Kalshi

Kalshi

Kalshi is a United States-based regulated exchange offering real-money event contracts on a wide range of topics, including financial indicators, weather, entertainment, and politics. Founded in 2018 by Tarek Mansour and Luana Lopes Lara, Kalshi operates as a designated contract market (DCM) under the supervision of the Commodity Futures Trading Commission (CFTC). Its core innovation is providing binary “yes”/“no” contracts on the outcomes of future events, each settling at \$1 if the event occurs and \$0 otherwise. Kalshi’s emergence has generated debate over whether regulated event markets constitute legitimate hedging tools or a new form of gambling.

Since launching publicly in July 2021, Kalshi has attracted notable investors, navigated a high-profile regulatory battle to offer election-based contracts, partnered with major fintech and brokerage firms, and expanded its products to include sports, economic data, and broader real-world events. By 2024–2025, it had become the first U.S.-regulated exchange to list contracts on federal elections and sports championships, challenging longstanding prohibitions on political betting and opening a new frontier for event-driven speculation.

History and Founding

Kalshi was founded in 2018 by Tarek Mansour and Luana Lopes Lara, both of whom were undergraduates at the Massachusetts Institute of Technology (MIT). They were inspired by the difficulty investors faced in hedging major political and economic events, such as the Brexit referendum, and envisioned a dedicated market where users could take positions on real-world outcomes. The name “Kalshi” means “everything” in Arabic, reflecting the founders’ ambition to create a market that could list event contracts on almost any topic.

Securing regulatory approval was a major early hurdle. Mansour and Lara spent 18 months working with the U.S. Commodity Futures Trading Commission (CFTC) to obtain a license as a designated contract market (DCM). Approval finally came in November 2020, making Kalshi one of only a handful of federally regulated event-based futures exchanges in the country. The company then launched its public platform in July 2021, after a waitlist period.

Kalshi quickly garnered high-profile backers. It graduated from Y Combinator’s Winter 2019 batch and, by early 2021, raised \$30 million in Series A funding led by Sequoia Capital. Participants included Charles Schwab, Henry Kravis (co-founder of KKR), SV Angel, Neo, and YC’s Continuity fund. Subsequent fundraising brought Kalshi’s total capital raised to about \$36 million by 2021, culminating in a rumored \$749 million valuation. Its board and advisory team included former CFTC officials, most notably ex-Commissioner Brian Quintenz.

Key milestones include:

• 2018 – Kalshi founded at MIT; begins developing “event trading” concept.
• 2019 – Joins Y Combinator; pursues CFTC approval.
• November 2020 – Receives DCM license from the CFTC.
• July 2021 – Public launch of the Kalshi exchange.
• 2021–2022 – Focus on weather, economic, and miscellaneous event contracts; grows user base.
• 2022–2024 – Protracted regulatory battle over offering election markets; ultimately prevails in court in late 2024.
• 2024–2025 – Introduces large-scale political contracts, announces sports event markets, partners with Robinhood, and begins accepting USDC deposits.

Market Mechanics and Operations

Binary Event Contracts

Kalshi’s core product is the binary event contract. Each contract poses a yes/no question—e.g., “Will U.S. inflation exceed 5% this year?”—and settles at \$1 if the event occurs, \$0 otherwise. The trading price (between \$0.01 and \$0.99) reflects the market-implied probability. Buyers of the “yes” contract pay a price up to \$1 and profit if correct; if they are wrong, the contract expires worthless. No margin or leverage is permitted; a trader’s maximum loss on a position is the price paid for the contracts. Kalshi’s revenue derives from small transaction fees, not from taking the opposing side of trades.

Order Matching and Liquidity

Kalshi employs a central limit order book. Traders post bids and asks on yes/no shares, and matching orders form trades (yes + no = \$1 in total). To address potential illiquidity, Kalshi created its own affiliate market-making entity (Kalshi Trading) and also attracted external trading firms such as Susquehanna International Group, providing continuous two-sided quotes.

