Of all the arguments for protectionism, the infant industry argument probably has the strongest theoretical appeal. By protecting a new industry from its more developed foreign competition, the story goes, tariffs give domestic producers the time to grow, learn, and become efficient enough to stand on their own. Domestic consumers feel the short-term pains of higher prices, but they enjoy the long-term gains of job growth and lower prices as the new industry blossoms.
It's no secret that tariffs have driven significant price increases over the last year and a half. A study from the New York Federal Reserve finds that tariffs "contributed 2.9 percentage points to goods price inflation" and that without tariffs those prices would have slightly declined. Tariff defenders, looking for a new reason to claim these higher prices are only temporary, have reimagined the infant industry argument. Now it's being used to support trade barriers in industries that are over a century old, but the promise is exactly the same: Domestic firms need the protection so they can compete, innovate, and cut costs until prices come back down even further than they were before the tariffs.
Michael Brendan Dougherty recently made such an argument in National Review, arguing that "tariffs can, over time, bring prices below where they started." When economist Don Boudreaux called the argument "bizarre," Dougherty replied that critics had failed to acknowledge the dynamic process by which markets respond to tariffs "by adapting and cutting costs." Although he is light on specific details, he posits that the changed incentives of a "paradigm shift" in tariff policy will spur domestic competition, leading to the theorized price reduction. Of course, firms would still respond to the dynamic processes of domestic competition without a tariff wall, but the point stands.
From there, the reworked infant industry argument becomes the standard version advanced more than two centuries ago by Alexander Hamilton and his disciple Friedrich List. When Hamilton made this claim in 1791, his argument may have seemed suitable for a new nation seeking to firm up its economy and security against established European powers.
Others at the time pointed out that special interest groups—a manifestation of the "violence of faction" so thoroughly dissected in theFederalist Papers—had already begun to coalesce around the fledgling iron industry in Pennsylvania, clamoring for protective tariffs. Two years earlier, James Madison had warned about a "premature policy of stimulating manufactures" driving tariffs too high. In the end, Hamilton recommended and Congress enacted a far more moderate tariff schedule than his theoretical musings portended. American iron manufacturers received a consolation prize of a higher tariff on their competitors than the rate for most general imports. Hamiltonians have been touting the infant industry argument ever since.
Nearly 250 years later, those same infants apparently have yet to advance into adulthood. Steel, the direct successor to the founding-era iron manufacturers, remains a singular focus of President Donald Trump's protectionist tariff policies, just as it was under former President Joe Biden. And former President George W. Bush before him. Indeed, steel has been a recurring beneficiary of protectionism for most of America's existence.
This extended period of protectionist infancy suggests that the argument needs a new name. We propose the "Peter Pan industry argument" for companies that never grow up because tariffs make sure they never have to.
The question tariff advocates rarely ask is: Why do some American producers have higher costs than foreign rivals even in the face of lower-cost foreign competition? The answer comes down to specific rules and choices within particular firms and industries. Tariffs, and protectionism in general, address none of these. No industry illustrates this like steel, but it is far from the only one.
In 1947, United Steelworkers won a contract provision known as Section 2-B. Among other things, this barred mill managers from changing established work practices unless new technology required it. Steel companies tried to get rid of this in 1959, finding it difficult (given union incentives) to establish that technology required change. In response, 500,000 steelworkers went on strike for 116 days. This strike sent buyers abroad, causing 1959 to be the first year the U.S. imported more steel than it exported. One of the then-new technologies that was delayed was basic oxygen furnaces, which could produce steel far faster and cheaper than the open-hearth furnaces that were so common. In 1965, only about 17 percent of steel made in the U.S. was made using the basic oxygen furnace. Japan produced 55 percent of its steel with this faster, more efficient method.
Change finally came from a steel customer. Vulcraft, a maker of steel joists, grew tired of paying Big Steel's prices and waiting for Big Steel's deliveries. In 1969, free from steel unions and preconceived notions, the company looked for new steel-producing technologies and found the answer in the electric arc furnaces that had been adopted in much of the world throughout the 1950s and '60s. Vulcraft's parent company later renamed itself Nucor, and minimills like the ones it pioneered now make most of America's steel.
So the modern steel industry was built by a frustrated steel buyer who found a way around protected companies. In other words, the U.S. steel industry has lagged behind the technologies found around the world.
We could go on, but the broad point here is that the "relatively higher domestic production costs that made the tariff 'necessary' in the first place," as one critic put it, are often the result of preventing competition in the first place. It's odd to suggest that further preventing competition through tariffs will somehow alleviate the ills of already-prevented competition.
Tariff advocates fail to acknowledge that the ability to import steel also comes with the benefit of access to cheaper steel for steel-using industries, such as manufacturing. A 50 percent tariff on steel further closes the release valve that imported steel offers. Buyers of steel are then left to purchase more of the more expensive domestic steel. Because new steel mills take years to bring online, this causes delays and longer delivery times for manufacturers.
We don't have to wonder what happens when a country lowers its tariffs on materials used by manufacturers. India did this in the '90s, and researchers found that newly available inputs accounted for 31 percent of the new products that Indian manufacturers introduced. And what happens when the U.S. imposes tariffs on steel? Downstream U.S. firms become less competitive. This is why American businesses clamor for exemptions to tariffs, especially for tariffs on materials like steel.
Perhaps all this could be forgiven if tariffs advanced national security concerns, as tariff advocates assert. They point out that an adversarial nation could cut off supplies of critical materials during wartime and cripple America's ability to defend itself. Unfortunately, tariffs fail there too.
First, this conflates production with access. While domestic production does ensure domestic access, access can be secured without production. In the case of steel, the Commerce Department reports that in 2025, the U.S. imported steel from 79 countries, with Canada being our top foreign supplier. The top 10 sources of steel are responsible for 77.8 percent of America's steel imports. None of those countries were considered adversaries—at least not until the tariff crusades pushed these friends away. What's more, according to the American Iron and Steel Institute, only 23 percent of finished steel in the U.S. was imported in 2024. Far from being exposed to foreign states' whims, American access to steel is incredibly resilient.
Second, this view ignores the positive effects of trade and globalization on national security. The Center for Strategic & International Studies finds that increased trade between countries reduces the likelihood that they'll go to war against one another. Globalization helps ensure that domestic access continues unabated should war break out, thanks to the diversity of trading partners.
When Hamilton made the infant industry argument, he at least assured us that the industry would at some point advance to adulthood and stand on its own. Steel, like so many other Peter Pan industries, has proven Madison right. These industries have refused to grow up, and it's time to stop pretending that tariffs will fix that.
Like most of American healthcare, kidney care has for decades been plagued by red tape. The Trump administration says it wants to change that. On Tuesday, Department of Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. announced his department's Kidney Care National Plan, which promises to introduce more competition, reduce regulatory barriers, expand patient choice, and overhaul America's kidney transplant system.
Much of the plan focuses on barriers to entry in dialysis care, which treats nearly 558,000 Americans. While dialysis can be performed at home, most patients receive treatment at specialized facilities, which must comply with federal certification requirements governing equipment, staffing, water quality, and patient safety in order to participate in Medicare.
Kennedy argues that regulatory barriers have discouraged competition and innovation, leaving patients with fewer dialysis treatment options. "Dialysis technology is an extraordinary technology," said Kennedy at the press conference, but "because of monopolies in the system and the barriers to new entrants, we have not seen any real improvements in that technology."
Of course, the existence of large or even monopolistic companies is not in itself evidence of a problem, but government regulation can often entrench those companies' positions in the market. "I like the fact that they're recognizing that a lot of regulatory…barriers are contributing to the problem, and that's refreshing to hear," says Jeffrey Singer, a practicing general surgeon and senior fellow at Reason Foundation, the nonprofit that publishes Reason. Singer says that removing barriers that prevent new companies from competing with established providers could not only increase choice but also drive down prices.
