Kalshi Murders PredictIt
The tale of how Kalshi (allegedly) weaponized the CFTC to crush their competitors
Two days ago the Commodity Futures Trading Commission (CFTC) announced they withdrew Predictit’s No-Action Letter.
If you don’t know what “PredictIt” is, it is a prediction market where political junkies go to gamble against other gamblers on politics. This Republican presidential nominee market, for example, has done $32+ million in trading volume:
Here are what some other markets look like:
If you don’t know what this “No-Action Letter” is, it explicitly permits PredictIt to operate political prediction markets in the USA. The CFTC gave Predictit their blessing 8 years in the form of this letter, and now this blessing has capriciously been revoked.
Yesterday PredictIt issued a statement explaining that they are “halting the addition of new markets” and will “continue to operating existing markets for trading through Feb. 15, 2023.” Presumably PredictIt will then shut down completely in February, 6 months from now... but nobody really knows yet how that shutdown/liquidation will unfold mechanically. The logistics of this whole crackdown are still fuzzy and up-in-the-air.
Outcry from from political trading community was immediate. A community of thousands of tightly knit traders was deeply wounded; a brotherhood forged in the fires of untold hours and years and late nights spent obsessing over their favorite hobby together. This brotherhood was RUGGED from them by overzealous (and probably corrupt — more on this later) bureaucrats at the CFTC.
It’s too early to ~*officially*~ know what motivated this CFTC crackdown — it is still breaking/developing news so there is plenty of FUD, uncertainty, rumors, gossip, conspiracies, and fog of war. Until we get further details from primary sources at either the CFTC or PredictIt, we can only speculate as to the CFTC’s reasoning.
So.. let’s speculate.
Theory #1
This twitter anon rushed to claim credit for killing PredictIt:
Beyond this tweet, he launched a whole campaign to take credit. This campaign was surprisingly effective and got tons of big retweets — if you poke around twitter, and scroll through the QTs, you will find that thousands of people genuinely believe him.
The thing is… he rushed to take credit suspiciously quickly, and he has a bad reputation as a troll. l messaged or proof, he responded to my DM saying, “Not sure I can talk about it anymore because now people are threatening to sue me. I’ll talk with my lawyers and let you know.” Okay.
I followed up a day later, asking for proof but there was none. Just more obfuscation.
Okay.
I personally believe there is a 99.999% chance that this guy is lying/trolling for attention, but I can’t be 100% sure. The 0.001% of doubt is because he has genuinely been tweeting about this lawsuit crusade against PredictIt since all the way back in 2021.
Theory #2: Genuine Violations of the Terms of the Letter
Here is an excerpt from PredictIt’s 2014 No-Action Letter:
If I were in the CFTC lawyer’s shoes, I would think this excerpt is my best bet at making a winning argument. Right off the bat, I would argue that PredictIt is clearly in violation of 1) and 2).
PredictIt is “large scale” and for-profit
large scale
First off, if I were lawyering this, I would squabble about what exactly passes for “large-scale” or “small-scale” operation. That wording is so broad as to be unenforceable. When exactly does a “small-scale” operation become a “large-scale” operation?
the 2024 Republican Nominee market alone has done $32 million in volume, so I think think it is safe to estimate that the entire PredictIt website does hundreds of millions of dollars in annual volume every year. That volume clearly qualifies as “large-scale.”
for-profit
PredictIt charges a 10% fee on all trader profits.
If they are doing 100’s of of millions in volume every year… where is that hefty 10% cut going? Whose pocket is that ending up in? You really expect me to believe it all goes to “charity”?
A strong argument could be made that the primary purpose of PredictIt is “degenerate gambling” rather than “academic research.” While PredictIt certainly has some interesting applications in polling, political science, epistemology, philosophy, behavioral economics and rationalism, arguing that PredictIt exists for “academic research” is laughable. It just doesn’t. It exists for gambling / investing, and many would argue that it has gotten far too cavalier in blurring the line between predicting politics and gambling.
Beyond points 1 & 2, there are like… a dozen other instances in this letter… where PredictIt probably breaches terms.