Market Categories

Kalshi lists contracts spanning:

• Finance & Economy (e.g., Fed interest rate hikes, S&P 500 performance)
• Politics & Policy (e.g., legislation, control of Congress, election outcomes)
• Weather & Climate (e.g., hurricane counts, heat records)
• Entertainment & Culture (e.g., awards shows)
• Public Health (e.g., COVID-19 vaccine uptake)

For numeric outcomes—such as inflation or a stock index—Kalshi typically lists multiple binary breakpoints, effectively creating a probability distribution. All listed markets are exchange-created; user-generated markets are not currently permitted. Kalshi enforces position limits, generally \$25,000 per contract, though certain contracts can have multi-million-dollar limits if designated for institutional hedging.

Compliance and Operations

As a regulated U.S. exchange, Kalshi follows KYC/AML requirements, limiting access to approved jurisdictions. Trading occurs around the clock except near major data releases, and settlement is typically same-day once the outcome is confirmed. Kalshi conducts market surveillance to deter manipulation and insider trading. The exchange holds all trader funds in a regulated clearinghouse, ensuring full collateralization.

Regulatory Status and Legal Framework

Kalshi operates under CFTC oversight as a designated contract market. The exchange’s event contracts are viewed as binary options or futures, placing them under the Commodity Exchange Act rather than SEC purview.

Gaining CFTC Approval

Obtaining the CFTC license was a crucial milestone, requiring an extended approval process. The CFTC can reject “event contracts” that it deems contrary to the public interest, such as assassination or terrorism markets. Kalshi’s founders pursued full regulatory compliance, contrasting with unregulated or offshore prediction platforms.

Election Market Dispute

A major regulatory flashpoint emerged over Kalshi’s plan to list election-related contracts, particularly on which party would control Congress. By precedent, the CFTC had previously disallowed most real-money election betting, arguing it resembled gambling and threatened election integrity. In October 2022, CFTC staff recommended rejecting Kalshi’s congressional-control contracts. The Commission delayed an official ruling, effectively preventing Kalshi from offering such markets during the 2022 midterms.

In 2023, the CFTC majority formally disapproved these contracts, declaring them illegal “gaming” under the Commodity Exchange Act. Kalshi sued the agency, alleging overreach. In September 2024, a U.S. District Court ruled in Kalshi’s favor; on October 2, 2024, the D.C. Circuit Court denied the CFTC’s emergency stay request, allowing Kalshi to launch congressional and presidential election markets. This was the first time in U.S. history a federally regulated exchange was authorized to list real-money contracts on election outcomes.

Proposed Rule to Ban Certain Event Contracts

Throughout 2023–2024, the CFTC weighed a new rule to prohibit event contracts on elections, sports, or entertainment awards. Critics claim such trades constitute gambling and may invite manipulation. Kalshi counters that elections and other public events often create economic risks that businesses and traders legitimately seek to hedge. While the dispute remains under appeal, Kalshi continues to offer election markets unless and until a final regulatory or legal determination mandates otherwise.

Trading Volume and Market Growth

Kalshi’s volume has risen steadily, though it remains smaller than some unregulated platforms. From its mid-2021 debut through mid-2022, Kalshi saw about 38.7 million contracts traded; in its second year, that figure rose to around 119.7 million, totaling roughly 158 million contracts in its first two years. Each contract corresponds to \$1 notional, so these figures represent \$158 million of traded exposure over two years.

During early 2023, Kalshi’s monthly trading volume hovered near \$10 million. Activity surged when it finally launched election markets in October 2024; within two weeks, its presidential contract attracted \$87 million in trades. Financial benchmarks (e.g., daily contracts on the S&P 500 and Nasdaq 100) have been consistently among the most actively traded, along with Federal Reserve interest rate contracts. Kalshi’s user base remains undisclosed, but partnerships such as its integration with Robinhood—an app with millions of active users—hint at potential future scale.

Notable Events and Milestones

• CFTC Designation (November 2020): After 18 months of regulatory review, Kalshi obtained a DCM license from the CFTC, marking the first time a broad-purpose event-based futures exchange was authorized in the United States.

• Public Launch (July 2021): Opened to retail traders with markets on weather, inflation, and pop culture. Early volumes were modest but demonstrated the viability of regulated event trading.

• PredictIt Shutdown (2022–2023): The CFTC revoked PredictIt’s no-action relief, compelling the popular political prediction site to close. This left a vacuum in the regulated U.S. election-betting space, setting the stage for Kalshi’s entry.