HHS says that two companies, DaVita and Fresenius Medical Care, control approximately 74 percent of the American dialysis market. As of 2019, roughly a third of Americans lived in areas where the only available dialysis provider was one of those two companies, according to the agency. The administration argues that government regulation has helped entrench this dominance by making it difficult for new providers to enter the market.
To address this, the Kidney Care National Plan suggests a number of reforms, including simplifying certification requirements. HHS also plans to investigate whether dominant dialysis providers have used payment arrangements and legal strategies to secure higher reimbursements without delivering better care.
The 17-page report calls for a review of existing requirements, but it does not specify which regulations will be repealed, nor does it establish a timeline for doing so. It also does not propose any significant reduction in the government's role in financing the distorted market. Instead, the plan largely seeks to make existing government-financed systems such as Medicare more competitive and efficient.
Kennedy has also correctly identified the need for reform regarding kidney donations. Nearly 90,000 people are waiting for a kidney transplant at any given time in America, and 11 people die every day waiting for a kidney. The transplant process is currently managed by Organ Procurement Organizations (OPOs), which are federally certified nonprofits responsible for recovering organs from donors and coordinating their transfer. There are currently just 55 federally designated OPOs operating in the United States, and HHS argues that they behave as "regional monopolies." Since no new OPOs have been approved in the last year, the Kidney Care National Plan suggests fast-tracking certification.
The plan also seeks to make living kidney donation easier by reducing financial barriers. Following the passage of the Honor Our Living Donors Act in February, HHS revised federal reimbursement rules so that a donor's eligibility for financial assistance is no longer determined by the transplant recipient's income. Eligible donors can receive up to $6,000 to cover expenses, including travel, lost wages, and childcare.
However, the reforms proposed stop short of allowing kidney donors to receive direct compensation for the organs themselves, which remains prohibited under federal law. "I can sell my blood. Why can't I sell my kidney?" Singer asks.
Peter Jaworski, director of the Georgetown Blood and Plasma Research Group, feels similarly, arguing that financial incentives are available to nearly everyone involved in kidney transplantation except the donors themselves. "According to this plan, it's OK to use incentives to encourage them to be more productive, to actually do a better job," Jaworski tells Reason, referring to transplant surgeons, hospitals, and organ procurement organizations. "The only exception, once again, is the donor who is offering a kidney."
Better solutions exist, according to Jaworski, who points to the proposed End Kidney Deaths Act. The bill, which was introduced by Rep. Nicole Malliotakis (R–N.Y.) last year, would offer living kidney donors a $50,000 refundable tax credit, distributed over five years. "We have those systems in order to make sure that we can treat patients. That's the point of blood donation. That's the point of plasma donation. That's the point of kidney donation too."
America's plasma market is an excellent example of financial incentives encouraging donation. Unlike many other countries, the U.S. allows plasma donors to be compensated, and despite accounting for just over 4 percent of the world's population, it supplies approximately 68 percent of the plasma collected globally for manufacturing medicines.
"Why do you think America does it? Is it because in America there's way more altruism than in France or Italy or Belgium? No, it's because in the United States you can be paid to donate plasma," argues Jaworski.
The Trump administration appears to recognize that government overreach has stifled competition and restricted patient choice. It also recognizes that living adults donating kidneys will be part of the solution to the long, deadly waiting lists. But its plan leaves the government's outsize role in kidney care largely untouched. For patients facing years on dialysis or waiting for a lifesaving transplant, recognizing the problem is not enough.
Today's guest is Tarek Mansour, the 30-year-old billionaire co-founder and CEO of Kalshi, the prediction market platform where users can trade on the outcomes of everything from elections and economic forecasts to sporting events and the weather. As prediction markets surge in popularity, Kalshi is facing legal challenges from states that argue it's operating an illegal gambling business. But Mansour insists that prediction markets are fundamentally different from casinos and sportsbooks and that efforts to restrict them threaten a powerful new source of information about the future.
Nick Gillespie talks with Mansour about Kalshi's battles with state regulators, why he believes the gambling industry is trying to stifle competition, and how prediction markets can help businesses manage risk. Mansour explains why ordinary people can sometimes forecast economic trends more accurately than Wall Street professionals. They also discuss Mansour's journey from growing up in Lebanon to building a multibillion-dollar American company and his concerns about rising inequality and the declining enthusiasm for entrepreneurship. Mansour argues that capitalism needs to give more Americans a stake in its success without sacrificing the innovation that makes it possible.
0:00—How prediction markets differ from casinos
4:55—Do prediction markets serve a public good?
8:18—Markets, price discovery, and the economy
11:36—Why does Kalshi ban insider trading?
14:06—CFTC and federal regulation
17:26—How Kalshi differs from Polymarket
22:30—Do prediction markets have a corrosive effect?
25:03—Kalshi's ban on athlete harassment
26:49—Arizona and New York lawsuits
31:30—State versus federal regulation
33:45—Why is Kalshi exploding in popularity?
35:57—Mansour's background and the American Dream
39:55—Wealth gap narratives and an inclusive economy
42:39—Will a Democratic Congress hurt Kalshi?
45:17—Mansour's prediction for Kalshi
47:48—Will state lawsuits require a Supreme Court decision?
This is an AI-generated transcript. Check all quotes against the audio for accuracy.
Nick Gillespie: This is The Reason Interview With Nick Gillespie. I'm talking today with Tarek Mansour. He's the co-founder of Kalshi, the prediction market platform that allows people to win or lose money, or invest or not money, on everything from election results to weather outcomes to who will win Dancing With the Stars and, of course, all sorts of sports. Thank you so much, Tarek.
Tarek Mansour: I'm excited.
You're 30 years old, you're a billionaire, and you are a big believer in prediction markets as truth machines. I want to talk about that in a minute. But first, Kalshi gives money to a lot of nonprofits, including Reason Foundation, the nonprofit that publishes this podcast. There are no conditions on this interview.
Tell me first, what is a prediction market, in the simplest terms possible, and why is it different than a sportsbook?
I think a prediction market, in the simplest terms possible, it really is like the stock market. We're matching buyers and sellers in an open marketplace that is competitive. The thing that they're trading is not a small, specific subset that Johnny Wall Street cares about, whether it's a stock or a bond or a credit default swap or all these kinds of sophisticated things. It's simple questions about the future.
Right. So everything is yes or no?
And some things are actually more like, is it going to go up or down? And there are more structures now. But I think a prediction market is just a generalization of the stock market. One way to think about the stock market is actually a prediction market on the prices of stocks on companies.
And you make money not on whether or not you bet right or wrong. You're not the house. You run the platform, so it's like you own the casino. And you're not staking anything…
No, it's exactly the opposite. We're exactly like owning the stock market. We're like the New York Stock Exchange, right? The New York Stock Exchange is not in the business of pricing a stock or setting the prices. They're in the business of matching buyers and sellers.
And so you may have an opinion that something's going to happen, and somebody else may think that something is not going to happen. And we match the two of you to settle that disagreement of opinion via trade.
Historically, that's about stocks. Someone thinks Apple stock is going to be worth more than the current price, more than $100 per share, and someone thinks it's not actually going to be, that it's overpriced. They make a trade as a way to settle that difference of opinion.
The difference in a prediction market is you're doing it on whether Brexit is going to happen or not. And you may think that it's very likely that Brexit happens, and someone else, your counterparty, may think that it's not very likely it's going to happen.
And let's say the market right now is trading at a 40 percent chance, 40 cents on the dollar. You may want to buy, and the other person wants to sell, and we match the two of you. And I take 0.7 percent. So if you put in $100, the other person puts in $100, I take 70 cents.
And now, very quickly, explain why that's different from a sportsbook, like why you're not Fanduel….
Here's how I'll explain it, and I'll get back to exactly the sportsbook analogy.
So when the first version of financial markets came around, and very few people know this, people think that the first financial market was the stock market, but actually it wasn't. It was the commodities market.
The first real example of a financial market was the rice futures exchange in Japan. And then in the U.S., it's really become very popular at the end of the 19th century. It was farmers, they were trading on the price of grain using grain futures, and then over time, it evolved to oil futures, etc.
