00:00Given all the regulatory risks that kind of loom out there, Yesha, is that kind of valuation defensible?
00:06Scarlett, thank you so much for having me. That's the big question right now.
00:10The valuation here is staggering. And you mentioned the $20 billion figure.
00:15It was $5 billion valuation back in October.
00:19Now, this figure seems to be based in large part on the staggering growth that CalShare and other prediction market
00:25platforms have experienced,
00:26particularly over the last couple of months. This has really followed on from the World Cup's explosive volume
00:33that really grew from around $17 billion worth of trading volume in May to around $40 billion worth of trading
00:41volume in July.
00:43And it's arguably baking in some other event-based developments coming down the pike.
00:50For example, the NFL football season. We're looking at the elections coming down the pike.
00:54So, again, these exchanges being able to maintain that momentum that they gathered during the World Cup.
01:01But what this valuation really, you really put your finger on, Scarlett,
01:05what this valuation is really assuming a way for the moment is the fact that these major legal questions
01:10are overhanging the future of the industry and, indeed, what kind of regulatory compliance burdens may come to bear.
01:17And, ultimately, the future is not certain to the extent that we are potentially looking at future Supreme Court fights,
01:24given the intensity of the battles underway, both at state, city level, as well as, as you mentioned,
01:31including just private interactions in terms of how businesses like hedge funds,
01:36Baliasny, .72, you pointed to, are really trying to restrict their own employees from engaging in this kind of behavior.
01:42So, the road is long, but this valuation here really seems to be sort of lowering the odds of it
01:49creating a hit on the valuation down the line.
01:53Yesha, if I could ask you a question about, just give us, give our viewers a sense about the bigger
01:58picture of where Tarek Mansoor is taking Kalshi.
02:00Because last six months, it seems like their expansion into things like perpetual futures is a broadening beyond the traditional
02:07prediction markets business.
02:08So, give us a longer arc of how the firm is actually moving and how we should be thinking about
02:12Kalshi in particular for the next, you know, 12 to 24 months.
02:16It's a great question.
02:17And the fact that you pointed to the perps, the perps market growing is really the target here.
02:23But, ultimately, the big play here is for the institutional permanence that Kalshi is trying to create for itself.
02:30In other words, that it's trying to become part of Wall Street's pricing infrastructure.
02:35Now, what we're seeing over the last couple of months is this real move on the part of Kalshi and
02:40other prediction market platforms to become baked into the financialization of this asset class as part of Wall Street's own
02:49informational ecosystem.
02:50And what that means is that prediction market trackers become the go-to tool for providing pricing-based information and
02:58increasingly also for providing hedging with respect to certain kinds of product classes.
03:04So, what we're seeing here is really a focus on bringing Wall Street's own infrastructural ecosystem to really absorb the
03:13prediction market industry as a key part of the forecasting tools that Wall Street traders are using.
03:20Now, the final part to mention here is that Wall Street is already getting involved.
03:24There's a lot of institutional interest, particularly market makers that are jumping into platforms like Kalshi in order to be
03:30able to fund their own businesses.
03:33So, what we're seeing is, you know, a real kind of symbiotic relationship that is developing.
03:38And that really seems to be the long horizon picture here.
03:41Hayesha, before we let you leave, I've got to ask you about how the CFTC used emergency powers to order
03:45Kalshi to keep operating, basically overriding an order from New York State to shut down operations in New York.
03:53As a legal expert and as someone who served on the CFTC's Technology Advisory Committee, is the CFTC on solid
04:00legal ground here?
04:02It's a great question, Scarlett.
04:04It's a really hard one to answer.
04:06The CFTC has incredibly powerful authority under the Commodities Exchange Act.
04:11The CFTC leaned on its emergency powers under Section 8 of that act.
04:16But it's worth bearing in mind that this power has been used only around six times in the CFTC's 50
04:24-year history.
04:25Now, four of those times were between 1976 and 1980, and the last two of those times were really over
04:31the last couple of months in relation to prediction market actions and blocking state actions in relation to enabling platforms,
04:39notably Kalshi, to be able to continue its operations.
04:42Now, what the CFTC has done here is arguably extraordinary.
04:46It has ordered its registrant, which is Kalshi, to continue business against the order of New York State.
04:54Now, in past years, this authority has been used to tamp down a manipulative or disorderly conduct in regulated markets
05:01and exchanges.
05:02This use of this authority is arguably quite different to compel Kalshi to keep moving.
05:07So this is likely to be something that is going to be contested at the state level.
05:11And so watch the space for further analysis on this particular maneuver.
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