Original author: Eric, Foresight News

Sixteen years ago, one afternoon, in the dance room of the ballet school at the Brazilian National Theater, 14-year-old Luana Lopes Lara lifted her leg to her ear to train her flexibility, while her dance teacher lit a cigarette beneath her raised thigh. If she couldn't hold on, the cigarette butt, which reached temperatures over 700 degrees at the center, would instantly burn through her dance costume and leave scars on her leg that would last a lifetime.

At the same time, Lebanon erupted into the most severe border conflict since the 2006 Lebanon War. Tarek Mansour, who was about the same age as Lara, was attending high school in Lebanon, and the years of war had not instilled fear of conflict in him; rather, he had keenly felt the unease brought about by "uncertainty."

Three years later, fate brought the two, originally separated by more than 10,000 kilometers, together at the Massachusetts Institute of Technology (MIT). After five years of study and practical work, one evening in 2018, the two, who were interning at Five Rings Capital, came up with the idea of establishing a company that provides "event contracts" on their way home from work.

The two founders of Kalshi, Luana Lopes Lara (left) and Tarek Mansour (right)

In late March of this year, the prediction market company Kalshi completed a $1 billion financing led by Coatue Management at a valuation of $22 billion, becoming the highest-valued prediction market company in the world (around the same time, media reports stated that Polymarket was financing at an approximate valuation of $20 billion, but there has been no official confirmation yet).

Back in December 2025, when Kalshi finished its $1 billion financing at a valuation of $11 billion, Lara surpassed Scale AI co-founder Lucy Guo and Taylor Swift to become the youngest self-made female billionaire in the world.

Before the establishment of Kalshi, internet companies, including Uber, adhered to the practice of expanding scale through wild growth and then engaging in a tug-of-war with regulators based on that scale. In 2017, at a dinner in Tokyo, SoftBank's Masayoshi Son pointed to Cheng Wei, the founder of Didi, and told WeWork co-founder Adam Neumann that Didi won against Uber not because he was smarter, but because he was crazier.

When this "craziness" became the standard of internet entrepreneurs at the time, the two founders of Kalshi, however, took a different approach. For the two years following the founding of the company, Kalshi had no products, no users, and no revenue; they gambled the life of their startup on one thing: getting a license.

"We saw a huge market gap"

One's decision-making often conceals life experiences; what one sees and thinks influences each person's different views on the same thing.

You could think that Kalshi's almost fanatical commitment to compliance is a kind of obsession, but looking back, it seems more like a "strategic focus" shaped by the founders' past experiences.

Mansour, who sought "certainty" due to the shadows of war, and Lara, who worked hard after dance classes to win a gold medal in the Brazil National Astronomy Olympiad, both coincidentally chose to major in computer science at MIT.

At MIT, Lara sat in the front row of every class, a detail that drew the attention of the introverted Mansour, who had always sat in the back. He began to sit boldly next to Lara, and the two gradually became friends. This friendship was partly due to their similar backgrounds: both were international students, both majored in computer science and mathematics, and both had a keen interest in quantitative finance. Lara interned at Bridgewater Associates and Citadel during the summer, while Mansour went to Goldman Sachs and Citadel. In 2018, the two received internship offers from Five Rings Capital and worked together in the financial district of New York.

In 2016, two major events occurred: Brexit and Donald Trump's election as U.S. President.

Mansour later stated that at the time, he observed institutional investors frantically adjusting their positions in an attempt to hedge against risks arising from these political events, but all of the hedging tools were indirect — such as shorting the pound, buying gold, or adjusting stock portfolios. No one could directly bet on whether "Brexit would happen" or "Trump would win." "We saw a fundamental problem," Mansour said, "People want to hedge against the event itself, not the event's effect on some asset price."

After work each day, the two would walk back to their intern apartment in the financial district together. On the way home, they repeatedly discussed a core question: why are all trades in the financial market indirect? If you believe Brexit will happen, you can only short the pound; if you believe Trump will win, you can only buy certain stocks or sell others. Why can’t you trade on the event itself directly?

"We saw a huge gap," Lara said, "All trades in the financial market are essentially people's views on the future, but there's no marketplace to trade the future directly." After countless discussions, they decided to fill this long-standing gap.

Being the first to take the plunge

This insight itself is not new. The concept of prediction markets has existed in academia for decades, with attempts since the 1990s. However, these platforms were either too small or operated in gray areas and ultimately failed to become mainstream.

In 1988, a professor from the University of Iowa launched the Iowa Electronic Markets (IEM). As an academic research project, it allowed real-money trades on outcomes of U.S. presidential elections, demonstrating the effectiveness of "collective wisdom" in predictions (often outperforming polls). IEM received a "no-action letter" exemption from the CFTC (indicating that if experimenting within a limited scope, the CFTC would not take enforcement action), laying the groundwork for early legal frameworks.

The emergence of IEM was a landmark starting point for modern prediction markets. In the early 21st century, the U.S. Department of Defense's Defense Advanced Research Projects Agency (DARPA) proposed the Policy Analysis Market (PAM/FutureMAP) project, attempting to analyze geopolitical events (such as the situation in the Middle East) using prediction markets. The program was quickly canceled due to public controversy (labeled as "terrorism futures"), but it sparked widespread discussion on the application of prediction markets in intelligence and decision-making.

The earliest commercial prediction market, Tradesports, along with Intrade, was established around 2001, with the former focusing on sports-related event contracts and the latter more concerned with economic and political events. In 2003, Tradesports acquired Intrade, which was later restructured into Trade Exchange Network Limited (TEN). TEN garnered significant attention during the U.S. presidential elections in 2008 and 2012 but chose to shut down in 2013 due to CFTC allegations of "providing contract trading to U.S. users without approval."

