to do it,” he said.
He may not get another chance for a long time. The election is still two weeks away, but Kalshey does not plan to pay out his bets before the January inauguration to avoid any ambiguity about the outcome. Meanwhile, Kalshi is working to find a new liquidity provider outside of Susquehanna Trading Company. Mansour added that the platform plans to launch cryptocurrency deposits in stablecoin USDC as soon as this week, which he said would be faster than bank transfers.
While Polymarket is still a bigger force, Mansour insists that Kalsh’s compliance-based approach — even if he has to sue to gain oversight — will make Kalsh a more attractive option in the long run. He predicted that within a few presidential cycles, the U.S. election betting market could reach $1 trillion.
A bigger existential threat to Kalshi will be its ongoing legal battles and relationships with regulators. As prediction markets craze sweeps social media channels and newspaper covers, scrutiny is increasing, including accusation The manipulation of Polymarket drove up Trump’s approval ratings. Some consumer rights groups believe shadow backers may place large bets to change the odds and later sow doubt about the outcome. “We’re talking about the integrity of our democracy,” said Cantrell Dumas, director of derivatives policy at Better Markets.
Mansour isn’t worried about people attacking financial markets; he thinks they just don’t understand them. The market is where he discovers truth.