Prediction markets have existed for decades. Their recent popularity surge isn't due to a technological breakthrough but to success in legalizing them. The primary obstacle was always legal prohibition, not a lack of product-market fit or superior technology.
The CEO distinguishes 'betting' from 'gambling.' He defines gambling not by the activity but by its structure: creating an artificial risk where the house has stacked odds. In contrast, trading on natural, pre-existing risks in a fair, market-based system is fundamentally different.
Kalshi uses market makers to solve the cold-start problem and bootstrap liquidity for new contracts. However, as a market becomes more successful and organic volume grows, the percentage of market maker participation intentionally decreases. Their role is to ignite the flywheel, not to be the engine itself.
The main barrier to institutional adoption of prediction markets for hedging is not a lack of interest, but insufficient liquidity. Large hedge funds and corporations need to be able to place trades in the tens of millions of dollars for it to be worthwhile, a scale Kalshi's markets have yet to consistently reach.
Before focusing on product or growth, Kalshi's entire initial effort was on legalizing prediction markets. For founders in regulated industries, this shows that navigating the legal landscape isn't a parallel task—it is the primary business until a framework for operation is secured.
Unlike competitors using crypto to operate outside regulatory frameworks, Kalshi's CEO views on-chain technology as a tool to enhance a regulated system. He envisions using it for clearing to improve immutability and transparency, enabling a permissionless ecosystem built upon a compliant foundation.
After years battling for legitimacy, Kalshi's decision to sue its regulator, the CFTC, over election markets was a high-stakes move. Winning this lawsuit not only ensured the company's survival but also served as the critical turning point that legitimized the entire prediction market industry in the US.
Kalshi argues its market-based system for sports events is superior to traditional sportsbooks because anyone can be a price maker, not just a price taker. This results in better odds and a user win/loss ratio closer to 50/50, framing it as an equitable financial market rather than a house-always-wins model.