And at the time, it was really interesting because when I tell you about grain futures right now, you don't think gambling. You think boring, mainstream financial markets.
But at the time, the states were suing the Chicago Board of Trade, saying this is gambling. And what was the claim? It was saying, "Well, farmers are betting on the price of grain. They're speculating, and so it looks and feels like gambling. What's the difference?"
And at the time, they didn't have sportsbooks or casinos. They had the bucket shops, which were different from the Chicago Board of Trade.
So what were the bucket shops? A bucket shop was a place where the shop, which was functioning like a casino, set the prices. They would say, here's the price of grain, and here's what I'll let you buy, and here's what I'll let you sell.
And then the purpose was basically, it was a casino. Farmers would come in, bet against the bucket shop, and then they would lose money. And if you made a little bit, if you were a smart, sophisticated trader, they would ban you. You know, the card counters get banned from the casinos.
It continues to happen on sports betting.
In sportsbetting or casinos, right? Like, if you're a smart, sharp trader, you get limited. And if you maybe have some addiction issues or you lose consistently, you get promos, and you keep coming back. That is the gambling business model. That is the end.
And when people were claiming that the exchange was gambling, at the time, the Supreme Court ruled in favor of the Chicago Board of Trade.
And the basis was very simple. It's like, yes, some people are speculating, which looks and feels like betting, sure. But the mechanism is different, and there's a public good that comes out of it.
The mechanism is a free, neutral platform that lets people trade against each other. And what it needs and incentivizes, it incentivizes the card counters, the smart traders, because the public good that it brings is the informational knowledge that it gives to people.
Talk a bit about this, because this is key to your argument, and we'll get into the regulatory structures and the cases against you, but that prediction markets serve a public good because they give more information about what is likely to happen or how actors are going about their business. How does that happen?
In particular, at a place like Kalshi, you can bet on whether it's going to rain tomorrow or how much. How does that in any way create information that is useful?
Yep. So our weather forecast, so when people are trading on whether it's going to rain tomorrow or not, what happens is you get price discovery.
Some people think the odds of rain are a little bit higher than the market, so they buy it, which moves it a little up. And then some people think it's lower, and it moves it a little down. And that continuous thing is how a stock moves. That's why we call it price discovery.
Price discovery is essentially, there's a quote from a Supreme Court decision in 1905. It's really neat. It's like this idea that speculation is the self-adjustment of society to the probable.
Which is like it's the self-adjustment of the market, the wisdom of the crowds, to what we think is going to happen.
There were papers actually a week or two ago that compared our weather forecast, like the forecast from the prediction markets on the weather, to the most accurate national blended average of weather station forecasts, and we were 10 percent more accurate.
I mean, just very quickly, how does that happen? Because Joe Schmo betting on the weather, he doesn't have satellite information.
So let me give you a little bit of history.
Prediction markets, I think the founder of prediction markets is Friedrich Hayek, the economist. He used to call them information markets, not prediction markets.
And what was the sort of central thesis? At the time, he was saying we have a knowledge problem. The knowledge problem is that our decisions in society, whether it's D.C., whether it's executives, are centralized.
It's you and I sitting in a room and making a very critical decision about the future of the country. But the information that's relevant to that decision is actually very decentralized. It's sitting with a bunch of different people, hundreds of thousands, millions of people distributed across the board.
So we need a magnet. We need the mechanism to bring that information from everyone so we can make better decisions over time.
That's what markets do.
That's exactly what markets do. Market prices are a very good aggregator of information.
Ok, so then the idea is that somehow the people who are betting on the weather have some kind of meaningful knowledge that otherwise would not be—
And by the way, people are not even usually, for example, for the Senate race right now, they don't buy Democrat or Republican and then hold it till maturity. They buy if they think the price is underpriced, and they sell if it's overpriced. They're constantly trading these things.
But the key thing here, when I started the company in 2018, a few years before that, Philip Tetlock did…
At the University of Pennsylvania.
He's actually at MIT.
Oh, I'm sorry. Ok.
And it's about superforecasters. And the whole thing, he was trying to figure out the science of forecasting. What are these people who are good at forecasting?
And he pitted a bunch of elites on geopolitics, the big pundits, and he pit them against a bunch of random dudes, basically, and had them predict geopolitical events. And guess which group did better? The random dudes.
And it was amazing because it tells you a little bit that actually there is a lot of wisdom in this idea of the wisdom of the crowds. The average people, if you add them all up, and all their bits and pieces of information, you end up getting a way better solution and result than the small group of elites.
And this gets reflected, I mean, the way Hayek talks about it in "The Use of Knowledge in Society" and throughout all Austrian school of economics, is markets and prices are discovery systems that transmit information.
That's exactly what it is.
And prediction markets are like transmitting information about a much broader… We used to care about— farmers used to care about what the price of grain is going to be. Why?
And I go back to the farmer. Imagine we had banned grain futures as gambling at the time. There's a very clear net impact on society today, which would be what? Why would it be important?
That price discovery that was happening was giving the farmer predictability on what the price is going to be of grain in September. So now I'm in March, I know how much I can invest, how much I can plant.
If you take that away from them, what would they do? They would plant less. They would just, because with less predictability, you can invest less. And so actually, our food supply would go down. That's how critical grain futures are.
So that makes total sense. And then just to press on this a little bit, as a libertarian, I like markets and everything. I like prediction markets, etc. But what is the positive social externality, other than people being able to express themselves or entertain themselves, with like betting on Dancing With the Stars?
Well, I think to me, some people may disagree on the lines, but a lot of people care about that. And I'll give you a lot of examples.
At a high level, it seems like we agree with the premise that getting smarter, even if it's a little smarter, about what's going to happen will enable us to make better decisions and allocate resources more effectively and manage risk more effectively, right?
Now, what's interesting is actually I always think of this as like, you want more markets on more things because like—
It's more information.
It's more information. It's just that simple.
And I'll give you an example. This was the same argument that was made. So there were two types of commodity derivatives that were banned. Onion futures, which I can tell you the story, there was a wild story.
The second one is box office futures. Box office futures, in 2010, there was an exchange that was trying to bring them to light, which is an idea to do price discovery on how successful a movie is going to be beforehand.
Guess who killed it?
I'm assuming the movie companies.
The big ones. Why? Because they wanted less information. And the argument was at the time, well, it's frivolous. What is the purpose of knowing if a movie is going to be successful? It's a frivolous thing…
And this is called a Keynesian beauty contest or something, where you're betting on what you think other people will say is going to happen or something.
Yeah, I mean, but in this specific one, it's more like they were saying, "Look, knowing if this movie is going to be successful or not, that seems frivolous. It's not like grain futures. We should ban it."
But they actually had an ulterior motive, and there's a reason they did not want price discovery, for two reasons.
Because one, if the market can predict ahead of time how successful a movie is going to be, it'll be harder for them to juice the three or four weeks of box office they get in a bad movie before the word gets out. And there was a second reason. If you have a market that will tell you upfront, actually, "This team is doing a good job, even though it's a small team with a smaller brand," you may attract more investment to the smaller studios, which was going to bring more competition to the space. You will get more efficient….
I mean, markets are democratizing, ultimately, or they push against centralization.
More information is always better, and oftentimes monopolies and incumbents want less information because, you know, the markets usually reduce…
Well now let me… I want to get to the regulatory structure you're currently under, plus what various states are trying to fit you into, a different kind of regulatory structure. But just on this moment, let's stop for a second.
If more information is always better, why do you ban insider trading? Because there is an argument that insider trading is absolutely the best information, and it changes prices very quickly and makes markets clear more—
And libertarians, that's the argument, and the free market side of me always tells you that you want more. You want as much as possible.
And you want, like, when Practical Magic 2 is coming out, you want people in the studio who have seen it, who know it sucks, to change, you know, to…
I would argue yes, in theory. I'll say where in practice.
But maybe right before, I want to just make, because you asked me about the gambling distinction, which we'll get to with insider trading.