On the other hand, if this really were all about procedural breach, the CFTC would presumably just tell PredictIt about the breach directly and give them the opportunity to fix it rather than snap their fingers and suddenly decide that today, August 4th, is the day that PredictIt needed to die. After 8 years of amiable relationship, It's not like PI is going to say: "Sorry, CFTC, we're going to keep this market you think is in violation.”
In a statement to Bloomberg, PredictIt said it disagreed with the CFTC’s decision and “maintains that all active markets are not only within the terms of the no-action letter but are also consistent with commission interpretations conveyed to us over the past eight years.”
In a statement to Karlstack, PredictIt said:
“Over the past eight years, we have built a now thriving political trading community through good faith blood, sweat and tears have always strived to be a good actor in an industry rife with bad ones and have worked with the CFTC since the beginning.
We really appreciate that the CFTC didn’t do this on a drop-dead basis and are allowing us to continue running a lot of markets to their natural close and we still hope to find a way to run the 2024 markets to their natural conclusions.
A lot of reporters, bloggers, podcasts, other content channels, academics, politicians, and countless American voters count on this valuable data segment that will simply go away without us.”
I pressed them further on whether they thought Kalshi targeted them. They buttoned up:
“We have no comment on any action Kalshi may or may not have taken. We don’t know the origination of why the CFTC is taking action now.“
The question then must be asked: after a decade of harmony between PredictIt and CFTC, why blow it all up now, on August 4th, 2022?
This timing is not a coincidence.
The timing is the smoking gun.
Which brings us to theory 3. Theory 2 and 3 are intertwined, and they are not mutually exclusive. Theory 3 doesn't work if 2 isn't valid, and tbh theory 2 isn’t' a theory it's probably just a fact.
Theory #3: Regulatory Capture by Kalshi
Enter Kalshi. Kalshi is PredictIt’s #1 competitor, and has the most to gain from PredictIt’s demise.
I can tell you with a high degree of certainty that almost everyone in the prediction market community believes Kalshi’s regulatory strategy was to weaponize the CFTC to crush PredictIt. It is an open secret.
I came across this Discord server for PredictIt enthusiasts:
Here someone pointed me towards a regulatory filing from July 19th, 2022 (two weeks ago!!) that shows Kalshi requested CFTC permission to launch a “Will <party> be in control of the <Chamber of congress>” financial derivative.
The thing about these “Will <party> be in control of the <Chamber of congress>” financial derivatives is that PredictIt has already been running them unmolested for 8 years now… they aren’t a new concept!
Nonetheless, 2 weeks after Kalshi submitted this request to the CFTC, PredictIt was dead, and Kalshi had a monopoly on the “Will <party> be in control of the <Chamber of congress>” financial derivative.
This is how the regulation sausage is made, this is how corrupt monopolies are allotted — the government is picking winners and losers based on who their friends are; based on who wines and dines them.
Hey, isn’t that how all those pesky Russian oligarchs came to power? Vladimir Putin picking winners and losers, and granting monopolies, based on who his friends are?
Are you telling me that federal government bureaucracies operate just like the mafia?
If we drill down 1 step further into this regulatory filing we find the smoking gun:
In this highlighted section Kalshi is explicitly telling CFTC that PredictIt is not doing a good enough job at protecting consumers, and heavily implying that only Kalshi can do a superior job than Predictit at protecting consumers.
Kalshi deeply cares about protecting consumers.
The first thing I noticed in this highlighted paragraph is the needlessly aggressive and inflammatory language used by Kalshi legal team (who used to be CFTC’s legal team, lmao). In this regulatory filing Kalshi really go out of their way to cast aspersions on PredictIt, e.g. they write that PredictIt "purports to operate under a No-Action letter.”
“Purports”? Really? This is not written in good faith. To purport means to "appear or claim to be or do something, especially falsely; profess." Kalshi is suggesting that PredictIt is somehow lying about their No-Action letter… but at no time was PredictIt “purporting” to operate under a No-Action letter. PredictIt were acting rightfully and openly under a No-Action letter all along. No purporting about it.
There is debate as to whether or not this singling-out of PredictIt by Kalshi constitutes a formal complaint from Kalshi to the CFTC — or were Kalshi lawyers just aggressively throwing informal shade at PredictIt? In either case, formal complaint or informal shade, Kalshi snitched on PredictIt to the CFTC.
