Uncapped #48 | Tarek Mansour from Kalshi

Summary

Podcast Summary: Uncapped #48 | Tarek Mansour from Kalshi

Podcast: Uncapped with Jack Altman
Host: Alt Capital
Guest: Tarek Mansour, CEO of Kalshi
Date: April 29, 2026
Episode Theme: Building and Legitimizing Prediction Markets in the US

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Episode Overview

In this candid and detailed conversation, Jack Altman speaks with Tarek Mansour, CEO of Kalshi, about the arduous journey to create and regulate the first US-licensed prediction market exchange. The episode delves into the origins of Kalshi, regulatory battles (including their decision to sue their own regulator), their philosophy on markets versus gambling, and the company’s distinctive approach to building a high-agency, lean startup culture. Tarek’s personal narrative, reflections on fairness, and vision for the future of prediction markets are woven throughout.

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Key Discussion Points & Insights

1. Kalshi’s Origin Story

Tarek's early experiences:

• Raised in volatile Lebanon, Tarek became “obsessed with math” as a refuge from uncertainty.
• His journey took him from MIT to jobs at Goldman, Citadel, and other financial institutions.
• Wall Street’s failure to directly trade on outcomes like Brexit or Trump’s election (and instead being forced to bet on indirect assets like the S&P) inspired the idea for a direct event-trading marketplace.
  • "They were right about the prediction and they lost money." (Tarek, 02:41)

Inspiration for Kalshi:

• Tarek wanted to build a platform for people to trade directly on outcomes they care about—simple, intuitive future events (e.g., "Will the Fed raise rates?")—rather than convoluted proxies.

2. Building Under Legal Uncertainty

Early Days and Regulatory Challenges:

• Kalshi joined Y Combinator in 2018 but stood apart due to zero product or customer traction—progress was regulatory, not growth-based.
• The core challenge: getting a US-based, onshore, fully-regulated prediction market exchange approved without cutting corners or operating offshore.
  • "For us, the key question is: How do we get it regulated?" (Tarek, 08:00)

Navigating US Commodity Law:

• The law stated a commodity could be an occurrence or contingency, but regulators were unaccustomed to elections or weather as underlying assets.
• Tarek and team became de facto legal experts, confronting skepticism about event-based trading at every step.
  • "Imagine, like, walking to a regulator: you're 21-year-old MIT kids... with our 40-page deck." (Tarek, 09:21)

3. Surviving the Regulatory "Desert"

• The journey spanned years of uncertainty with intense psychological pressure.
  • "It's like a desert. You don't know if it ends... you may just die." (Tarek, 10:29)
• After initial regulatory approval in 2020, a new administration re-opened the case, limiting Kalshi to only "economic" markets, which failed to deliver traction.

Repeated Setbacks, Layoffs, and Perseverance:

• Kalshi endured repeated regulatory delays and even layoffs, pushing the team to question their future.
  • "That was one of the most painful times I've ever sort of experienced in my life. And by the way, I went through war in Lebanon... It doesn't compare." (Tarek, 14:18)

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4. The Crucible: Suing the Government

• When regulators blocked election markets in 2023, Kalshi made the rare, high-stakes decision to sue the CFTC, their own regulator.
  • "It's definitely an anti-pattern for a company to sue its own regulator... But sometimes the best companies I've ever seen start with an anti-pattern." (Tarek, 16:13)
• The lawsuit, expected to be company-killing, was won in October 2024—despite every predicted bureaucratic hurdle, delay, and "knife after knife."
  • "But the most important thing is we won." (Tarek, 17:18)

5. Legally Redefining Prediction Markets

Key Outcome:

• The legal distinction was drawn between gambling (house vs. customer) and markets (peer-to-peer trading, real-world events).
• This echoes the Supreme Court decision that legalized grain futures in 1905: speculation is permitted if it serves hedging or price discovery for real events.
  • "What is the structure? Are you an open and free market where people are trading against each other?" (Tarek, 18:30)
• Crucially, Kalshi’s model relies on legally recognized, naturally occurring events—"a natural event, not an artificial event." (Tarek, 19:33)

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6. Insider Trading, Fairness, and Market Design

• The regulatory regime mirrors that of stock markets—material non-public info ("MNPI") is the boundary for insider trading.
  • "Prediction markets are a way to disclose information... when you trade, maybe you're not saying it on Twitter, but you're moving the price." (Tarek, 21:58)
• The key: fairness and broad trust, lest markets dry up.
  • "If people believe the stock market is rigged, they stop trading. The liquidity dries up." (Tarek, 24:13)
• Probing the boundaries of fairness and enforcement for prediction markets is an ongoing process.

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7. Markets vs. Gambling, Customer Protection

• Tarek’s core argument: the difference is in incentives. Gambling outfits win when customers lose; open markets simply facilitate trading and profit from modest transaction fees.
  • "If your KPI is customer losses, what are you going to do? You're going to promote losses." (Tarek, 28:36)
• In marketplaces like Kalshi, the platform prefers volume and fairness over exploitation or customer addiction.

Responsible Platform Philosophy:

• Kalshi places limits to prevent excessive, addictive behavior—distancing itself from predatory practices.
  • "There isn't that dynamic. That dynamic doesn't exist. My incentive as a company... I take a small fee, a transaction fee. What I want is volume." (Tarek, 31:12)
  • "We have all the incentives which say, like, hey, maybe you should stop. Maybe you should self-exclude." (Tarek, 31:32)

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8. Prediction Markets as Information & Insurance

• Price Discovery: Kalshi acts as a people's "wisdom of the crowd," now validated by official Fed research on micro-markets.
  • "The Fed itself is saying, this is the best gauge we have on the economy." (Tarek, 36:22)
• Hedging: Users (retail and increasingly institutional) can hedge event-based risks—e.g., preparing for hurricanes without going through traditional insurers, or hedging portfolios around elections.
  • "You can actually put the hedge... your hedge is going to basically complement for that. So you don't have to sell your position anymore." (Tarek, 37:57)

Vision:

• Kalshi enables society to more accurately price all the factors—politics, weather, tech, etc.—that affect financial assets. This is the 'infinite markets' thesis.
  • "As society gets increasingly more complex... prediction markets fill that gap." (Tarek, 40:02)

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9. Building a High-Agency, Lean Company

• Current headcount (April 2026): 127 people
• Kalshi operates with minimal org chart and high output per person:
  • "Luan and I work very, very hard... we're generally like first to office, last to office, last from office." (Tarek, 42:10)
  • No managerial layer; founders in daily contact with the majority of the team.

Culture & Hiring:

• Bias for slope (high capacity to learn/work) over intercept ("smart" résumé) and high agency.
  • "People manage work, we don't manage people." (Tarek, 44:16)
• The company is comfortable with some organizational chaos, iterating quickly, and learning from mistakes.
  • "There's a bit of a decision... you're more chaotic or you have more process, which means bureaucracy and some degree of slowness... We're very comfortable with putting something out there and getting bashed for it." (Tarek, 47:03)

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Notable Quotes & Memorable Moments