The gambling business model is one where the thing they incentivize for their customers is fun and entertainment and to keep losing. That's why they give you the suites and the drinks, and they keep you losing.
Prediction markets, what they incentivize is going out there, like markets, seek knowledge, seek truth, and then come to get rewarded for it in the open market. That is why there is a fundamental difference.
And it doesn't matter what the topic is. It could be grain futures. It could be weather. It could be economics. It could be sports. It doesn't really matter. The structure, the former structure, is what really matters.
Now, on the other argument, I agree with you. It's like, well, the insiders, should they be allowed to trade? And the way I always answer the question is, why is insider trading banned in the stock market? Because in theory, we would get more accurate prices in the stock market.
And there's a very practical reason, and this is how markets should be regulated. And I strongly believe that. That's why we took a pro-regulatory-first approach to this.
Because markets can only exist if there are fair rules of the road and the competition is fair and equitable across all the participants. So I think actually…
And people need to believe that the market are not…
Otherwise, they stop trading.
Free markets, in my view, if you take the opposite of free markets, it's this idea that there's a privileged, closed circle that has access to specialized information. Right? And the key thing in the line I was drawing is, if the information is something you can access by doing research and work and putting in the effort, no matter who you are, then it's fair game.
But if it's information that you only will have privileged access to because, I don't know, you work in government or you're an executive at a team, then it's unfair. Then it creates an unfair dynamic that over time dries up liquidity and makes actually the market less efficient because nobody will trade. People won't trade.
So this helps explain, you noted you co-founded Kalshi in 2018. You went to the Commodity Futures Trading Commission to get licensed and regulated at the federal level. So when people say, "Oh, you guys are completely unregulated," that isn't accurate. But you're…
It's completely inaccurate.
Yeah. How does the CFTC regulate what you do? And then we'll get into how and why states might be trying to change that.
Yeah, I mean, I think they're two entirely different… There's a reason why the states are trying to change that, and we'll talk about that. It's fundamental protectionism.
So the beauty of the Commodity Exchange Act, why did it come? It actually got created after this whole fight that the Chicago Board of Trade was having with the states. And Congress, in '74, enacted the Commodity Exchange Act to actually preempt two types of laws: state insurance laws and state gaming laws.
And there's a reason why. Because on an open exchange, in grain futures or on Kalshi, there are two types of activity: speculation, which looks and feels like gambling, or hedging, which looks and feels like insurance.
The difference between those two is they're being done on an open market.
And why do you need the federal statute? Why didn't they let the Chicago Board of Trade be done state by state? It's because it didn't work. And here's the easiest way to explain it. Imagine we siloed the New York Stock Exchange, the stock market, state by state, where in New York, you can only buy Apple stock from New Yorkers.
Imagine we had 50 different New York stock exchanges, different prices, different rules, fragmented liquidity.
What would happen? Worse prices, a bunch of deadweight loss, lower liquidity. You probably won't be able to, if you're in Kansas, you won't be able to buy as much stock as you want.
It is a completely anti-market kind of structure.
What you want is a federal, uniform set of rules that apply across all 50 states that promote and foster this sort of multilateral, peer-to-peer idea. Someone in California is trading with someone in Texas, and you want as much information as possible. You don't want to silo information. That's the anti-market view.
And what does regulation mean, and why is it important for us, first, for us to really get regulated as commodities? It's because the rules that apply to trading on oil futures or interest rate swaps or politics on Kalshi are largely the same.
So what do you want to prevent against? You want to prevent against insider trading, prevent against market manipulation, so doing things that move the market price unnaturally for profit. You want to add sensible guardrails around knowing who your customers are and money laundering and that sort of thing.
And I believe in this, and I think this is where the regulation is very important. It's like all these products, whether it's grain futures or sports betting or prediction markets or trading options on Robinhood, most of the use is fine.
And it's not about people winning or losing. I think the competition, some people are going to win, some people lose.
But there's some degree of irresponsible use. I do believe in that. And I believe in individual freedom. People should be able to choose, but I think there should be some regulations on irresponsible use so that companies are not targeting those types of behavior.
The sportsbooks constantly target those types of…
Yeah, so let's just, real quickly, how do you guard against insider trading? I mean, you ban it, but how do you know whether insider trading is happening? How do you know whether or not somebody who has a problem is continuing to use Kalshi? How do you find out?
Yeah, so insider trading, I mean, it's the ever question for a stock market. How do you know? And it's largely a very similar mechanism.
So one, you have to verify all customers. It's like onboarding onto Schwab, opening a brokerage account. You have to…
Are you covered by know-your-customer rules?
Yeah, yeah, yeah. As a regulator.
And that is distinct from something like Polymarket, which is based offshore, and they're struggling with the idea that there may have been a member of the U.S. military who bet on Maduro being removed because he was part of the operation, which is kind of a classic case of insider trading.
It certainly is insider trading, for sure.
Because insider trading is like, are you trading on material nonpublic information? So do you have a piece of information that you're not supposed to disclose legally? And trading is a form of disclosure. You can't go say it, so you…
Ok, so you follow KYC, but then, yeah, and then how? So how do you…?
And then you have the same systems as the New York Stock Exchange, which basically flag suspicious patterns.
I mean, insider trading or market manipulation, the patterns are always weird. You always have an account that is trading hundreds of dollars, and now they're trading thousands of dollars all of a sudden on an asymmetric shot. What's happening, right?
And the last piece is you enforce. So when you find someone, we have, as a self-regulatory organization, we can impose fines all the way to referrals for criminal prosecution.
And the last piece that's so interesting about the prediction market, so I think it's even unique compared to some of the financial markets, all of our trades are public. It's all fully transparent.
So our customers, because why is insider trading bad? There's someone who gets harmed when someone commits insider trading. It's the person on the other side. That person is extremely incentivized to whistleblow, usually.
And so, George Santos basically tried to commit insider trading on Kalshi a few months ago. We had 100 whistleblower complaints within a few minutes because traders immediately tell us, "Oh, this is weird," and they can all see it publicly.
And that's actually kind of a curse because the press talks about insider trading cases on prediction markets all day because they're so easy to flag.
That's actually a blessing, if you really think about it, because it's so obvious. It's so clear.
So let's talk about…
You're committing a crime in broad daylight, right?
Yeah. So the state of Arizona, I mean, there's about 20 jurisdictions, I guess states, also some Indian tribes and things like that, that are bringing suits against Kalshi.
Arizona, earlier this year, launched a criminal indictment that you're running an illegal gambling operation. New York state, we're talking in New York, and you guys are headquartered in New York, right? It's saying that you are basically, I guess it's not a criminal indictment, but they think you owe them billions of dollars because you're essentially a gambling operation.
What do they get wrong? And what do they get wrong about your structure?
I mean, let me read to you something that I've sort of been looking at recently that I've been sort of really into.
I'll read you one of the court opinions, and here's how it sort of goes:
"We are clearly of opinion that dealing in these markets is void by the common law, for, among other reasons, that it is contrary to public policy. It is not only contrary to public policy, but it is a crime. A crime against the state, a crime against the general welfare and happiness of the people, a crime of religion and morality, and a crime against all legitimate trade and business. This species of gambling has become emphatically and pre-eminently the national sin. In its proportion and extent, it is immeasurable."
And they go on and on about how horrible this activity is.
This is the Illinois Supreme Court. It is from actually 1888. And it's about grain futures, not prediction markets.
And I think the same thing is playing out.
And is this simply, I mean…
It really is as simple because we have the same structure.
And the topic never mattered under the federal law. But states misunderstood it, and they just looked at grain futures at the time as like… Because people don't understand markets. Markets have always been something that people…
They're counterintuitive.
And I always think, imagine we had banned grain futures back in the day. We would have ruinous consequences. It's today one of the bedrocks of the U.S. economy. We would not be able to function without grain futures.
And everybody benefits. I mean, there are individual winners and losers, but you get a more stable supply of food, better planting, better forecasting.