Two Times Makes it a Trend
The crazy thing is that almost this exact same scenario played out already, 8 months ago, In January 2022, when the CFTC cracked down on Kalshi’s previous #1 competitor, Polymarket.
Many in the prediction market community believe that this settlement came after months of Kalshi aggressively lobbying the CFTC to go after Polymarket.
I have been unable to find any firm proof of this anti-Polymarket lobbying by Kalshi — while there is a smoking gun showing anti-PredictIt lobbying, no such publicly available smoking gun exists for any alleged anti-Polymarket lobbying.
There is plenty of circumstantial evidence that Kalshi wanted to kill Polymarket.
One example of how ruthless Kalshi is, for example, is that for the past year, when you googled “Polymarket,” the first Google result would yield Kalshi.
While some might call this behavior “manipulating Google search results” or “predatory” or “poaching” or “building an unfair monopoly,” I am sure Sequoia Capital refers to it as “customer acquisition expenses.” I wonder how many millions of dollars Sequoia pissed away manipulating Google results to generate fake buzz. SAD!
Can we really believe Kalshi’s denials that they had nothing to do with going after PredictIt and/or Polymarket? It is very clear that they were involved at least to some extent in each, yet Kalshi stubbornly refuses to admit involvement in either.
I emailed Kalshi, and they initially said they would give me a statement, then they did not provide me with a statement.
Instead, Kalshi CEO Tarek Mansour only released a statement on Twitter:
If his statement is true — If Kalshi does “not control regulators” — then why do Kalshi try to hard to lobby and influence regulators that they claim they do not control?
Kalshi has an ungodly amount of pull, sway, and suction with the CFTC. Tarek evidently did a good job gaining influence. He perceived correctly that the CFTC could be the lynchpin to a government enforced monopoly, and he did everything in that power to build a moat around his business. I can’t blame him for wanting the #1 and #2 competitors to be banned from the USA. I would build a monopoly too if I were a hyper-rational and profit-maximizing venture capital bro operating within the rules of the game.
So no, I don’t blame Kalshi for wanting a monopoly. I do however blame the CFTC regulators for so willingly being Kalshi's puppet and so willingly granting this monopoly. When Kalshi says “jump,” the CFTC says “how high?” When Kalshi points at their #1 and #2 competitors and asks for them to be banned from the country, the CFTC complies within a matter of 2 weeks.
The CFTC and Kalshi are stifling Americans’ access to new tech by being anti-free market. They are stifling innovation. Market skeptics in charge of the CFTC
BTW… did I mention that the former CFTC commissioner is on the Kalshi board of directors?
Much like FDA regulators famously have a revolving door with big Pharma — the CFTC now appears to have a revolving door with big Prediction Market. Here is a second lawyer who used to work for CFTC and is now “Chief Regulatory Officer” at Kalshi:
Thus, a theory among traders emerges that Kalshi has the feds in their back pocket.
“Regulatory capture” is defined as “a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests of a minor constituency, such as an industry.” This defines our situation perfectly — we are witnessing a textbook case of regulatory capture happening in real time, in front of our eyes.
In other words: corruption.
Leave a comment on this article if you have any strong opinions about Kalshi meddling with the CFTC to gain an unfair competitive advantage:
Or better yet just email the CFTC directly, they have made themselves open to inquiries:
Should you have any questions, please do not hesitate to contact Brigitte Weyls, Assistant Chief Counsel, Division of Market Oversight, bweyls@cftc.gov or 312-596-0547, or Rachel Kaplan Reicher, Senior Special Counsel to the Director, Division of Market Oversight, rreicher@cftc.gov or 202-418-6233.I reached out to the CFTC for the purpose of this article but they ignored me.
And finally, if you found this article enlightening, consider please subscribing to Karlstack to support independent investigative journalism:
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Will PredictIt Survive?
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Happy forecasting.
Is there any regulatory agency actually performing a legit purpose, and not just captured cronies? I don't need or want these experts trying to protect me by depriving me of personal agency in every damn area of life.
Good riddance. PredictIt has been unethical since its 2018 Senate market debacle. Kalshi may have fewer political markets but that's because 90% of PredictIt's "political markets" were asking how many tweets were going to be made by ecelebs like AoC and Trump.