• "They were right about the prediction, and they lost money." (Tarek, 02:41)
• "We were not like entrepreneurs that were like trying to figure out what product to build to build a company. That was not how Kalshi started... The idea kind of forced itself on us." (Tarek, 05:43)
• "It's like a desert. You don't know if it ends. And so psychologically it's very taxing because you're walking in that desert and you have no idea if this thing is ever going to end. You may actually just die." (Tarek, 10:29)
• "That was one of the most painful times I've ever sort of experienced in my life. And by the way, I went through war in Lebanon... It doesn't compare." (Tarek, 14:18)
• "Sometimes some of the best companies I've ever seen start with an anti-pattern. Like, there's something weird that happens in that company... maybe this is yours." (Tarek, 16:16)
• "The audit that was supposed to be two weeks now is like 18 months... but the most important thing is we won." (Tarek, 17:18)
• "Prediction markets are a way to disclose information. Like when you trade, maybe you're not saying it on Twitter, but you're actually trading that information and you're moving the price in a way that discloses the information." (Tarek, 21:58)
• "If people believe the stock market is rigged, they stop trading. The liquidity dries up." (Tarek, 24:13)
• "If your KPI is customer losses, what are you going to do? You're going to promote losses." (Tarek, 28:36)
• "There isn't that dynamic [in open markets]. That dynamic doesn't exist. My incentive as a company... I take a small fee, a transaction fee. What I want is volume." (Tarek, 31:12)
• "The Fed itself is saying, this is the best gauge we have on the economy. It's crazy, like, amazing." (Tarek, 36:22)
• "We basically have all the top super forecasters on the planet that will give you the price." (Tarek, 39:28)

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Timestamps for Important Segments

• 00:29 – 05:05: Tarek's background, Wall Street experience, and the genesis of Kalshi.
• 05:11 – 08:29: Early company days, Y Combinator, and the legal-regulatory focus.
• 09:06 – 12:12: The legal path, commodity law, and the unique regulatory hurdles.
• 12:14 – 15:56: First product launch, lack of traction, regulatory resets, and company low points.
• 16:08 – 17:18: Deciding to sue the CFTC and winning the lawsuit.
• 18:12 – 20:37: Legal distinctions between gambling and financial markets, historical precedents.
• 21:05 – 26:43: Insider trading, fairness in markets, and maintaining integrity.
• 26:43 – 32:04: Gambling vs. markets; customer behavior, incentives, and platform responsibility.
• 35:49 – 41:36: Insurance use case, institutional adoption, and the “infinite markets” vision.
• 41:48 – 47:41: Kalshi’s lean, high-agency company culture, direct work management, and organizational chaos.
• 47:41 – End: Closing reflections on the journey and culture.

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Tone & Takeaways

Tarek is characteristically transparent, analytical, and mission-driven—expressing humility, persistence, and deep conviction in market design, fairness, and serving society’s need for better information. The conversation is insightful for founders, investors, and anyone interested in financial innovation or company building under uncertainty.

Biggest Lessons:

• Endurance and stubbornness matter—sometimes achieving the “impossible” requires disregarding the “anti-patterns.”
• Regulatory hurdles are not mere business obstacles—they can reshape industries and redefine legality itself.
• Building a responsible, high-agency, mission-driven company is possible—even (especially) under intense pressure and uncertainty.

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For listeners seeking a masterclass in entrepreneurial grit, regulatory navigation, and principled financial innovation, this episode is essential.

Transcript

[Tarek]

We decided to sue. All the kind of bad things that were predicted happen, all the little things like, oh, we're not gonna let you do this. We're gonna delay this. We're gonna kill you on this. We're gonna. The audit that was supposed to be two weeks now is like 18 months.

[Podcast Host]

Oh, my God.

[Tarek]

It's like, nonstop. Just like knife after knife. But the most important thing is we won.

[Podcast Host]

All right, I'm really excited to be here with Tarek, CEO of Kalshit. Thanks for doing this. I've been looking forward to it.

[Tarek]

Thanks for having me.

[Podcast Host]

I wanna start with the history of Kalshi, so can you kind of take me through the genesis, how the idea came together, how the company got started,

[Tarek]

a little bit background before that. So I grew up in Lebanon. I was born. I grew up in Lebanon. And, you know, Lebanon was kind of a. It's called, like, rough terrain to grow up in. It's. It's like super volatile. A lot of uncertainty. You know, I kind of found refuge in math. You know, kind of a mix of different things. Like, I grew up single mom. My mom was like, I wanted you to be successful. Maybe math is the thing to, like, get you back to America. And. And so I got really into math. And then it was like, a lot of my decisions at that point were like, what are the, like, best, like, smart math people do, basically? And it's like, oh, they're going to mit. So that's why I need to get into. And got into mit. And then the next kind of stage was the same question, and the answer was finance. And I started spending time in finance. I worked at Goldman, I worked at Citadel. I worked at some small prop shops. The one I did, Bridgewater and Citadel as well. And there was kind of a pattern that was emerging in a lot of these places. Especially the example I always love to give is in 2016, at Goldman, I was working on this desk, and there were, like, two questions that were, like, bothering everybody in Wall Street. And like, this is the. Those are two questions that people were figuring out how to, like, trade on these questions, like, will Brexit happen? And then will Trump win the 2016 election? People wanted to have, like, the Trump hedge or the Trump trade. And then the thing that really stuck with me was that so Brexit happened and it was a shock. Yeah, people were, like, really sort of completely shocked that, you know, the polls were saying this is not going to happen. And. And people had all these smart trades about how to hedge against Brexit. But Then a bunch of desks on Wall street blew up and they lost money and all the bad stuff. When it came to Trump, there was kind of a very similar thing happened. The trade that we sold at Goldman, the very common trade was like the Trump trade was you short the S and P because if he's going to win, the S and P is going to go down. Right. Everyone bought that trade. That was the trade and it was a horrible trade because Trump won. And the S and P actually, like, it was a. I think it was the sort of single, like, biggest rally in The S&P's history, like, ever, essentially. So, yeah, it's like worst trade of all.

[Podcast Host]

The exact wrong way to trade.

[Tarek]

The idea, like, is actually, which is

[Podcast Host]

a shame because it's like what you were trying to trade was this underlying thing that you got right and then you expressed it backwards.

[Tarek]

They were right about the prediction and they lost money.

[Podcast Host]

Yeah. This kind of is like when, you know, like a company has quarterly earnings and, and people are like, oh, it's going to beat earnings.

[Tarek]

Yes.

[Podcast Host]

And so I'm going to try to buy the stock and then it beats earnings and the stock goes down.

[Tarek]

And they're all smart in retrospect, like if, if you actually trace the plot of like whether the stock went up or down after earnings beat, I think it's like 50, 50, pretty much. It's mostly priced in two things. Kind of like I realized, like, actually a lot of some of the smartest kind of like traders and institutions, a lot of the, their trading ideas or like the things that they're trying to do originate from a simple, like, human view about the future. I think Trump is going to win. I think there's going to be like some change in diplomatic relationship between these two countries. I think Covid is going to come back. What they thought they were trading on with traditional market is the event, but what they're really trading on is this sort of reaction function is how the market was going to react to an event. They weren't trading on whether Trump was going to win. They were actually trading on how the S and P was going to react to Trump, which in retrospect, and now we can't really predict. It's so kind of impossible to predict. It was kind of a very exciting idea because it's like, okay, what if we just build this marketplace where what you're trading is like the specific thing

[Podcast Host]

that you're thinking about?

[Tarek]

Yeah. It's just things that people care about, whether politics or economics or weather or really Any of topics that just people naturally walk around the street and think about. Because people don't think about what is Cisco going to print, like what are their financials next score? Like, they don't think about that. They just think about, you know, the Fed might raise interest rates or things are more simple. And so that is exciting because like the TAM could be much larger because like a large number of people would care. Yeah, right. The second thing that was really interesting is like, if you, there's kind of, if you believe in markets, what markets really do is they aggregate information, right? They are a very good weighing function. So they can figure out how to get information from a bunch of people, aggregate it and get a single price. And it's like, what if we applied that to questions about the future, like all these kind of specific events or questions about the future, then in theory we should get a smarter or more accurate answer or market based answer about all these questions. And that got me really, really excited because at the time we were thinking about if you could get a little bit smarter about the future. That's like a very worthwhile product to build. Right. You don't need to be like 100% smarter. Even if you get 10% smarter about the future, that's more than enough. And that's how I got like into the prediction market, we can talk about that, but into a whole history on prediction markets and all of that. And I got really obsessed.

