Prediction markets a budding profit center, CEO of futures company says SUB

“Our number of markets has basically gone from 100 to 1,400 as of today, with a pretty aggressive sort of growth trajectory for the rest of the year,” Kalshi co-founder and CEO Tarek Mansour said.

The Washington Examiner recently sat down with the 28-year-old CEO while he was in Washington from New York to discuss his company, the rise of prediction markets, and what he expects for Kalshi and the industry in the years to come. A decade from now, Mansour predicts that if his company’s current trajectory continues, it could be one of the largest financial markets on the planet.

“And I think prediction markets would rival the stock market in terms of engagement, activity, volume, and so on,” he said.

Prediction markets such as Kalshi began getting big attention during the 2024 elections, during which President Donald Trump bested then-Vice President Kamala Harris. Many pollsters predicted that Harris had the edge or that it would be an exceedingly close contest, with some calling the race a coin flip.

Kalshi users, on the other hand, were implying notably higher odds of a Trump win than many pollsters were. And the prediction became reality after Trump strongly overperformed, secured a decisive victory, and won every major swing state.

“The election was a slap in the face, because people saw there was a big spread. Like we were saying 62, 63%, but the polls were saying 50-50, that it was much, much closer,” Mansour said.

The idea behind Kalshi and other prediction markets is relatively simple: Users can buy shares in possible outcomes for various events. Using the example of the presidential race, one share on that market would represent a “yes” for Trump winning, and another a “no.” The price of a yes share goes up when more people buy it, so the expected odds of that outcome happening rise as well. If a yes share in that market was worth 60 cents, it implies a 60% chance that Trump would win, for instance.

When the event happens, the shares for the correct outcome, say Trump winning, pay out at $1 each, while incorrect shares become worthless. So, users could pay 60 cents per share and then make a 40-cent profit if they are correct.

The idea behind Kalshi was sort of a reaction to the shortcomings of traditional markets. Mansour started Kalshi in 2018 alongside co-founder Luana Lopes Lara, whom he met while attending the Massachusetts Institute of Technology.

Mansour said that while interning at Goldman Sachs in 2016, he noticed a lot of interest in getting exposure to events.

“So it wasn’t like, ‘Hey, I think this stock is mispriced, or this option, I want to trade it in a certain way,’ it was like, ‘I want to get exposure to Brexit or hedge against Brexit, I want to get exposure to Trump winning the election, or hedge against Trump winning the election,’” Mansour said.

To deliver exposure on events such as those, Mansour explained, the firm would structure bundles and advise clients to buy certain sets of options or stocks that should move with the desired position.

But those bundles were merely proxies for the events. He said that one way people were betting on a Trump victory was by taking on a complicated options structure to short the S&P 500 — betting that if Trump, who was not expected to win, ended up beating Harris, the stock market would drop and those investors would make money.

“The problem was like, Trump won, so a lot of these people were right about the bet they wanted to take, but they lost money because the S&P actually rallied when Trump won,” Mansour said, pointing out that often with events such as elections, it isn’t always clear what the market reaction will be.

Mansour said that sparked the interest in building Kalshi.

“What if you build a financial market where the underlying is an event? There’s a simple question about the future,” he said. “It’s not a stock, it’s not a bond, it’s not like a currency or a commodity. It’s actually just a simple question about the future that has economic or social utility.”

So Mansour and Lopes Lara decided to create Kalshi. In 2019, Kalshi joined the Y Combinator, a venture capital firm and startup accelerator, and launched a beta version of the platform. Then, in 2020, the Commodity Futures Trading Commission issued the company regulatory approval, making it the first fully regulated financial exchange for event contracts.

But when the company tried to list a market on the election, regulators stepped in and blocked it. So, Mansour said Kalshi made the “difficult decision” to sue the CFTC. Kalshi ended up winning that lawsuit last year, just a few months ahead of the 2024 elections.

The victory lined Kalshi up to become a closely watched gauge of election-year politics. Mansour said some 500 million unique visitors were checking Kalshi’s website on the day of the election.

“So 500 million people came to Kalshi on Election Day, like 7% of the world population,” Mansour said. “It was huge.”

And the attention that Kalshi and other prediction markets received was in part because of their accuracy. While Mansour said Kalshi is not a crystal ball, it’s as close as it gets to one. That is because the people making predictions on the platform are doing so with the weight of their wallets.

“When you’re putting money behind your opinion or your view, you don’t lie,” he said. “People just don’t lie when it comes to money. Whereas in polls, people get asked and … sometimes they say whatever, sometimes they lie.”

“Markets provide skin in the game to be truthful,” he added.

And since the election, Kalshi has been growing. For instance, this year, Kalshi launched sports event contracts. Right now, the company has about 55 or 60 employees, but Mansour expects that number will grow to 100 by the end of the year.

Visitors to the Kalshi website are greeted with a menu of questions that they can put money on, such as who the Democratic presidential nominee will be in 2028, whether Jerome Powell will still be chairman of the Federal Reserve by the end of the year, and what the musical genre of Beyonce’s next album might be.

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Mansour said the company will continue to grow to new heights in the coming years.

“We’ve kind of experienced close to unprecedented growth in any financial market that has been built in the U.S.,” Mansour said. “And I would say we’ve gone pretty mainstream now, it’s become sort of a reasonably known household brand.”