I think about 100 years from now, when there's going to be the next generation of entrepreneurs coming around and expanding the universe, they're going to be looking at this and thinking, "Imagine we didn't have a good gauge on where elections are going to land, on where geopolitics are going, the weather, the climate, the hurricanes."
And you're starting to see today, our fastest-growing segment is actually businesses hedging on Kalshi.
How do they do that?
You can take a position because you want to make money, speculate, but a lot of people take positions because they want to reduce their risk toward an event.
So the same way that grain farmers would short the price of grain so that if the price of grain goes down in six months, they would offset their revenue loss, we see a lot of businesses do the same.
So one example, we have now hundreds of businesses that do the same, it's like sports bars hedge against their home team losing every game.
Why? Because if the team wins tonight, I will make $2,000 in revenue. If it loses, I'll make $800 in sales. And my cost is the same because I have to stock up on inventory. So it's $1,200, $1,200 no matter what.
So when the Knicks win tonight, I make $800. The Knicks lose tonight, I lose $400.
Unpredictability like that is very bad for small businesses. So they buy no on the Knicks. So they short the Knicks winning in a way that essentially compensates their P&L so they're up $300 no matter what.
And why is that important? Because predictability, it's a bit like how the airlines hedge their price fluctuations, predictability helps with investment, helps them make their decisions.
Quick question before we get to why the states are bringing these suits the way they are. Does the financialization, or does the prediction marketizing of everything, does that have a corrosive effect, say, on sports?
In leagues, and this goes back to the 1919 World Series in Chicago, the Chicago White Sox famously had some players who threw it. But when everything is being bet on, everything is being speculated, does that end up undermining something fundamental?
So one, it shouldn't be everything. Two, I just want to be clear, we are not adding anything to sports. Sportsbooks have existed, like DraftKings and FanDuel, and if you see all the cases of players doing bad things, they're actually on the sportsbooks.
Can I ask what percentage of your revenue, or…?
I mean, it's like 65, 70 percent now, but it's going down. So it was 96 percent nine months ago. So it's going down very quickly because sports is a great way to educate people about probability. They get it. It'sMoneyball. Our customer is the Moneyball type.
And then over time, they do politics and economics, and everything else is growing.
But I want to make a key point about this, which is very important. The notion that prediction markets all of a sudden now allow people to bet or trade on sports, it exists already. The question is, do you prefer it in an open and fair marketplace where everything is transparent, or do you prefer it in a closed marketplace where everything is opaque? That is the question.
And then I'm a pro-regulation guy, so I think there's war, terrorism, assassination, violence, wildfires, things that create moral hazards, that should not be traded on. We should not have markets on those things because the incentive is, it's too easy to go and create a fire.
But we also, as a market, we don't go… Most of the issues that you see is things…So we have standards that are more strict than the states' gambling rules around things not being very easily manipulated in the Commodity Exchange Act.
So we don't, for example, do markets on whether the next play is going to be a ball or a strike. The sportsbooks do these, and that's actually the vast majority of cheating cases, etc.
And that's also why we believe that regulation is very important, because when you set the right guardrails on what markets should be in, what markets should not be in, and how do you police those types of activities, and when you find someone that does it, how do you punish them very heavily? The last thing I'll say is we actually ban athletes from trading on anything that relates to their leagues.
I'm sorry, anything at all, or just on…?
Anything in their leagues. Yeah, the same way we ban politicians or members of Congress from trading on things that relate to Congress.
Yeah.
All of that goes into our…
That's like the only place where Congressmen can't bet on what they're about to legislate.
They can do it on the stock market, but not on Kalshi.
Kalshi was a sponsor of the U.S. Open, which is kind of interesting, and there's a growing acceptability.
And the NHL and MLB, and you're going to see a lot of other leagues.
But you've also recently you said that you are going to limit people who are abusive toward sports figures.
Yes.
Explain that, because now are you saying, as a condition of entering contracts on Kalshi, you're going to limit the speech of people? Or how does that work?
That's a great question. I mean, look, I think there are certain bad cases where, and by the way, it's not just about sports. It exists in really anything.
But I think the idea that someone… We always want to be careful about regulating the bad behaviors out of the system. And I believe that. I'm a very free markets guy, but I do believe in sensible guardrails. I do. And we may disagree on that point.
My view is the highway should be wide enough for people to compete and thrive and do all the great things you're going to do. You have to have a fence at the end of the highway to make sure people are not driving themselves off the cliff.
And I think it needs to be very delicate and needs to be very careful. You don't want to make the highway one car at a time because that's terrible. And so in this specific case, you have issues sometimes where people get over their skis and they go and harass…
Yeah, I mean, if you lose $2,000 or $10,000 or $200 because somebody dumps the fifth set at the U.S. Open, you're probably going to yell at the person who lost.
Yeah, yelling is one thing. Harassing and following them online and doing all the weird stuff that sometimes… And by the way, we haven't seen any evidence of that happening on Kalshi. That has historically happened on the online sportsbooks and some of the other mechanisms. I just want to be ahead of it. I don't like that idea.
Ok, so then here, is there any… When the state of Arizona says, "Ok, you're like a gambling operation, you're like the Mafia coming in and you're running this billions of dollars," New York is doing something similar.
In New York state, I think on a typical sportsbook, they take 51 percent of gross revenue. They make a lot of money by taxing and regulating this, and obviously they want money from you. Is there any other reason that they're doing this?
The casino lobby. I mean, the casino lobby is… The foundational thing is a few things.
So when an incumbent gets threatened competitively from a challenger, what does the incumbent usually do?
Go to the government.
It's litigate, then legislate, and then finally, when you realize that this is here to stay, you innovate, right? That's the basic 101. It's always been par for the course.
And why? Because incumbents, inevitably, when you get big enough, you want less competition. That's what you really want. And that's what's been playing out here.
And by the way, it's not just about sports. We launched perpetual futures recently, and CME, the Chicago Mercantile Exchange, the Board of Trade, sued us over it.
And usually the policy argument is never, "I'm losing some revenue due to competition." It's like you come up with a bunch of reasons, like, "Oh, it's too risky. It's too whatever," so they can get policymakers riled up.
And they usually have very orchestrated lobbies and comms functions that do these sorts of things.
But if we look at it foundationally, first, it's interesting. We have zero evidence of cannibalization between what we are doing and the gaming companies, but also the sportsbooks. Why? Because my core customer is a trader. It's the guy who has 17 monitors and like is doing math and stats, and that's 70, 80 percent of my volume. That person is banned in the sports world.
Ok, yeah.
Right? Because they're making money.
I mean, so do you think people are using Kalshi to make money, or is it a form of entertainment? Because casinos and sports betting is really entertainment…
Do you think some people use options in the stock market as a form of entertainment, like on Robinhood?
But there's a great, actually from Illinois, that was more recent actually, like a week or two ago, which is saying that just because something— financial, these prediction markets are swaps, they're financial instruments, they just happen to be fun.
And that's not… Fun is not a problem because when you look at the grain futures market, I always go back because the parallels are so clear, 95 percent of the transactions are speculative.
Sometimes I get farmers having fun. They're gambling, speculating on something.
But the key thing here is that you can win on Kalshi. The bulk is people who are doing sophisticated things, and it's a more sophisticated market.
What is the percentage overall of winners versus losers?
It's a zero-sum game. It's like the stock market or active trading in the stock market.
I'll ask you this question this way: How many hedge funds outperform the S&P every year?
Yeah, I mean, in a given year, I don't know how many.
What do you think is a number, roughly?
Uh, 50 percent?
50? It's like 20.
Ok.
It's amazing. Like 20 percent of hedge funds win. Yeah, like 20 to 30 percent—
And then over time, none of them do.
No, there are, I mean, there are big winners like Citadel and Renaissance. That are like really big winners.
Why? Because competition. Competitions are hard, right? Imagine that number was 50. What should that tell us? If it was 50-50, 50 percent win, 50 percent lose, it would just be a game of chance. There's no skill in this thing.
Anything that has skill, like how many people win the NBA Finals in their careers? It's a very small subset because competitive environments require skill, and when that happens, you're going to have…
So how are you…?