[Podcast Host]

So when you got started with the company, what was the first year, what were the first couple years of building? Like, what did you do when you got started?

[Tarek]

I was actually gonna go work at Citadel because I had kind of spent time somewhere there and I actually loved it. It was one of those situations where like Luana and I started talking about it and you know, the idea was just bothering me. Like, I could not get it. Like, I, I, I have a little bit of like, you know, I'm a little bit OCD and I get like obsessed with things. But I couldn't get it off my like brain. It was like, so, so like, you know, I was like gonna go, because, you know, one thing I always say is we were not like entrepreneurs that were like trying to figure out what product to build to build a company. That was not how Kalshee started.

[Podcast Host]

You just had this one idea.

[Tarek]

Like the idea kind of forced itself on us. Yeah, like I always talk about it and like, no, no, like, forget about that. It's just like, no, you know, let me just go, Citadel, they're paying me all this Money, like, and. But then I remember we had a friend who was like going to this YC hackathon. I don't know if they still do them, but they used to do these hackathon and bring a bunch of builders. And he was like, oh, I'm going to this thing, you should come. I think the deadline has passed. And we're like, well, deadline's past is now. He's like, no, no, you should just email the guy. And we emailed. I forgot who the organizer was at the time. I don't know. We emailed something like, hey, we were trying to figure out flights or something. And he's like, yeah, fine, you can just come. So we're like, okay, well we should just go. And it's funny, we did this hackathon. We put together a front end for what the V. One of the. It was like a bunch of questions in a list format with yes, no, and then some probability. And it was like an order book. Literally. We just copy pasted what the New York Stock Exchange order book would look like. And it's funny because we had judges that were going to judge the different teams and pick the finalists. And our judges were Michael Seibel and Christina from Vanta. I don't know if she had started Vanta at the time or she was in the early innings of it.

[Podcast Host]

When was it?

[Tarek]

It was October 2018.

[Podcast Host]

I think. She had started.

[Tarek]

She had started, I think so, you know, we start pitching the idea and then it's great. Like, I remember, like, Michael was like, oh, you know, everything is great about this idea except for the fact that it's like totally not allowed in the US and like, you know, this has like absolutely no way of existing in any way, shape or form. And like, we walk out, we're like, look, we tried, you know, move on. I remember like I drank a bunch of beers in that hackathon. Like, we're done. And then this guy like ends up picking us to be finalists. You know, he's like, dunks in the whole thing. And then. And then we end up winning that hackathon. And we're like, well, maybe we're onto something which got us into yc. And then we're like, well, we have to give YC a shot. Like, you know, and at the time it was like, you know, wow, like never expected to be get into yc. And then like, this is the first year was crazy because you know how there's this thing about yc, like they're the cool companies that are building products and getting all these investors excited. Like, we were the total opposite of that. We had no product, no customers. Week to week we go to office hours and everyone was like, here are my KPIs and here's the traction. And we were like, we got nothing. Nothing. Like, we were just like, well, we talked to this lawyer who said no. And then the next week it's tough

[Podcast Host]

because, you know, I did YC and that was one of the things. One of the most notable parts of the experience, which I think is a very positive part, is every week you come back with your group and everybody else has grown 7% week over week. And how much have you grown? And you're just like, none. Doesn't feel like none.

[Tarek]

I don't even know what the product is. But we knew what the. The vision was always clear. But for us, the key question is like, how do we get it regulated? We were very, from the beginning we made a decision we're not going to launch a product outside of the realm of the law or regulation. We wanted to figure out how to get this regulated in the US onshore, no matter how long it took, no matter what. We. And the early days were really tough because we had no progress in regulation. Is not linear. It's not like you get sort of encouraging status updates from regulators.

[Podcast Host]

It's like there's big bang moments almost exactly.

[Tarek]

It's like zero all the way up until like approval.

[Podcast Host]

Yes.

[Tarek]

And nothing in between.

[Podcast Host]

Can you talk about what those were for you?

[Tarek]

So that was 2018. Then we spent the first two years essentially think of it as like we were figuring out like, which lawyer would take this on. And it was this one. Think of it as like this thing where like basically I became essentially somewhat of an expert in the law, like in the law around commodities, which is where I thought this would get regulated. Essentially. There was no proof in the law of why this shouldn't exist. But there were a lot of like, sort of like things to figure out.

[Podcast Host]

What was the law at the time. Like, what was not allowed at the time?

[Tarek]

Well, it says that a commodity could be an occurrence or a contingency.

[Podcast Host]

And so was the issue the definition of the commodity?

[Tarek]

It was, yeah. The issue of like, well, but we're used to futures like grain and like things are tangible. Right.

[Podcast Host]

An election outcome is hard to sort of put a thing around.

[Tarek]

Imagine like walking to a regulator. You're like 2, you know, 21 year old, 22 year old MIT kids just like walks into like, you know, walking into the. I mean, we Got this lawyer, Jeff, who was ex cftc, the regulator as a cftc. And he just like got us the first meeting with the regulators. And like, you know, two kids are like, here's our like 40 kind of page deck plan of how we could regulate this thing. And they're looking at us. They're like, what are you talking about? And here are all the issues. How are you going to, like, police for manipulation? How are you going to list this sheer number of markets? Because, you know, usually in our markets, like, you know, like the CME or like those exchanges, they list one or two new things like a year or every few years. Like, you're talking about like, listing hundreds and tens of markets. Sound like crazy. So it was a lot of these kind of like hurdles, none of which felt impossible, but if you add them all up, it started to look like Mount Everest. And the problem is that you start climbing the Mount Everest and then it

[Podcast Host]

somehow you see a higher peak kind of thing.

[Tarek]

Yeah, it starts sort of like, you know, it keeps going. And we had no certainty it was going to end. That was the toughest part. It wasn't actually the work. I mean, the work was regulatory all day.

[Podcast Host]

We could fix this thing and it might be like, we haven't made a dent.

[Tarek]

It's like a desert. You don't know if it ends. And so psychologically it's very taxing because you're walking in that desert and you have no idea if this thing is ever going to end. You may actually just die.

[Podcast Host]

Yeah.

[Tarek]

And then you just walked for like years in this desert.

[Podcast Host]

And so what happened?

[Tarek]

We were just so stubborn because, like, we're like, look, and in those situations, you have to just like, you gotta stop thinking. You have. You have to have no kind of like introspection.

[Podcast Host]

Yeah. Mark Andreessen.

[Tarek]

Yeah. I mean, you know, he got like. He got a little flame for that one. But no, I mean, more like you have to have a bit of tunnel vision. Like, look, we are going to keep going until we're proven wrong. Like, I. E. We die or we find the other side.

[Podcast Host]

So can you talk about finding the other side?

[Tarek]

Towards the end of 2020, we started seeing like, think of like, okay, they would send an issue to us and then one after the other and after the other after the other. And then it started fizzling out. Like, the issues started. Like, these guys started being like, wait, maybe these people are actually serious. Like, they're. You know, and like, at some point you kind of run out of issues to find, you know, we Walked through all of them and worked through all of them and think of, like thousands and thousands of legal documents and pages, et cetera. And then we started kind of angling towards an approval, and we got approved in November 2020 to get the first sort of regulated exchange for prediction markets. Then the new administration, on the same day of our approval, the election happened. So the new administration came around and our approval was bipartisan. It was like them and Republican. But then the new administration was like, wait, wait, pause, pause. We're going to have to think through this. In some ways, we're like, oh, we're finally through the desert. But all of a sudden, actually, oh, shit, we got dropped back into the middle of the desert. And it was like, we're going to have to see if we can let you do all these things. Maybe we'll let you do, like a four economic markets, but not this sort of broader vision. That was disheartening. It was really hard because we had spent two years. We're finally there, we're going to launch.

