Feb 28, 2025 · 53m · sourcery
How Kalshi Built a $2 Billion Prediction Market · Sourcery with Molly O'Shea
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In this episode of Sourcery, host Molly O'Shea interviews Kalshi co-founder Tarek Mansoor about building the leading CFTC-regulated prediction market, overcoming arduous regulatory battles, expanding into sports and financial contracts, and onboarding high-profile partners like Donald Trump Jr.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Molly holds 12% of the talking time here. How this is scored →
Molly as informed peer 3.4 Guest teaching 4.3 Guest disagreement 1.4 Molly pushing back 1.0
speaking balance: gold is Molly, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 39:25 Pony up or shut up response to media critics
Tarek forcefully rejects mainstream media narratives claiming election prediction markets were manipulated, detailing Kalshi's combative blog challenge telling critics to put their money where their mouth is.
Hardest push from Molly ▶ 31:52 Challenging the boundary between gambling and hedgingMolly directly challenges the fundamental justification of prediction markets by pressing Tarek on the exact boundary between gambling, investing, and risk hedging.
Biggest teaching moment ▶ 32:30 Natural versus artificial risk frameworkTarek delivers a masterclass on financial history and legal philosophy, explaining how natural exogenous risks like Brexit are legally and ethically distinct from artificial recreational constructs like roulette.
Molly holds their own ▶ 17:40 Pinpointing CFTC federal preemptionMolly demonstrates regulatory knowledge by immediately connecting federal CFTC oversight to interstate jurisdictional preemption over state-level sportsbooks like DraftKings.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Molly as informed peer | Guest teaching | Guest disagreement | Molly pushing back | Why |
|---|---|---|---|---|---|---|
| Bringing Donald Trump Jr. Onboard as Advisor | 3 | 4 | 2 | 1 | Molly opens by asking how Kalshi 'scored' Donald Trump Jr. as an advisor. Tarek gently reframes the premise, explaining that the Trump family was already organic users during the election and that prediction markets serve as a direct communication channel. | |
| Donald Trump Jr. Partnership Details and Company Vision | 2 | 5 | 1 | 1 | Tarek explains Kalshi's exchange model and asks Molly if she is familiar with CME, to which she admits she is not. He educates her on how derivatives exchanges like CME and ICE operate with massive margins via broker distribution. | |
| Historical Evolution of Prediction Markets | 3 | 6 | 1 | 0 | Tarek delivers a detailed historical overview of prediction markets spanning HedgeStreet, Dodd-Frank regulation, Intrade, and Augur. Molly mostly listens as Tarek details Kalshi's transition from an initial crypto hackathon prototype to an onshore regulated exchange. | |
| The Regulatory Struggle and Investor Support | 2 | 3 | 1 | 0 | Tarek describes the multi-year regulatory grind with the CFTC as psychological torture and notes that investors could not directly help with regulatory maneuvering. Molly empathizes with a quip about the definition of insanity. | |
| Expanding into Sports Betting Nationwide | 4 | 5 | 1 | 2 | Molly asks how Kalshi operates nationwide compared to state-regulated sportsbooks like DraftKings. Tarek explains federal CFTC preemption over state betting restrictions and live in-game market mechanics. | |
| Molly's Super Bowl Bets and Culture Markets | 4 | 3 | 1 | 1 | Molly shares her Super Bowl betting experience on Kalshi's entertainment markets, and Tarek expands on how culture and entertainment represent Kalshi's fastest-growing segment because mainstream retail does not care about esoteric options. | |
| Product Expansion and Intraday Financial Markets | 4 | 3 | 1 | 1 | Molly asks about Kalshi's expansion into stock betting and favorite markets. Tarek explains their rollout of index hourly markets and highlights the TikTok ban market while acknowledging trading partners like Susquehanna. | |
| Origins at Goldman Sachs and First Principles Thinking | 3 | 5 | 1 | 1 | Tarek explains how working on Goldman Sachs' Equity Exotics desk revealed that clients wanted direct event hedging rather than imperfect proxy baskets. He outlines how Kalshi resolved the liquidity chicken-and-egg problem from first principles. | |
| Institutional Demand, Risk Pricing, and Ethical Boundaries | 5 | 6 | 2 | 2 | Molly presses on the core definitional boundary separating gambling, investing, and hedging. Tarek presents a comprehensive historical and ethical distinction between artificial risk like roulette and natural economic risk like Brexit. | |
| Navigating Business Volatility and Engagement Loops | 3 | 4 | 1 | 1 | Molly questions how Kalshi manages revenue volatility between massive one-off news events. Tarek clarifies that while big events drive top-of-funnel acquisition, repeatable daily and hourly markets generate steady baseline volume. | |
| Public Perception, Viral Culture, and CFTC Election Lawsuit | 4 | 3 | 3 | 1 | Tarek discusses media accusations of election market manipulation and conspiracy theories about his background. He highlights their aggressive blog stance challenging critics to put their money where their mouth is. | |
| Viral Tribal Markets (The 'Ones, Twos, Threes, Fours') | 4 | 5 | 1 | 1 | Molly inquires about unexpected viral markets and the legality of commodity insider trading. Tarek explains how election victory margin buckets spawned tribal Discord factions and details why commodity derivatives allow participants to trade on asymmetric operational knowledge. | |
| Founder Psychology vs. Institutional Trading | 3 | 4 | 2 | 1 | Molly asks about the financial and career trade-off between institutional trading at Citadel and founding a startup. Tarek counters conventional glorification of founders, arguing high-paying trading jobs have better expected value and entrepreneurship requires an obsessive, unbalanced personality. | |
| Revenue Model and 2025 Goals | 4 | 4 | 1 | 1 | Tarek details Kalshi's multifaceted monetization model including trading fees, interest on float, market making, and data licensing. He reflects on how taking irrational leaps of faith overcame pure expected value calculations in their CFTC lawsuit. |
Statements from this episode (26)
Kalshi announces brokerage integration with Webull as second partner
“We actually announced our second broker, Webull, this week, two days ago.”
