Bet On It

A Silicon Valley-backed startup wants to bring Wall Street-style trading to the outcome of events. Some regulators say that’s a terrible idea

- By Liam Vaughan and Benjamin Bain

On Nov. 3, 2020, Election Day, two young entrepreneurs received a call from the chairman of the Commodity Futures Trading Commission with some important news. Luana Lopes Lara and Tarek Mansour had spent the past 18 months trying to get permission to start an ambitious and controversial new type of financial exchange—one where, rather than betting on equity prices or commodity futures, people could trade instruments tied to the outcomes of real-world events, such as the passage of legislation, the weather on a particular day, or the winner of best actor at the Oscars.

“Congratulations,” boomed Heath Tarbert, a Republican who’d been appointed by President Donald Trump the previous year. “You now stand with markets that have been around since the 1840s. And I have no doubt that in time you’ll grow to be a powerhouse, too.”

Companies had been trying to introduce similar so-called event markets in the US for years, but Tarbert’s agency, the CFTC, had always said no, arguing they were tantamount to gambling and vulnerable to cheating. Now the agency had reversed course, giving its approval to two 24-year-olds who would enjoy first-mover advantage in what could eventually become an enormous new asset class. Within weeks of Tarbert’s call, which a representative for him says was customary, their startup, Kalshi Inc., raised $30 million from venture capitalists. “We believe this will be bigger than crypto,” says Mansour, now 26.

The potential of prediction markets is well known to anyone who’s read James Surowiecki’s bestseller,