[Podcast Host]

Yeah, of course.

[Tarek]

And so this is another, like, we started the first battle to launch the exchange, and we're like, fine, you know what? We'll launch with the four economic markets. We never thought that would get product market fit, which it didn't. But we're like, we got to get off the door now and launch and see what happens. So then by the end of 21, we kind of launched with, I think, a few economic markets. No traction whatsoever, et cetera. And at the end of 21 is when we were like, okay, we have to open up the space to get all the markets we want. And this is when we started talking about the election market and for prediction markets, I think. And we can talk about the dynamics, but we always thought that you need the diversity of markets, but you also need a catalyst. You need enough, like, something that is enough of a driving force to get people noticing so that you can, like, kind of break through the supply and demand. You need something strong enough to get the chemical reaction going because, you know, you have the supply. The supply and demand problem. The chicken and the egg. And the chicken would come, and there's no egg, and vice versa. You need something strong enough to get everyone at the same time to start trading. And then after that, the thing can get going. But also, I think it was one of the best ways to explain to people why prediction markets are powerful. So you need an event that everyone cares about and where we can provide a better product, like give a better forecast and end of 21, we started talking to the CFTC and they say, well, maybe, etc. Maybe we'll do it by end of 22 for the midterms. A whole year of that. Just regulate regulation again. So now you're talking, we're three years in three to four years and just doing regulation. End of 22, the regulator sort of kind of like nudges the approval post the deadline, which essentially just didn't make a decision. And that was a very hard time with the company because we thought the approval was gonna come. We'd done all the work possible. Very kind of tunnel vision. Again, we didn't get it. And so in those circumstances, what happens is like people kind of. They blame the execution of the strategy. It's never kind of like, you know, things are outside of your control. It's like we made the wrong decisions and it was bad and, you know, and we lost a bunch of the team at the time. And, you know, we had to do some layoffs. It was really hard time. Like, that was really, really like, hard time. I think back at that time, I think it was one of the most painful times I've ever sort of experienced in my life. And by the way, I went through war in Lebanon. I've had kind of missiles dropped next to my house, things like that. It doesn't compare. I think there's some form of bait because you feel shame as an entrepreneur.

[Podcast Host]

Totally.

[Tarek]

Right. You get it right. You know, that feeling of like, I've

[Podcast Host]

had to do a laugh, it's awful.

[Tarek]

And it's like you have responsibility and people are trusting you with all this. And then we come out of this in January, February, we're kind of sort of reconvening. What do we do as a company, et cetera. And I remember Luana as this sort of dogmatic belief in this vision. Should we pivot, like, clearly we're not going to be able to do this. And then Luana's like, we're going to try again. So that's the strategy for 23 is we're going to do the exact same thing as what we did in 22, and we're going to try again. I mean, it was unpopular, but, like, we did it a whole other year of the same thing, talking to policymakers, regulators, same regulator, et cetera. Then they ban it. Like, they block it at the end of. They block the election market at the end of 23, and same thing happens again. And this was the point where I think this was, I would say, the most sort of like, you know, Sequoia likes to call these, like, crucible moments. But I think, like, the kind of key decision that I think got me to where it was today, which is like, we sat down and we're like, what do we do from here? And again, one, I was kind of driving a lot of this, but it was like, look, we strongly believe we're right on the law. We do. We also strongly believe this thing should exist. Like, we have come so far. You know, we're like, you're talking now, we're five years in. We just got to sue the government and we got to sue our own regulator. You know, we took this to a board, talked to Alfred, and, you know, the interesting thing that came out of that conversation is that, like, it's definitely an anti pattern for a company to sue its own regulator or the government in general. It's even more so for a company of like 20 people that has no real product, no real, like, we, we're. We're kind of like a nobody company.

[Podcast Host]

Is it an empty pattern? I think a lot of great consumer companies have got into. I don't know if it's a full dispute of their own regulator or full lawsuit, but at least some legal battles.

[Tarek]

It's maybe the sequencing.

[Podcast Host]

Yeah, maybe they got big.

[Tarek]

Airbnb and Uber were really big. Yeah, we're talking about a platform that has Coinbase. Maybe Coinbase got really big. Right. We're talking about a platform that like.

[Podcast Host]

Yeah, yeah, it was tiny.

[Tarek]

Tiny. Like, you know, we had like, like hundreds and thousands, like maybe thousands of users a week. Like, it was, it was, you know, the evangelists, the really early adopters in terms of sort of, this is the unlock that will get us going. And like, you remember Alfred was saying, like, even if we win, even in the offshoot, kind of the crazy shot that we win, we may still lose because the regulator can kill you in the meantime. Right, right. And. And, and it's like the death by a thousand paper cuts type sort of. And, and it was real, right. This kind of notion of like Lawfare or people just like coming after you for all these unrelated things, but you kind of know that it's because you sued. You see your own government and you know, a lawsuit is usually pretty. It's a big battle, it's a big deal. But then I remember like, after, like kind of saying, this is like. But sometimes sort of some of the best companies I've ever seen and kind of start with an anti pattern. Like, there's something weird that happens in that Company. It is unusual, and maybe this is yours. So we decide to sue. All the kind of bad things that were predicted happen. All of them, like, like all the little things like, oh, we're not gonna let you do this. We're gonna delay this. We're gonna kill you on this. We're gonna. The audit that was supposed to be two weeks now is like 18 months.

[Podcast Host]

Oh, my God.

[Tarek]

And it's like nonstop, just like knife after knife. But the most important thing is we won, like, October 2024.

[Podcast Host]

So how long did that suit take?

[Tarek]

A year.

[Podcast Host]

A year. And during that year, you're just stressed out of your mind?

[Tarek]

Yes, but not more than the other ones, because think of at that point, yeah, I've got.

[Podcast Host]

It's my last shot. What else am I going to do?

[Tarek]

It's like walking the desert has become. Had become our life. And it was like our last shot. It was a bit of a desperation. Like, it was like, you know, your back is against the wall, and if

[Podcast Host]

I don't do this, I'm not going to make it anyway, so who cares?

[Tarek]

Basically, like, I think we didn't think there was like, any shot at making, like, we had to get the election market at that point. It was more. It was more than just business. It was. There was like a mission thing. Like, we wanted to deliver this to the world we were so dogmatic about. We want the world to see this market in action and see how powerful this thing can be.

[Podcast Host]

Okay, so you win the lawsuit now.

[Tarek]

Now it's interesting because we won the lawsuit and like, it's like this feeling. So, okay, we won the lawsuit.

[Podcast Host]

And specifically with the lawsuit enabled as what?

[Tarek]

So the. The lawsuit is basically saying it was in some ways redefining what constitutes like, gaming or gambling versus a financial market. And it's interesting because there was a lawsuit prior to that.

[Podcast Host]

So basically it's now saying things like betting on the president or the outcome of a sports game that is.

[Tarek]

Can be a financial market is now a financial market. And it's. And there is kind of two. Two kind of elements to that. And very simply put is basically, one is, what is the structure? Are you an open and free market market where people are just trading against each other versus like a house where you're accepting bets from someone. And again, your business model is like, gambling is like, your revenue is equal to customer losses.

[Podcast Host]

I see.

[Tarek]

And then the second thing is like, is this a real thing that's happening in the world where, like, some people may benefit from hedging or some People may benefit from basically by being the

[Podcast Host]

marketplace where other people are betting against each other. That's critical. And not being gambling, that's.

[Tarek]

That's a very critical thing societally, but also legally, a bunch of kind of, you know, but also just like very simply, like, you know, there's still also a difference between like, you know, like two people kind of transacting on, like, hey, what is this dice going to land on? Because that's an artificial risk that you're creating just for the purpose of. Right. Trading or betting on it.