• Election Market Launch (September–October 2024): Following a court victory over the CFTC, Kalshi launched contracts on which party would control Congress, plus a suite of presidential and state-level election contracts—becoming the first U.S.-regulated venue to host large-scale election betting.

• Sports Market Introduction & Robinhood Partnership (February 2025): Kalshi self-certified Super Bowl event contracts and partnered with Robinhood, enabling millions of brokerage users to trade on the Super Bowl outcome. Over \$4 million was wagered, marking Kalshi’s expansion into sports under a futures framework.

• Advisory Team Additions (2023–2025): Kalshi enlisted political and financial figures, including Donald Trump Jr., to expand reach and navigate regulatory complexities.

Controversies and Challenges

Kalshi operates at the intersection of finance and gambling, prompting recurring debates:

• Gambling vs. Hedging: Critics label election and sports markets as gambling. Proponents stress that businesses can hedge political or policy risks.
• Regulatory Uncertainty: The CFTC has proposed rules banning certain event contracts. Despite prevailing in court, Kalshi still faces the possibility of future prohibitions or stricter oversight.
• Liquidity and Market Making: Kalshi struggled early with thin liquidity, relying on affiliate and external market makers. Critics warn that an exchange trading against its own users (even if just to seed liquidity) poses conflicts of interest.
• Ethical Concerns: Some object to monetizing outcomes of elections, weather disasters, or public health crises. Kalshi maintains it avoids taboo or violent markets and uses objective data sources to settle contracts.
• Competition from Unregulated Platforms: Offshore or crypto-based markets (e.g., Polymarket) can list events without CFTC constraints, often drawing higher volume or global users.

Competitive Landscape

Kalshi faces competition on multiple fronts:

• Offshore Crypto Markets (Polymarket): Polymarket offers global, often higher-volume markets on politics, finance, and more, using USDC on Ethereum. Though it settled with the CFTC in 2022, Polymarket remains operational outside strict U.S. jurisdiction, attracting crypto-savvy bettors.
• Traditional Betting Exchanges (Betfair, etc.): Legal in some countries for political and novelty betting, but inaccessible to most U.S. bettors due to domestic gambling laws.
• Defunct or Winding-Down Competitors (PredictIt): Once the main U.S. platform for small-stakes election betting, PredictIt lost its no-action relief and closed most markets by early 2023.
• Major Sportsbooks: DraftKings and FanDuel dominate U.S. sports betting. Kalshi’s move into sports event contracts potentially challenges them, although political and other non-sports wagers remain off-limits to state-regulated sportsbooks in most jurisdictions.
• Potential Incursion by Large Financial Exchanges: Firms like CME or ICE could replicate Kalshi’s model if they perceive sufficient demand.

Kalshi differentiates itself via federal legitimacy, higher position limits, and integration with established financial practices. It targets both retail users seeking novel markets and institutional participants seeking to hedge major event risks.

Strategic Moves and Future Outlook

Kalshi’s near-term goals center on:

• Expanding Market Scope: Having launched finance, election, and sports markets, the company aims to become a universal event exchange—from policy outcomes to weather extremes.
• Partnerships and Distribution: The Robinhood collaboration is an example of embedding Kalshi products into mainstream trading apps; future deals with other brokers or news providers may follow.
• Regulatory Engagement: Kalshi continues legal and lobbying efforts to secure stable rules for event contracts. Pending the outcome of appeals and any new CFTC regulations, its ability to offer election and sports markets hangs in the balance.
• Scaling and Liquidity: Kalshi has recruited market makers (e.g., Susquehanna) and integrated USDC deposits to attract crypto users and streamline funding.
• Global Reach: While primarily U.S.-focused, Kalshi has listed some global election markets and may eventually seek international licensure or partnerships.

If Kalshi maintains regulatory footing and secures mainstream adoption, it could become the first major, fully legalized prediction market in the United States—an outcome that would substantially reshape how individuals and institutions hedge or speculate on real-world events. Conversely, new prohibitions or intensifying competition from offshore platforms could stall its progress. For now, the platform’s growth in election and sports event contracts suggests a willingness among users to embrace regulated event trading, provided the regulatory environment remains favorable.