So the answer is actually, if 80 percent of hedge funds lose on the stock market, our numbers are closer to 60, 65 percent of people losing, which is actually more of an equalizer.
Because the one thing we see on Kalshi is actually a much larger diversity of people end up being winners. If you look at our top performers, 79 percent of them went to public school. Our top traders, they're 2x more likely to have worked in retail than worked on Wall Street.
It's kind of amazing if you think about it.
Our best inflation forecaster is a random guy in Kansas who's never traded in the financial markets, just likes…
How does he do it, then? Do you know?
He's read about the economy for 20 years, loves reading about it, very, very calibrated. He's been thinking about it a lot.
And this goes back to Hayek and Tetlock. It's the idea that information and knowledge sits anywhere. They're not sitting with the elites.
They compared the Wall Street forecasts, the Bloomberg, on inflation, economy, GDP growth, unemployment, against the Kalshi forecasts for those things, which is Main Street—- Wall Street vs. Main Street.
And the result was actually Main Street was more accurate than Wall Street, and it's also real time. We move in real time.
So is your strategy, obviously you're fighting lawsuits, but is it ultimately like you're going to come up with a number that you say to New York state and Arizona, and you say, "We're not going to give you 51 percent of gross revenue," but do you keep working until you get to a point where they're like, "Ok, we'll live with it"?
I mean, I like to take the optimistic view of things, which is I think there are some people who just don't understand it. So part of it is we're just sitting down and explaining what I just explained.
Right, right.
Because the superficial view on prediction markets, like any markets, it's always the same. Society has always had an affect reaction to prediction markets. It comes around, and they're like, "That feels like gambling. It feels wrong.
It's either random or it's rigged," right?
Exactly. It's either random or it's rigged, and it's financialization of stuff.
Not because they're bad or good, just because they are hard to understand. And when you explain it more and it gets a little bit more normalized, people, "Oh, that's actually pretty cool."
And you always see it. When I start with a meeting and I end with a meeting, the opinions on this go, "Oh, actually, it can make us think about the future a little bit better. It could depolarize us because now people are thinking more instead of saying stupid things on Twitter."
Clearly, you're not describing any meetings that you've had with the New York State Department.
Well, I mean, look, I can't speak about specific meetings, but my point is, over time, it requires education. There are parts that don't understand, parts that, yeah, there are lobby groups and casinos that are pushing really hard to protect their turf. Or I don't even think they're protecting it. They're not getting cannibalized. I think their view is like, "Oh, it's a big industry. We should have it, too." It's a little bit that sort of thing.
The thing that they're misunderstanding is that this cannot exist state by state.
Why not?
Because, you know…
Ok, because gambling does. And I know you make a big distinction.
With gambling, you go against the house, and you bet against the house. It's localized. That's fine.
But I'm a peer-to-peer market. You don't want the Californians to trade only against Californians, and Texas…
Again, why is New York… Do you prefer a national New York Stock Exchange or 50 different…?
I'm a citizen of the world. So, yeah.
But the point is, exchanges are peer-to-peer, and they require liquidity. They require a large diversity.
It's like Marketplace, Airbnb. Imagine eBay. You can only buy the bag that you want from people in the same state. That doesn't make any sense. You want diversity. The more diverse the participation, the more information, the more it works.
Why do you think prediction markets, and obviously there have been prediction markets probably for as long as humans have had language…
You know what the first one was, right?
I don't.
Pope elections.
Oh, ok.
In the 1400s.
Ok. Yeah, and well, Intrade, which was a predecessor, which was another business, or got run out of business in 2013, was very good at predicting who was going to be pope.
But why does it seem to be exploding now in popularity? Is it that the tech got better? Is it that people have more money?
I think it's two things. One, we approached it from a regulatory-first approach. I always wanted to create a financial market and broaden it into more things.
Prediction markets are just the financial markets. They're just on a different topic. That's it. People are complexifying this.
But the second thing is, when I started in 2018, I think the demand is because, I think it's the polarization that's happening in the country.
And we feel like there's more information than ever, but less truth than ever. Because the filters, the things that are filtering our information, are biased. They're partisan, they're extreme, they're polarized.
The social media algorithms, and you see, you look at two different Twitter feeds and they look entirely different. People have different conceptions of the truth, of what's happening on the ground.
Because if you write seven paragraphs of thoughtful analysis on Twitter, you get two likes. If you write something crazy, like something racist or something ludicrous, just straight-up stupid, you get 10,000 likes.
Because it's clickbaity. It's like the 10-second Reel on Instagram.
I was like, there will need to be, there was going to be a lot of demand for a source of information where the filtering mechanism is very transparent and it's very aligned with truth.
And that's markets.
We used to always joke, when I did my master's at MIT, and I was doing a Ph.D. or working on Wall Street are mostly the same thing, except that you have to be right on Wall Street. You have to do analysis in both.
But my point here is about the incentive structure of the prediction market. It's very, very simple. The seven-paragraph thoughtful analysis probably makes money, and the stupid, extreme takes probably lose money. And all you have to trust is that people like making money and they dislike losing money. That's it.
It's interesting to me that, Kalshi, you were born in California, but you grew up in Lebanon. Your co-founder was born and raised in Brazil.
Can we read anything into that, that these are the two founders, people from countries that are peripheral to, in a way, certainly to America, but kind of to the global economy?
I just think it's naive. It's like the American dream.
I mean, my mom, when we… So I was born in California, moved back to Lebanon. My mom, I grew up with a single mom, and she's kind of a tiger mom. Not kind of. She was very much a tiger.
It would be a lion, right, in Lebanon?
In Lebanon, it would be a lion.
But the whole thing was, like, "You have to go back to the U.S. because that's a country that will, if you have good ideas and you're smart and you work hard," and she knew I was always, like, a math nerd…"You're going to make it, it will reward you for doing that."
And she was right.
She was a ballerina, but also a lot of similar sort of thinking in our household.
And we showed up here, and we're so excited. There are so many different things you can build, and you can challenge the status quo. It's a country that lets you challenge the status quo in a way that no other country lets you.
And that's amazing. That's something we should really cherish, and like keep….
Do you worry about that? I mean, again, we're in New York, which elected a democratic socialist as mayor. You have Donald Trump Jr. as a special adviser. Who you hired, or you announced, a week before the inauguration of Donald Trump Sr. in a second term…
That's not right. That's actually what happened.
Ok. Well, I mean, the press release went out, I think
I don't know, but we actually had done it before the elections. It was not a political decision.
Well, what I'm getting at, though, is that MAGA, Donald Trump has nationalized the economy or socialized it in ways that were unthinkable since FDR.
So on both sides of the aisle, we seem to be pulling away from free market ideology or belief in free markets or belief that America is a place where you can define yourself.
But the people on the left say, "No, you're defined by who your parents were, what race you belong to, what gender or sexual minority." People on the right want to kick out people like you, right? I mean, they don't want Middle Easterners coming to America, even if you're an American citizen.
So, I mean, look, I…
So are you worried about the America that you've moved back to?
Yes, I am worried. I don't think it's necessarily a political thing. I just think it is a structural thing that's happening in the economy that we have to kind of contend with.
I'm 30, so I was going through school like 10 years ago, and when I was going through school, there was still this energy. People were excited. They were pumped. They wanted to build, they wanted to do things, they wanted to start companies.
And my cousin now is going to Columbia, and you don't feel that energy anymore. That, to me, is the most concerning part.
Where did it go?
I think part of it is there is structural changes happening that society is battling, where there's AI, there is wealth disparity that's being created that is extreme.
And then that is also not… When I think about free markets, I always say the foundation of free markets is everybody needs to have a shot in the competition, right? Everybody needs the same rules, the same rights, and the same obligations.
And if people stop believing that, the competition is tilted. The competition is not a level playing field. I think that's kind of an opposite view to fair markets.
And I'm not here to say, look, the solution is simple. But I think we would argue that capitalism is a good thing, but what we need to contend with and be aware of is that a lot of people are not part of it. They don't feel like they're part of it.