[Podcast Host]

Yeah.

[Tarek]

Versus if you're trading on a stock which exists, a company exists, or oil or an election.

[Podcast Host]

Got it. So it's also the. The event existing, whether or not it's a natural.

[Tarek]

It's a natural thing. It's a natural event, not an artificial event. And that's important. That's very important. And it's interesting because the decision that came out of that lawsuit is very similar to one that came out close to 120 years earlier in 1905 in the Supreme Court, which is the one that legalized grain futures, the most boring financial market, the OG hedging market. Because at the time there was a state versus federal kind of fight where the states were claiming, well, this gambling, because some people are speculating, farmers were going and betting on the price of grain. So that's gambling. It must be gambling. And the Supreme Court said, look, a lot of people will speculate, but there is some people that are using it for hedging or getting smarter about the price of grain over time. So that's why it's a financial market. And actually, in many ways, speculation is necessary for that market to exist. If you want a marketplace, if you want the stock market to exist, if you want commodity markets to exist, you want prediction markets to exist, you need speculation. You cannot just have people that are ensuring themselves against stuff, because the person on the other side needs to be a speculator. In some ways, it's kind of history repeating itself, but it kind of redefined the aperture of what's allowed.

[Podcast Host]

It would be legal for somebody to speculate on whether or not we were going to say a certain word in this podcast. Would that fit the definition if people wanted to trade on that?

[Tarek]

Yeah, because it's happening.

[Podcast Host]

It's happening anyway.

[Tarek]

It's happening anyway. They can bet and they're trading against each other. Right. And it would not be legal for us to. And we can talk about that if we had a position. So, like, if we cannot go and trade on that and then you just go say something because that would be market manipulation.

[Podcast Host]

Is it illegal to bet on something where you, you see a bet playing out in the world but you know the answer for sure?

[Tarek]

So it depends. And that's the whole kind of conversation we've been having around insider trading. And there's a whole long history here. But the line that you know, so we're regulated financial market, we're regulated exchange and clearing house. And a lot of the rules we have are mimicked after the rules of the stock market. In the stock market, the line is drawn. It's like you cannot trade on what is material non public information. And the way that that's defined is like you have a piece of information that you acquired under certain rules, right? And one of those rules is that you cannot disclose it. So material non public information is information you're not allowed to disclose that like if you own as an executive of Tesla and you went and said it to the press, you would get in trouble. You're not allowed to do it. And trading is a form of disclosure. That's the whole point. Prediction markets, right? Like prediction markets are a way to disclose information. Like when you trade, maybe you're not saying it on Twitter, but you're actually trading that information and you're moving the price in a way that disclose the information.

[Podcast Host]

But like let's say this morning I saw, you know, a trade that was, will Jack and Tarek see each other today? And I'm like, I know the answer to that. So I'm going to make a big bet.

[Tarek]

Are you Jack or are you someone else? I'm me. Well, you have influence on that. You have direct control over that. Got it. So that wouldn't be insider trading, that would be manipulation. So the majority of participants in grain futures are grain farmers. Right. And the way that the price of grain futures is done, this is going to be a little surprising.

[Podcast Host]

Yeah.

[Tarek]

Can you guess? Like, how do you determine the price of grain? How do you think we determine it? I don't know how you literally survey a bunch of the farmers are trading in the market.

[Podcast Host]

Wow.

[Tarek]

It's a little weird, right? Like it's like you, they definitely have inside information then, like. Right, because they're, they're the guys. I mean, they know what the price is. And it's interesting because the line there has been like, okay, inside trading is very hard to define grain futures. But what we're going to draw the line is, is you cannot put a position and then artificially manipulate the underlying price. You cannot move the Prices of the. Like, you cannot move the event or the underlying in a way that will kind of help you profit. And so it's the same thing here. It's like, if you have direct control over an event, if you're a politician that was looking to pass a bill, you take a position, then you tank the bill or you try to pass it even harder. That's illegal.

[Podcast Host]

Yeah.

[Tarek]

And that's ban on calcium.

[Podcast Host]

I could see that could get a little gray, though. Like, let's say you were. Let's say back to the, you know, us talking on the podcast today. Let's say you're a friend of mine and you knew that we were. You knew it was happening. You don't really have control over it, but you could be like, you know,

[Tarek]

it's the same as the stock market. Is the cousin, like, is the cousin sort of responsible? And if, like, if someone on the street heard an executive talk about, like, some mnpi, are they allowed to trade it or not? And like, and these lines have always.

[Podcast Host]

So does this stuff come up a lot or is it not?

[Tarek]

Yeah, definitely, because it's interesting. And like, look, this is a conversation that Kashi Loan will not have all the responses to. And it's conversation. We're like having regulators and overtime policymakers. But, like, you know, my principles are kind of generally simple when it comes to. This is like, I always go back to why is insider trading ban in the stock market? Now, there are some people that would argue, well, maybe we should let insider trading happen in the stock market because it would make the prices more. More accurate.

[Podcast Host]

Right.

[Tarek]

If you let.

[Podcast Host]

It feels like. I mean, my reaction to it is it feels unfair.

[Tarek]

Exactly.

[Podcast Host]

People got money for no reason other than they were told something, and that shouldn't be a source of people. Generally,

[Tarek]

it's all about unfairness.

[Podcast Host]

It feels like there was no skill and no effort that went in.

[Tarek]

Yes. And it's actually even worse than that. There's a very practical implication, not just sort of a moral implication to this. The practical implication is that, well, if people believe the stock market is rigged, they stop trading. The liquidity dries up. There's kind of this nice property of market. It was like, markets that have a lot of insider trading in some ways are not going to exist at some

[Podcast Host]

point at the limit. You'd be like, if I don't have insider information on a stock, why am I trading? Like, I'm definitely the sucker.

[Tarek]

There's a mix. Right. And so I think, no, you have to have information on something. And Seeking information is very good. Doing research. Like when, like, for example, you know, some of the. I don't know if you've ever heard the like at the time. Apparently Two Sigma used to, like, I don't know if it's Two Sigma specifically, but like, these who, like, use satellite images of, like, the parking lot at Walmart.

[Podcast Host]

Yeah.

[Tarek]

To figure out how many cars are coming in.

[Podcast Host]

Yeah. Probably even before that, people would just, you know, hire somebody to sit outside of Walmart.

[Tarek]

Just see, that's not insider information.

[Podcast Host]

What's the foot traffic?

[Tarek]

Exactly. That's information.

[Podcast Host]

That's just work.

[Tarek]

That's work. Yeah, that's work. Exactly. But I think there's a balance. But I think to me, insider information is the way to define it is information that you could not get access to would work.

[Podcast Host]

Yes.

[Tarek]

If you're not an insider.

[Podcast Host]

That's right. Yeah.

[Tarek]

Like, and that's the. And I think the reason you should ban it and the rules that you have to build in the marketplace is like, how do we keep it fair?

[Podcast Host]

Yes.

[Tarek]

And it's very practical. If it's not fair, then people will stop participating.

[Podcast Host]

Yes.

[Tarek]

And this was a message I always say is like, there's something nice about insider trading, which is like, if the marketplace is really not fair, you could trust that people will just, like, stop doing it. They won't. They won't want to do it. And that's why we take this very seriously.

[Podcast Host]

Yeah. I have a topic I want to get your take on, because I can tell that you're extremely thoughtful about fairness the way it should work. What's the better future? I think one of the discomforts people have with, like, prediction markets is that they. They look like gambling. And some people who are not comfortable with them, it's like this new idea and it looks like people just pulling their phone out and they're starting to do gambling.

[Tarek]

Yeah.

