The Philadelphia Stock Exchange was founded more than 15 years ago. In 2008, Nasdaq acquired it and HedgeStret bought it. Both exchanges announced that they would offer event contracts to investors. It was designed to let people bet on future events and pay a fixed amount if they occurred.
It was controversial at the time and failed to attract enough investors. Kalshi, a 33-year-old startup based in New York, is now testing the waters anew. It has the support of Sequoia Capital and Charles Schwab, as well as SV Angel, who have provided $36 million in funding so far.
Their enthusiasm is partly due to a significant hurdle Kalshi, a former MIT classmate and researcher Tarek Mansour, and Luana Lpes Lara overcame last January when they won approval from the Commodity Futures Trading Commission for a derivatives exchange.
Mansour claims that Kalshi's small team worked closely at all levels with the agency to ensure that it passed its tests. It was a difficult process. The more you have to deal with, the more problems will arise. He says that Kalshis head for regulation was also helped by bringing in a former head at clearing at the CFTC.
Kalshi also emerges at a time when people consume more news stories, sometimes with a narrower focus, through social media and other outlets.
Lopes Lara believes that this matters because the contracts are tied to news and other relevant events. However, Quora is one way for startups to get in front information-hungry people. The founders add that there are more tie-ups based on partnership.
Kalshi, in the meantime, is on a mission. It wants to show it can attract a new generation, both institutional and retail, to bet on any outcome. This includes whether Turkey will join the European Union by the end of June next year.
Kalshi, which has a clearinghouse partner to hold the funds from all users in order to ensure that every contract can be collateralized, is gaining some traction. The platform launched in March and has since attracted over 4,000 users. It only offers two outcomes, and pays 100% if the investor is correct or zero if the investor is wrong. This is a decent, but conservative number of users.
According to Mansour, the founders believe things will pick up faster this fall because Kalshi has several avenues for acquiring users.
One of these products is the consumer product people have been trying out and is now available for anyone who wishes to sign a contract on its website.
Kalshi has also partnered with brokers to make it more impactful. . . Mansour said that event contracts can be traded in the same manner as stocks, commodities, options, or other options through their preferred brokerage app. He also added that brokers refer to the Fidelities or Charles Schwabs around the world.
Adds Lopes Lara, We are first targeting people who use Robinhood, Coinbase, or other brokers. They already know a lot about investing and are keen to learn more about event-based thinking and questions for their investments.
Event contracts based on sports outcomes are something interested parties should not expect (that's very similar to gambling, and that we don't [facilitate]), Lopes Lara.
Federal regulations also prohibit certain areas from being used, such as events contracts that are tied to geopolitical events like whether or not a war breaks out, and other political events. Although users may be tempted by the idea of betting on whether or not California Governor Gavin Newsom is recalled in September they would have to get that action elsewhere.
Mansour says that the possibility of Kalshi taking off and other financial institutions trying to create their own event contracts is not likely. We have done a lot of work over the past two-and-a half years. Each detail of the operations was designed for event contracts. For larger institutions, it would take some time to get in the space.
Only time will tell.
Kalshi is also owned by Y Combinator, Justin Mateen, Tinder cofounder and investor.
Alfred Lin, Sequoia Capital, sits on the company's board.