And that's a reality. That's a truth on the ground that we cannot just…
Is it that they're not part of it, or is it that they don't feel they're part of it?
It's equivalent, though.
Yeah. I mean, because one of the arguments about social media, which clearly has a lot to do with this type of stuff, is that the median household income, the median individual income in America, is at all-time highs. It keeps going up, despite the financial crisis, despite COVID, despite geopolitical Sturm und Drang.
But people feel like, "I'm not getting as much as Donald Trump Jr. has, so I feel ripped off," even if they're doing better. I mean, is it important to know what the narrative is and what the facts on the ground are?
And frankly, I do think, because I don't want this to sound partisan, I do think it's bipartisan. I think people on both sides…
Yeah, no, I agree with you completely.
And we engage. Kalshi has engaged. People have talked about Don. We have advisers on the other side of the aisle, Democrats, across the board. And I frankly talk equally to Republicans and Democrats. And there is a lot of thought on both sides about how do we deal with this?
And my view is we may be being a little bit too ideological about capitalism versus socialism.
And to me, it's more like, I think most people would agree that we want a free, competitive economy. We want people to have a shot. We want people to feel part of the system.
And my view is a little bit more practical. It's like, "Look, if the wealth inequality is too out of whack, we need a little bit of a dampening mechanism. Just bring it back."
Is that mechanism, is it heavy taxation? Is it regulation that prevents the formation of new businesses? Is it…?
I don't think we should ever prevent or slow down innovation or prevent the formation of new businesses. My view is more that we need to think about ways to bring the people who feel they're out of the system into the system.
There are simple, kind of naive ways to think of it. I always think, could you have the most successful companies in America, or the rising top 200 tech companies, take a small 1 or 2 percent of their stock, voluntarily?
And I do believe, actually, you sit down with a big enough group of founders and give it to, let's call it whatever, you can define a set of households in America and put it in their children's accounts.
And the thing I love about that idea is all of a sudden people feel, they understand, actually, ok, AI, space, tech, fintech, all these different things that feel completely distant and far removed from you right now, they're tangible.
And it's actually, oh, it moves up over time. And as we're creating value as a society, we're doing the thing that America does: innovate, push the boundaries, take risks. There's tangible value that basically accrues over time.
And to me, it's like we don't need to… Capitalism, it's too much ideology versus, how about the middle ground? Let's make sure we bring people along. And it's not going to hurt the very top that much to do a little bit on the margin.
So you're facing a huge amount of regulatory uncertainty. There's also a huge amount of political uncertainty that's kind of bigger than that.
My view is all companies, tech companies, are facing a lot of that. AI as well…
Well, and technological uncertainty, all of this kind of stuff. But for the midterms, is there an outcome that is better for Kalshi or worse?
I'm frankly, not sure. The idiom is like, "Well, what are you going to do when the Democrats take over?"
And I don't know. Frankly, the internal view is, to me, we've built relationships on both sides. I found actually there's a big group of people on both sides that actually are largely are where we are, which raises my second point.
Who are some of the Democrats? I mean, I think I know some of the Republicans, but many of them are anti-prediction market. But who are some of the…?
I know, it's many. I mean, I think there are some on both sides of the aisle, but I think there's a big group on both sides that is actually pro.
But without naming names, to me, the thing that we're really focused on is what we've been focused on from day one.
We're a company that spent the first four years of our company getting regulated upfront, which is very unusual for Silicon Valley. It's very, very unusual.
And I always say I'm pro-sensible regulation. Banning something is not a form of regulation. It's actually the ultimate deregulation because you're moving it offshore, and you're just closing your eyes and letting it go crazy. And that's what happened with crypto. We banned a bunch of stuff onshore, it went offshore, and people lost their money.
To me, it's always be sound on policy, truly. Try to actually, let's put the ideology aside. Let's actually get it right and communicate that over and over and educate what is right.
And I always say there are certain types of markets that shouldn't exist because those are moral hazards that could create issues. Like the military strike market should not have existed. And we never did it because we're regulated in the U.S., but no one should be able to do it.
Number two is ban insider trading. We have to, because if there's a privileged set that has access that the rest of America does not have, that ruins the markets over time. It destroys trust in the system. We don't want that.
And three, sensible guardrails. There's going to be irresponsible use for any of these products, whether you're trading options on Robinhood or crypto on Coinbase.
Or you're going to the neighborhood bar. You want somebody to send you home when you've had too much.
That's right. Most people who drink alcohol, it's fine. It's great, actually. It is a social lubricant. I mean, there's a small percentage, sub-1 percent, that end up destroying their lives. You want to regulate that out of the system. I believe in that.
And it's like any technology. You have upsides, the steam engine, and then you have your carbon dioxide emissions. Regulation reduces the emissions and optimizes the upside.
And it's always delicate. It has to be delicate and balanced. But it's usually not the best thing for getting a bunch of clicks on social media, right? That's the…Policymaking is boring.
So about 15 years ago, or I think it was 2013, Intrade, an Irish-based prediction market, was regulated out of existence in the U.S.
They were unregulated.
Ok. Well, they were, but they had a CFTC license.
No, they didn't.
Oh, ok.
So we're the first to have gotten the CFTC…That's the difference.
That's the difference. Thank you.
But what would you put the odds on of you, in five years, Kalshi being bigger than ever and in a clear regulatory market, or…?
I think they're very high. They're very, very high. I mean, we have 30 million customers in the market, right? I mean, it's very big.
And again, the choice is, if you were to ask me whether prediction markets exist in five years, that's 100 percent.
Yeah, of course.
Because it's not a question of whether they're going to exist or not. It's just whether we're going to regulate them the right way.
You think they will be legal and public and transparent.
Certainly, yes. I mean, I think it's because they're here. I think the question is now, do we regulate it? Do we add the sensible guardrails? Do we just drive it offshore and close our eyes?
But I think usually, again, time is with us because even if you compare it today versus six months ago, way more people understand it. There's much less energy than before.
And the one thing I'll say, the media, you know this, the media just loves the scandals. When the insider trade happened on Maduro, that was like a three-month cycle. It was never-ending, right?
That's what all people would hear about it. And they wouldn't say Polymarket, they'd say prediction markets. They would lump us in.
But it's going to take some time for people to understand that actually, that was a one-off. There are like 30 million customers who are using these things. And yes, there's some bad in any system, and we're going to have to regulate it, but the positives are exciting.
Because to me, you're seeing now, we have thousands of businesses that rely on this.
I mean, people in the Keys around hurricane season start calling in and buying yes on hurricanes in their town because insurance companies don't insure their homes anymore. We have so many insurance use cases that are proliferating right now on sports, on weather, on esoteric things.
Like, there's this bill. I don't know if you saw the story about the goat herder in California. There's a bill in the legislature that was being passed that was going to move. He has 3,000 goats, move goat-herding wages from $70,000 to $40,000, which is going to drive him out of business.
He started calling insurance companies to underwrite this risk. They're like, "We're not going to. I mean, this is crazy."
And so he came to us, and we set up a market. Within two or three hours, the market said there's a 10 percent chance of it happening. Then he bought a $50,000 hedge that would pay out $500,000 if the bad thing happens, and it happened.
So now he has the war chest to go and diversify his business and stay afloat and all that. More of that is basically going to happen.
I guess a final question is, are the lawsuits against you at the state level or at the nonfederal level, is that going to require a Supreme Court decision, do you think?
You know, I just think, for us…
Because the Supreme Court has, I mean, some of these suits are proceeding, so you have a legal argument, which strikes me as pretty solid, but I'm not a lawyer. But is it going to take a Supreme Court decision? I don't know what this is all…
I think maybe. I mean, I think that we'll see. I think there are a lot of things that are in flux because some of the courts where we lost, it was based on a rule that has been changed now.
There are a number of new rules that are regulated that the federal agency, the CFTC, has put forth now. So that's kind of changed. It invalidates a lot of these opinions for good reason.
So it's a bit of a reset that's going to happen.