[Podcast Host]

And obviously that is not at all what your sort of conception of it is. There's all sorts of function outside of it. But I'd be curious actually to start to hear sort of your Steelman version of, like, what's the way this goes wrong? Like, what's the version of it that

[Tarek]

is like, the bad version?

[Podcast Host]

Yeah. What's the bad version of gambling that you were not comfortable with that you think crosses some line that you don't think is good? And, you know, this is obviously, I think probably you and I share, like, a baseline value of libertarian, and adults should be able to do what they want to do, obviously, with some balance of, like, we shouldn't, you know, expose people to things that are, you know, short term addicting, that are long term bad for them. You know, there's some balance here.

[Tarek]

Yeah.

[Podcast Host]

Where are you not happy?

[Tarek]

Look, I'll tell you, like, I, I'm a risk taker, I'm a trader. Like I, and I've never, I don't consider myself having really gambled ever. Like when I trade and I speculate, there's a lot of similarities between this and there's a lot of arguments. I mean, the argument I hear most about is people talk about ducks a lot. It quacks like a duck. And that's usually the argument of like, well, it looks like gambling. So maybe it is gambling. And it's interesting because the thing I always say is that argument has been made about every single new type of financial market that has ever come to the US or really anywhere. Right. Like the argument has been made about grain futures, like we just discussed. It's in some ways, you know, when, when we started with life insurance back in the, back in the day, you know, the, the headlines at the time were like, oh, this is like morally horrible. Like you, you're gambling on people's lives. This is terrible. We should not have this at all. I mean, you know, now I think a lot of us would agree we should have grain futures, we should have, should have the stock market, which is, you know, has been, we should have life insurance, we should have all these different things. But I think there is a basic, like, yes, speculation has a flavor of. It looks sometimes like gambling, but it doesn't make it as such. And so I like this kind of frame of like, let's actually like play this out and how does it go wrong? In my opinion, the things that end up contributing to this bad perception and gambling is the incentive structure in the system. It's how is the system built and what are the incentives that are, you know, built in this into the system. And when you think about a gambling business model, it's a business model who's like, where the primary KPI, right. The thing that will not just predict your net income will be pretty much equal to your net income is your customer's losses. If that's your business model and that's what your incentive is, what are you going to do? You're going to promote losses. Losses. What else are you going to do? Right. If you do a great job at stopping losses, you're going to lose money.

[Podcast Host]

Yeah. More throughput, bigger rake.

[Tarek]

Yes. It's just the inevitable. And so What a lot of these businesses do is if you're sitting at a casino and you're making money, what do they do? The bodyguard comes and takes you aside and says stop. If you're doing something informed, if you're doing something smart, if you're seeking information, the very point of financial markets, you get blocked, you get banned, or at least limited.

[Podcast Host]

Well, part of that happens because they're trading against you. So in a casino, that's the business model. Blackjack, it's against the house. And so you winning is exactly. Me winning.

[Tarek]

Exactly. Online casing, all these models are like the counterparty is the house versus for

[Podcast Host]

you in a marketplace.

[Tarek]

You don't care who wins, I don't care. And that's fundamentally different. So the way that it goes bad is like when the house is trading against its own customers, inevitably the algorithms.

[Podcast Host]

One thing that does persist though is theoretically you don't care if on net the two of them leave the day with more or less money between the two of them. Like you don't care that two people betting against each other.

[Tarek]

I'm neutral.

[Podcast Host]

You don't care. Yeah, exactly. If they both start with $100, you're okay. If at the end of the day one has 110 and one has 80, that's still okay.

[Tarek]

I actually in some ways prefer if they're both at 100. Yeah, in some ways. I mean, because. But think of it as like. But to me is the incentive in the system because. Okay, and going back to kind of how it goes bad, if you're the house, what are you going to do? You're going to figure out, you're going to build algorithms and you're going to, you know, whether it's physical algorithm, the casino, like casino has all these smart ways of figuring out who are the big losers in the, in the room. And then you're going to figure out how to get them hooked up, get them to come back. For them to come back. Even if they're losing, they know that they're losing. You give them a sweet to give them all these different things. Right.

[Podcast Host]

The lights, more flashy, all of that.

[Tarek]

Like you know, the weight class comes in with cocktail. Right. Like all. And so that is where the unhealthy behaviors emerge because you have an algorithm is just promoting unhealthy behaviors. Right. And, and we've seen a bunch of other kind of like even in the context of tech platforms, etc. What I like about it in free and open marketplace, and that applies to the stock market, it applies to crypto, it applies to options. There isn't that dynamic. That dynamic doesn't exist. What is my incentive as a company? As my company, my company, I take a small fee, a transaction fee. Right. So what I want is volume. I want people to just trade more. Right. And I'm actually incentivized if I want people to trade more is the things that I want the platform to be fair and perceived to be fair. I want the platform to be neutral, as neutral as possible. And I want it to be transparent, which is another key thing. All the trades are public. Everyone can see what they do. And I like this model so significantly more because now and when we think about going back and where's our responsibility as a platform, I have a much better shot, like structurally at creating healthy feedback loops into the product. Like if I. And we do this a lot, we have limits on like how much people do and how much they trade, et cetera. But it's not just something that we just say like our business model is tied to it. If someone is doing too much excessive behavior and losing too fast, we as a business will not be hurt as much as the other types of business models if we tell this person, hey, maybe you should pause now. I don't know if it's our job to block this person. That's a different story. Like that's. But we have all the incentives which say, like, hey, maybe you should stop. Maybe you should like self exclude. Maybe you should like put limits on you because again, they're not losing it to us.

[Podcast Host]

Right.

[Tarek]

They're losing it someone else. Yeah. And that's not a positive thing for me if that's happening. And so that's what's exciting me. And you know, and I hope over time not just that Kalshi and Kalshee spends a lot of time like thinking about customer protection in the context of like how do we limit unhealthy behaviors or excessive behaviors. And I hope that this gets applied to also all the other financial markets where like people retail participation is going higher, like where it's crypto options, all these different things.

[Podcast Host]

Let's say that what you were, that what people were trading was like just like stocks instead of, you know, the outcome of, you know, an election or something like that. In that world, even with a fee, you know, over 10 years of trading, like the stock tends to go up versus with, you know, an election is just a trade back and forth with a little piece. And so the outcome that you're producing is not incrementally More net worth over time. The outcome you're producing is better information and people being able to express their views.

[Tarek]

Yes.

[Podcast Host]

It does seem to me like it would be cool if you also had the other type of product where you were helping people.

[Tarek]

Like the investment type product. Yeah, yeah. The difference in investing and trading.

[Podcast Host]

That's right.

[Tarek]

That has always been existent. Right. Like, yes, the stock market is, look, I think holding a stock for five years, that's invested.

[Podcast Host]

Yeah.

[Tarek]

Now if you trade a stock in and out over next few days, you're

[Podcast Host]

going to get crushed by all the fees.

[Tarek]

That's trading. Yeah, not just fees. Also, it's like you're just, it's not enough time. Yeah, yeah. It's like you're trading, you're, you're, you're. And that's a zero sum game. And options are a zero sum game. All crypto, in my opinion, we'll see over time. But like most of crypto trading, not in, like, not if you, if you hold Bitcoin for five years, that's investing. But if you're trading bitcoin and out, you're zero sum. And so my mental model for this is like, yes, that's true. But it's interesting because we ask our customers, a lot of them, hey, like, do you trade, not invest different? Do you trade, for example, S and P, or do you trade traditional, like options? And consistently like 9 out of 10 of our customers, their response is no. And the reason is I don't gamble. And like, wait, but you know, in people's mind, but like elections, trading or betting, that sounds more like gambling than trading and options. Yeah, because that sounds financial. But actually, like, if you ask people, it's like, well, I don't have a way to win right now. I don't have an edge. Yes, there is no way for me to do it.