Mansoor: Twitter crowdsources the past, but prediction markets crowdsource the future
“Twitter is like the best way to get Aggregate, like, use the wisdom of the crowds for where the news, like, the past for what just happened or what happened, and prediction markets are the way to use the wisdom of the crowds for what is going to happen.”
Mansoor: Kalshi onboarded 2 million users in the fall of 2024
“So we onboarded two million people to our app last last fall.”
Mansoor: CME and ICE boast the highest net margin profiles in the Fortune 500
“Those two companies are like close to a hundred billion dollar companies and they have the highest net margin profile in the Fortune 500.”
Mansoor: Kalshi is in integration discussions with Coinbase and DraftKings
“Our first broker was Robinhood, and, you know, Vlad has been talking about that, and, you know, we just got Webull, and I think, yeah, I mean, I think over time, we're in discussions with all the other ones, like Coinbase, DraftKings, all the others, and vario…”
Mansoor: Prediction markets could become bigger than the stock market
“I think it could just look like the stock market, maybe even bigger.”
Mansoor: Kalshi was originally an on-chain crypto project during Y Combinator
“And actually people don't know, like, we, first two weeks of Calcio, we actually started on-chain. So it was really, yeah, it was like, yeah, people don't know this it was like it was crypto first, I remember, and like, that was when we were doing this, like, …”
Mansoor: Prediction markets need federal regulation to access Wall Street liquidity
“If we wanted this to be, to get, be on a certain set of scale without regulators, like shutting it down or like having it has to be regulated. And two is like any financial market, you have to be able to work with the brokers, like the Schwab's of the world, t…”
Mansoor: Kalshi has raised nearly $110M from Sequoia, Schwab, and Kravis
“It's raised close to 110. We, I mean, the main investor, Sequoia, YC Schwab Kravis and I mean, a bunch of others.”
Mansour: Kalshi grew from 100 to 1,000 active markets
“Like we had a hundred markets back in in September, we have a thousand now.”
Mansoor: Kalshi's federal regulation allows sports trading across all 50 states
“It's the first time that sports, like, trading on sports is actually legal in all 50 states. Because we are regulated by the, you know, by the feds, like, at the federal level, not state by state. And the federal regulation, like, the law actually supersedes s…”
Mansoor: Kalshi captured 7% of sports handle in its launch week
“I mean, I think we got like something like seven percent of the handle within seven days of launch which is huge. Like it's a testament to how big this could be. And I think we were fourth in handle.”
Mansour: Entertainment and pop culture are Kalshi's fastest-growing markets
“One of our fastest growing segments Right now is, is actually, especially in January is, so obviously politics is big. I mean, I think sports will end up being pretty big. We have crypto and financials are really large, but the fastest growing right now is act…”
Mansoor: Ancillary prop markets drove 30% of Kalshi's Super Bowl volume
“There were all these markets that were like, not exactly about the outcome, but like, Related to... Around it. They're like, we're extremely, like, they ended up being something like, 30% of the whole, like, pie.”
Mansoor: Kalshi aims to cover 100% of relevant daily news topics
“Like I think we're at maybe like 15, 20% of the relevant news on any given day. Like we can get to a hundred.”
Mansour: Kalshi Employees Are Prohibited From Trading on Platform
“No one in the team can use it, which actually makes it hard to develop product”
Mansoor: Kalshi has a deep partnership with market-maker Susquehanna
“We have a very deep partnership with Susquehanna.”
Mansoor: Retail traders prefer real-world events over complex option deltas
“If the institutions don't care as much as we thought about like all these complicated financial instruments, then retail definitely cares way less. So the overall, I think that the amount of interest or caring about events is actually pretty large. And so, bec…”
Mansoor: The difference between finance and gambling is natural risk
“The difference is actually about whether the underlying thing, like the thing that you're actually engaging in, has actually some sort of economic, social, cultural relevance outside of the act of placing the trade, right? Like, and so, so it's like, is it art…”
Mansoor: Most Kalshi revenue comes from recurring daily markets, not mega-events
“Most of our revenue doesn't
Come from these kind of crazy, exciting events. Like the breakdown of revenue right now for this month, for example, like how much was it the Superbowl versus the other things? Like it's actually much smaller than people would think…”
Mansoor: Commodity derivative markets are fundamentally built on insider trading
“There's no insider trading in commodities. Like it's all insider trading actually, like the whole thing. It's interesting because then like they have inside trading on the prices they think that they're going to sell and then how much they sold and so on.”
Mansoor: Kalshi acts as a Self-Regulatory Organization with an investigation department
“We are an SRO. Like we are, think of it as like a pseudo extension of government where we have our own set of rules and laws. So we have a whole investigation department. We actually have to do that by law. Like if I don't do this, I'm violating the law.”
Mansoor: Working at Citadel offers higher expected value than founding a startup
“I think from an expected value perspective, like definitely Citadel, it's like hard to beat that. Like I think especially with now, like Ken is just giving ridiculous, like it's insane. Like the types of packages and so on. So, so from an EV perspective, like …”
Mansoor: Entrepreneurs are 'extremely spiked' in one trait but otherwise completely incapable
“And I think entrepreneurs are like extremely spiked in one thing, and then everything else is kind of like, close to zero, actually, like completely incapable of everything else. Whereas a lot of people that live a happy, healthy life are actually more like ro…”