How important is the actual head of the CFTC to your future?
It's very important, but these things, it's like a push and pull, and some people may disagree with this regulator, right?
My point is that Congress explicitly gave the authority to the CFTC to regulate market structure this way, no matter what the topic is. That's really the law.
And they even say if something is gaming, which you can say the sports game is a game, the CFTC can decide what to do with it. That's the law, and they can decide to allow it and regulate it in a certain way.
You may disagree with the regulations. Some people tell me, well, maybe they're not stiff enough on this or not stiff enough on that.
But that's why you have the separation of powers. Congress delegated their authority to the agency. If you're unhappy with the agency, there may be a shift in two years. There'll be another agency that might be more strict or more loose.
And that's the natural, it's par for the course, natural course of history.
But to me, it's like, as we learn and as data surfaces, as we understand these things better, the better for us. Because the truth and the data is on our side. The best way to tell a good story is to have a good one, and I think we have a good one.
All right. We're going to leave it there. Tarek Mansour of Kalshi, thanks so much.
Nick Gillespie appears on the left. Kalshi CEO Tarek Mansour appears on the right. An image of a roulette wheel appears in the center square. Bold text across the top of the screen reads "Why Kalshi is NOT a Casino."
On Monday, a group of students from the University of Chicago stood outside the Chicago Mercantile Exchange—one of the world's largest and most diverse derivatives marketplaces—and called for the repeal of an obscure 1958 law that bans onions as futures products traded on U.S. exchanges.
Attracting an audience with a humorous jingle and amusing signs that included "Onions Deserve a Future," "Honk If You Want Free Onions," "Hot Girls Hedge Onions," and "Free Markets Feed Families," the student group, named For Our Futures, has a simple platform: a repeal of the 1958 Onion Futures Act, which prohibits anyone from trading in onion futures on commodity exchanges. (The law was amended in 2010 to ban motion picture box office receipts from being traded on commodity exchanges.) The viral campaign drew enough attention that Mike Selig—chairman of the Commodity Futures Trading Commission and a proponent of expanding the list of commodities traded on futures markets—was asked about the law in a media appearance.
American farmers produce about 6.75 billion pounds of onions a year, according to the National Onion Association, an industry trade group. While peers who grow cotton, wheat, corn, and soybeans can hedge against price swings by trading futures contracts, onion farmers have no such recourse under federal law. But, as the Agriculture Department's daily National Potato and Onion Report shows, onion prices are highly volatile and subject to wild swings, making them an ideal market for futures trading.
In its latest report, released Monday, the agency shows that onion prices have roughly doubled since this time last year. If onion futures contracts were legal, farmers could rely on market expectations instead of planting crops based on last year's prices. It would also let buyers potentially cut costs by locking in lower prices to protect against spikes. Trading onion futures contracts would give the industry a useful price-discovery tool, one that the student group aptly notes is "crucial for price stability and for hedging risks associated with weather and market fluctuations."
It's not For Our Futures' first time trying this gambit. The student group staged similar protests at college campuses in April and May, armed with bags of raw onions to entice passersby into signing their petition to legalize onion futures. The students' crusade might be comical, but after a recent Gallup poll found that 57 percent of Americans age 18–34 have a positive image of socialism, it's encouraging to see college-age students stand up for free markets.
A protest over onions sounds absurd, but it's a viral reminder to others in that age cohort of how far governments can go when given the slightest leeway to regulate an industry.
Instead of relying on outdated price points when planning future harvests, American onion producers could use resources like futures contracts that offer real-time market signals. All that would require—as the college kids state—is for federal lawmakers to "let the free market reign supreme."
With little more than two weeks to go until the midterm elections, it seems increasingly possible that the Democrats, already a big favorite to win control of the House of Representatives, will also take charge of the planet's most elite nursing home, the United States Senate, where the median age is 64 years old. RealClearPolitics' poll aggregator has moved control of "the world's greatest deliberative body" (as its members are grandiosely wont to call it) to "toss up," status and prediction markets are now breaking big toward a blue wave. As of this writing, Kalshi has its Senate odds at 63 percent for the Dems vs. 37 percent for the GOP; Polymarket is at 62 percent vs. 39 percent.
As gratifying as it might be to see unprincipled Trump enablers reduced to minority status after signing off on economy-wrecking tariffs, inhumane immigration detentions, and wars of choice, there's at least one good reason to dread a Democratic majority too: Sen. Elizabeth Warren, the Massachusetts progressive who is spending the run-up to the midterms freaking out over possible consolidation in the condiments business and accusing private equity firms of gutting such shopping-mall favorites as Claire's and Toys R Us. There's every reason to believe that a Senate run by Warren and other economic interventionists will waste time, money, and resources trying to prevent a world in which, per the X wag Iowahawkblog, "a panopticon conglomerate owns two brands of hot sauce."
On October 13, Warren posted this dire warning to X:
Hellmann's mayo McCormick spices Cholula hot sauce Frank's RedHot
What do these products have in common? One company could soon control them all.
I have concerns that McCormick and Unilever's $45 billion merger could increase YOUR grocery prices.
It's hard to think of a more competitive and varied market than the one for hot sauces, which is expected to more than double over the next decade. The barriers to entry are generally low, as are the key ingredients, and new entrants can easily market and sell online, avoiding the costs of buying shelf space in conventional supermarkets. Yet Warren is urging regulators at the Department of Justice and the Federal Trade Commission to halt mergers of both product makers like McCormick and Unilever and grocery stores like Kroger and Giant Eagle.
The latter complaint is particularly picayune. Kroger is one of the country's largest supermarket chains, operating around 2,800 stores under its own name as well as Harris Teeter, Ralph's, and others. Giant Eagle operates about 170 stores. This merger is no more the stuff of nightmares than a single company producing both Cholula and Frank's RedHot. If Warren gains more clout from being in the majority, expect her to butt in more and more on such mergers.
Making it harder for businesses to adapt is not a recipe for making goods and services more affordable. But Warren is keen to blame economic creative destruction not on "new forms of industrial organization that capitalist enterprise creates" (as Joseph Schumpeter would have it), but on pure greed. In a TikTok released earlier this month, she shows a poster board with corporate logos from once-thriving companies that she says have been "gutted" by "private equity" firms.
"Here's your local mall," she piously intones. "Now, private equity wants you to believe that Red Lobster went bankrupt because of their endless shrimp….They want you to believe that Claire's went bankrupt because teens stopped shopping at the mall." In Warren's telling, private equity firms magically take over thriving businesses and then strip them bare. The typical pattern is that private equity enters the picture after a business is failing.
Virtually all accounts of the decline of, for example, Red Lobster, note that the chain had been spiraling for several reasons before the private equity firm Golden Gate Capital got involved in 2014. As this CNN article notes, the chain, which started in 1968, had seen drops in sales as customer desires changed. Management compounded the difficulties with a series of bad decisions, including continuing various all-you-can-eat menu specials, before coming out of Chapter 11 bankruptcy last year.
Similarly, it's true that some teens still go to malls and get their ears pierced at Claire's. But anyone who has spent time in retail America over the past few decades knows that malls are no longer the destination that they once were. As CapitalOne Shopping Research documents, "in 1986, there were 25,000 malls, large and small, nationwide." By 2023, that number had shrunk to just 1,200. While some malls are coming back, most are not, and for reasons that have nothing to do with private equity. Online retails plays a role (though a smaller one than usually imagined, with e-commerce accounting for less than 20 percent of all retail sales). But mostly, it's that people today tend to want a different sort of retail environment. Anchor stores—think Macy's and J.C. Penney—are shadows of themselves, and younger people have less unstructured time in which to prowl food courts and arcades.
For politicians like Elizabeth Warren, though, there can be no financial gains or losses that aren't the result of shadowy, conspiratorial forces. If her party takes control of the Senate, her words will carry more weight. But it will be American consumers that ultimately shoulder the burden of an even-more-regulated economy. The market for hot sauces will almost certainly stay spicy, but many other parts will surely suffer.
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