[Podcast Host]

Those markets are so efficient.

[Tarek]

They're efficient. The hedge funds have way more information than I do. There isn't a way for me to be truly informed. And if I put a lot more research. So the whole point is about, if you put a lot of research, can you get better and can you win? And the reality is, in a lot of traditional markets, the answer is no. Wall street will always be Main Street. Wall street will always be the average person. The beauty of what we're building, it's just not the case. The average person is winning more than Wall Street. Like our best inflation forecaster is not a Wall street person.

[Podcast Host]

Well, I guess by definition the average person is neutral with you because there's a buyer and a seller.

[Tarek]

But it's more about a point of like there isn't that structural advantage that like Wall street has in our markets. Yeah.

[Podcast Host]

I mean what I would argue is they might be neutral with you and they're definitely going to be negative if they're going to try to trade against Citadel or something generally.

[Tarek]

Yes.

[Podcast Host]

Yeah.

[Tarek]

And yes, our average user is neutral. But I'm talking more about like the

[Podcast Host]

people who want to put in real work.

[Tarek]

Yes. People. If you put in real work and figure out how, how do people vote on bills or why. It's like you know, the, the back in the 2024 election, you know the guy who put like a lot of money on Trump because he did the neighbor poll.

[Podcast Host]

Totally.

[Tarek]

And it's genius. Amazing. That's. The market's working exactly how they should, which is like they're rewarding someone going out there doing the research and doing the truth seeking on behalf of society.

[Podcast Host]

Yeah.

[Tarek]

And then you get and get rewarded for it. Like you're doing a reward mechanism for someone to do research which does not exist in a lot of the traditional markets.

[Podcast Host]

Yes.

[Tarek]

And that's why like when you talk to these people that are on Calsheet, the prediction market, you know, I don't know if you saw the New York Times article about the rise of the prediction market trader.

[Podcast Host]

Yeah.

[Tarek]

That class of people that are doing this as a full time job.

[Podcast Host]

Yes.

[Tarek]

You know, they're excited about this because it's a way to, for them to get rewarded for all the things they are learning about the world.

[Podcast Host]

By the way, one of the things that I think is very interesting is whenever there's like a new financial product, there's all these emergent behaviors and properties. And like an example with yours is like, like insurance and hedging and things like that. Can you talk about like, like when I first learned about that, I was like, oh, that's surprising. But it makes sense with like a hurricane or something like that, isn't it? It's getting used for those types of things too, right?

[Tarek]

Yes. And that's I would say like the trajectory over time is like that is becoming an increasingly bigger part of the platform. Obviously we started with retail, like people, individuals. But now as we're getting into the institutional. That's becoming a bigger and bigger.

[Podcast Host]

Right.

[Tarek]

Piece. But let me talk about retail then let's talk about institution. So, so yeah, there's the two functions of the market. One is what we call like price discovery, which is the predicting all these events. Right. And that's one of the benefits of prediction, Mar, is you're giving people an incentive to do the price discovery, which is predict all these events. And that's working, right? I think a lot of people now at least understand increasingly more. I don't know if you saw the Fed paper that came out. You saw that?

[Podcast Host]

Yeah.

[Tarek]

It's cool though, the rise of micro markets, right? Like, and it was like the Fed itself is saying, this is the best gauge we have on the economy. It's crazy, like, amazing. And by the way, the people is not Wall street again, it's Main Street. We've figured out how to build this community of people that are dispersed across America that like, are making us smarter.

[Podcast Host]

It turns out that, like, if you ask like a big enough crowd of people, like, how much does a cow, like a particular cow weigh? They get like, really?

[Tarek]

That's how. That's the OG original prediction market.

[Podcast Host]

Yeah, it's pretty cool.

[Tarek]

That's how it started. It's like, literally you bring it wisdom of the like, crowd.

[Podcast Host]

And it's happened with the elections too with like Trump and stuff like that where like, everybody's like, no, Trump won't possibly win. And it's like, well, maybe if you

[Tarek]

have an incentive to actually do the research, I think you may actually, you know, but, but so that's that and you. And, and the second prong is hedging. And hedging is a little different from insurance. So insurance is usually regulated at the state level because it's also there's a house, right? So you go to an insurance company, they give you a price. Hedging is on the open market.

[Podcast Host]

So hedging is just like, I'm on a coast and I'm just going to bet that a hurricane is going to

[Tarek]

come knock my house over. But the key thing is it's an open and competitive market. You say, I want to buy X amount of something that protects me. And then people can like fill you at whatever price and they compete for that price. And we see this a lot. For example, in Florida, in the Keys, you know, insurance companies have pulled out because they don't know how to price hurricane risk anymore. It's like really expensive. And so we get like calls as of when it's been like two years, three years, where we get a lot of calls around hurricane season where people are like, hey, I want to buy X amount of hurricane hitting this town. Yeah, I don't want to deal with the insurance process. Oftentimes they don't pay me back. There's Deductibles. There's all this I just want, if the hurricane hits the town, I get paid. Yes, and that's a hedge.

[Podcast Host]

Yes.

[Tarek]

And that's one like, you know, Chris, like really clear sort of use case that we've seen. The other one is like at the time with Biden and the forgiveness market, a lot of like students were hedging like smoothing out their student loans. They were super worried about having to pay back. But the interesting thing about division long term is like as we're sort of, I mean now we're seeing, you know, really like we're seeing a massive acceleration in institutional adoption of prediction markets. And Kalshi is, think about it this way, like you own S and P as an institution, but you're really worried about an upcoming election. You're really worried about the midterms one way or the other. If the Republicans win or Democrats win, you think it's going to impact your portfolio in a certain way. Today you don't have any options. You may just have to sell your position before the event happened. If you want to protect yourself with prediction markets, you can actually put the hedge. So if you're worried about, for example, Republicans winning or Democrats winning, you can buy Republicans or Democrats. If you think that's going to impact your portfolio, your hedge is going to basically complement for that. So you don't have to sell your position anymore. You can put on the hedge. And that's I think where the next generations like AI Covid elections, bills passing, regulatory, like regulatory changes, all these different things can become just insurable risks. And what Kalshi has provided for that is like the layer one of being able to, you know, kind of think about those risks, pricing them like any of these risks. Now we can put in the platform. We have this platform. We basically have all the top super forecasters on the planet that will give you the price. Yeah, like you send this thing to the system and it'll come back and spit out, hey, well, Citrini scenario happens. I don't know if you read that. Have you seen the research report from Citrini?

[Podcast Host]

Oh, Citrini, yes.

[Tarek]

Yeah, we put it on Kalshi and like, you know, it started at 11%, now it's at 33%. This thing has gone up. Yeah, but it's amazing because you have a market that you can probe now instead of like listening to different pundits and Twitter and people are battling on Twitter.

[Podcast Host]

And then based on that, if you believe that, then you can go do other trades against that I suppose you

[Tarek]

can either use that to hedge if you're worried about that impacting your portfolio or. The interesting thing is pricing this thing can enable us as a society to make the prices of all of our traditional assets better. There is this theory about infinite markets. Have you ever heard about that?

[Podcast Host]

No.

[Tarek]

So this idea that as society gets increasingly more complex, the vector, the number of dimensions that matter for asset prices increases. Right. Like 100 years ago you maybe needed to understand supply and demand and industrial, like in labor and you know, maybe the agricultural economy in the us. Now you have to understand those things. We also have to understand what's happening in Iran and what's happening in Covid. AI and what's it going to do, how technology is rapidly progressing cyber, all these different, like society is just getting increasingly more complicated and more interconnected. So everything impacts everything. The interesting thing is like as this vector, as a number of dimension increases our pricing of traditional assets like the market, like the S and P or home price, etc. The entropy there goes up. Like we have less and less information, like we have less and less of the relevant information. So you have to actually over time price all these different dimensions so that you can then price the S and P more accurately. And like one of those dimensions, for example, is this a TR report? Like what will happen with AI will happen with COVID And that that idea of infinite market is very tight to prediction markets because prediction markets fill that gap. Prediction markets can actually price all these different things that if you get smarter about all the sub components, then you can be smart about the actual component. Right, right. Like if you want to price a Tesla stock, you have to price whether Elon is going to leave, whether they're going to over or underd deliver on deliveries, whether you know, how fast autonomous vehicles are going to come around, all these different questions and bricks from ICE can price all these different factors that then feed into the stock price.

[Podcast Host]

Yeah.

[Tarek]

This is very important for us to keep being smart about resource allocation over time. Otherwise our model of the word is going to just like.

[Podcast Host]

Yeah.

[Tarek]

Get worse.

[Podcast Host]

Yes.

[Tarek]

And get less smart.

[Podcast Host]

Maybe. As a last topic I'm sort of interested in, I didn't realize until chatting with you that your, your company is small relative to sort of the scale you're at. So you're not much over 100 people.

[Tarek]

Yeah, we're 120. I just asking 127 now.

[Podcast Host]

So how does that work? I mean like that is very small relative to what you've accomplished.

[Tarek]

So what's interesting about it is that we didn't sit down proactively and we didn't write a dog of how are we going to build a small company that's lean. It just sort of happened.

[Podcast Host]

Did you do any particular other things that this was a byproduct of?

[Tarek]

Yeah, so I think a few things and I'm not 100% sure. So I'm still kind of figuring out why are all these other companies so much bigger? I'm still trying to figure out am I missing something or. One is Luan and I work very, very hard. Very, very hard. Like until today, like, we really have a chip on our shoulder. Like we'd like to think we're the underdogs. What I learned over time is like, so. So if you look at kind of we're generally like first to office, last to office, last from office work on weekends. And I think that just generally the output per person in the company just is heightened because, you know, generally the leader is really in the front line doing a lot. Number two is we have a lot of direct reports.

[Podcast Host]

Like how many?

[Tarek]

There's not really a managerial layer in the company yet.

[Podcast Host]

So like a hundred.

[Tarek]

Like if you ask the one what maybe like 80, 85 of the people at the company today are doing, she knows. Wow. Because she probably checked with them on slack in the last 48 hours and the rest is maybe me. Well, I mean there's a chunk of people that just don't need like you, you don't need to know what they're doing. You know that they're just doing like you, you got, you got to let them cook. Like, you know, so that's number two. And then I think number three is we don't think about org charts much and I don't know how that will scale. We're still thinking about that. But like we think about like here are the sort of, like we keep sort of dynamically listing here the top like X problems of the company today and how. Who do we have on those problems

[Podcast Host]

and people move between problems.

[Tarek]

Yeah, sort of like.

[Podcast Host]

Yeah, it's like do people self organize to the problem?

[Tarek]

Yeah, yeah, it's. It's like a, you know, like cells in an organ. Like, you know how like if you have, like if you, if you're, if you get cuts.

[Podcast Host]

Yeah.

[Tarek]

Your cells are just going to come around the cut and like do their thing. Yeah, it'll be like a bit like that.

[Podcast Host]

I mentioned you. I really want you to read the Valve employee handbook, I think.

[Tarek]

Yeah, I'm excited about reading it, but it just sort of happens and it's kind of like make sure there's like, like as little kind of constraints or bottlenecks of that sort of self organization to happen as possible.

[Podcast Host]

Is this what people expected when you hired them? Is it the. Did you hire types of people that you thought could only function in a place like this? Like how did you, how did you end up with that culture when it's what I would describe as extremely uncommon.

[Tarek]

You know, we don't have all the answers obviously. But like the one is we do bias on slow versus intercept because people have intercept, I think generally can land in this culture and be like, what on earth is going on? Like this is crazy. And that's happened. Like we've had this happen.

[Podcast Host]

Someone who's used to like a big more structured organization comes in or just.

[Tarek]

Yeah, even not even big, like an organization is just structured in a different way and they show up, they're like this is like crazy. Like you know, this is like complete chaos. Right. And because yeah, it looks like an organism where like these organisms are moving around, you know, and so, so slope. Because slope is. They don't know there's you know, they're super smart, very high and like, oh like they don't even think about what's happening. They just think it's normal. So, so that's one. Number two is like I always say, I mean Brian Chesky put better. I didn't, I verbalize it when he put it into tours. But like we don't manage. People manage work. So people that just like have just generally high agency, we never have to check on whether they're doing something. Sometimes we have to reorient a bit. Hey, like actually this is not actually that useful. Like we should like do something else or you know, or like being very much in the details.

[Podcast Host]

But it's about the work, not the people.

[Tarek]

But just they're doing stuff. They have this sort of high agency. I want to always be doing something.

[Podcast Host]

Yeah.

[Tarek]

And I kind of bias honestly towards like execution over strategy.

[Podcast Host]

Me too.

[Tarek]

I really do. Like, because look, I think strategy is hard. But like, you know what I found over time is like the natural next step for a company is generally kind of natural. Like, you know what I mean? It's like, it's not like if you probe like for a public company for example, and the CEO lays out a

[Podcast Host]

strategy, it's not like what should we do? It's like can we do it? And most of the time how quick can we move?

[Tarek]

And all of that most of the

[Podcast Host]

time, periodically there's probably like a non obvious strategic decision that like the founder needs to make. But that's probably a couple times a year kind of thing.

[Tarek]

Yes, Max. Max. I think and it's usually a little bit longer horizon than a year.

[Podcast Host]

Yeah.

[Tarek]

So I think of our role, Luan and I is like, I try to very, very high level. Like are we just like directionally generally in the right direction and what are the big risks in the next three to four years and like make sure that we like are thinking about those and are executing against those. And I really, I really mean three to four years. Like I'm pretty paranoid again from my time from Lebanon. I always think like, what is the thing that's going to go wrong in three, four years? And like let me work through that and then very much in the details. So like I literally am often like in specific copy in the product. Like a lot of it. Luan, I wrote still to today or like even ads, like we get into the copy, like, is this good? It's very, very, very specific things.

[Podcast Host]

Yeah.

[Tarek]

And everything in between. We try to like not spend any time on. Yeah. And that pushes other people to not spend any time on. Yeah. And sometimes there's subset of people that. That doesn't work well for and then

[Podcast Host]

people can just opt out basically.

[Tarek]

Yeah. I mean there's not a clean solution, you know, like.

[Podcast Host]

Yeah, of course.

[Tarek]

Just hard. Right. Building a company. But. But a lot of people kind of like it. Like they just don't want, they don't want to be managed.

[Podcast Host]

Are you going to be able to keep the company small?

[Tarek]

I really hope so.

[Podcast Host]

I mean, even though you're scaling fast,

[Tarek]

that's one of the worries I have. I think about this possible at least I think about this a lot. That's one of the worries we have. I would say maybe the trade off, which is like, you know, people sometimes walk away with like, oh, this perfectly wrong company. And the answer is like, no, like not at all. The trade off is usually, I think we take on more organizational chaos. Does that make sense? And to me, I think there's a bit of a decision you make as a company, like either you're more chaotic or you have more process, which means bureaucracy and some degree of slowness. And so Kalgi is very comfortable with putting something out there and getting bashed for it. But like three, four weeks later, it gets much better. And now you're much better than if you had waited the two months. We're very comfortable with that.

[Podcast Host]

It's great. Tarek, this is super fun. Thanks for making time to do it.

[Tarek]

Thanks for having me. This is awesome.