In 2010, Cantor Exchange received full CFTC approval and launched a movie box office futures market, marking an early attempt at formal CFTC regulation of prediction-like contracts. In 2014, PredictIt, operated by Victoria University of Wellington in New Zealand, was launched, following IEM's academic-oriented model, and received a "no-action letter" exemption from the CFTC, with a trading cap of only $850 per person.

PredictIt’s prediction market for the 2020 U.S. presidential election

Four years later, Kalshi was officially founded. Following in the footsteps of its predecessors, Kalshi faced two paths: either challenge the CFTC to obtain the highest-level Designated Contract Market (DCM) license on par with the Chicago Mercantile Exchange (CME), established in 1898, or operate in gray areas like the later Polymarket, with an offshore identity.

At that time, only 14 companies in the U.S. had DCM licenses, almost all being long-established commodity futures exchanges. Besides CME, there was also the Chicago Board of Trade (CBOT), established in 1848, and ICE Futures U.S., the parent company of the New York Stock Exchange.

"When we were at Citadel, we saw how clients hedged risks," Lara recalled. "As the Brexit referendum approached, clients wanted to hedge against that risk, but they could only do so indirectly through complex currency and stock combinations. We asked them: if there were a platform that allowed you to bet directly on 'whether Brexit will happen,' would you use it? The answer was certainly yes, but only if this platform was compliant and regulated."

This feedback was crucial. It revealed a fact overlooked by many aspiring prediction market entrepreneurs: the real value of prediction markets lies not in retail speculation demand but in institutional risk management demands, and institutional funds would only flow to regulated platforms.

"Our goal was never just to create a platform where consumers could 'bet'," Mansour emphasized. "Our goal is to create a new asset class that makes prediction markets mainstream financial instruments like stocks, bonds, and futures. To achieve this goal, compliance is not optional but necessary."

In the minds of the two founders, Kalshi is just like Nasdaq, the New York Stock Exchange, and CME; the absence of such a platform was not because event contracts are illegal but because no one had the willingness to try and persuade regulators of this seemingly impossible task. Lara had stated in interviews, "When we decided to get the license first before going live, many investors did not understand. They said: you could operate in overseas markets first or use cryptocurrency to bypass regulation. But we firmly believed that only growth built on a compliance foundation is sustainable."

Determination, patience, discipline — these markedly different experiences forged similar qualities and a longing for being the "first to take the plunge." The two young people chose an untraveled path. This decision, which seems absolutely correct in retrospect, has not been a smooth one.

Two years with no progress, "chewing through" the CME-level contract license

In 2019, Kalshi was selected for Y Combinator, unlike other YC startups whose roadmap was "launch MVP within three months, gain one million users in six months," their roadmap was "obtain CFTC licensing within two years." But soon, the two encountered their first challenge: finding a lawyer willing to take their case.

"We contacted over 40 law firms and were all rejected," Lara recalled. "The reasons were similar: the founders are too young, the company is too small, the legal status of prediction markets is unclear, and the risk is too high."

This dilemma reflected the awkward position of prediction markets at that time. Legally, prediction markets were neither regulated like stocks under securities law nor constrained by state gambling laws like traditional gambling. They navigated between the two, with a vague legal status. For conservative law firms, taking on such a case meant significant uncertainty and potential reputational risk.

A turning point came when they met former CFTC official Jeff Bandman. Bandman had worked at the CFTC for many years and had a deep understanding of the regulatory framework. He saw potential in Kalshi and believed that prediction markets could operate within a compliant framework. More importantly, he was willing to bet on these two young people.

Jeff Bandman (second from left) with Luana Lopes Lara (second from right)

"People will eventually see how deeply they are invested in prediction markets and how firm their commitment to doing the right thing is," Bandman said in a memoir he published on LinkedIn this year. Perhaps it was this rare perseverance in young people that touched veterans who had devoted their lives to regulation and barely knew them.

"Bandman was the first person to say 'yes' that we encountered," Mansour said. "He understood what we were doing and believed it was achievable. Without him, we might have given up long ago."

With Bandman's guidance, Kalshi began the long and complex application process. To obtain a DCM license, Kalshi had to demonstrate that it had all the necessary capabilities to operate a compliant financial exchange: a trade matching system, a clearing and settlement system, a market surveillance system, AML and KYC processes, a risk management framework, capital adequacy, and more.

"We had to build a complete financial exchange from scratch," Lara explained. "This included the matching engine, clearing system, monitoring tools, compliance processes... all of these things needed to be up and running before going live and had to meet CFTC standards."

This process took nearly two years. During this time, the two founders faced countless setbacks. CFTC officials continued to maintain decades-long caution: Are event contracts a form of gambling? Could prediction markets be used to manipulate political events? What if someone engaged in insider trading on the platform?

"Every meeting was a battle," Mansour recalled. "We had to explain over and over: event contracts are not gambling; they are tools for managing risk; prediction markets do not manipulate politics but provide transparent information; insider trading is harder to engage in on our platform than in the stock market because we have real-time monitoring."

The largest controversy centered around the CFTC's "public interest" clause. According to the Commodity Exchange Act, the CFTC has the authority to ban any contracts it believes to be "contrary to the public interest." This clause gives the CFTC substantial discretion and became the biggest hurdle during the Kalshi application process.

"CFTC officials were concerned that if we allowed betting on political events, it might affect the democratic process," Lara explained. "Our response was: prediction markets do not undermine democracy; they enhance it. When people have real monetary stakes in political outcomes, they take information more seriously and spread less misinformation. The market becomes an aggregator of truth."

This debate lasted for months. Ultimately, in November 2020, the CFTC approved Kalshi's DCM application by a vote of 3-2. This marked a milestone in the history of prediction markets: for the first time, a regulatory body formally recognized event contracts as a legitimate financial derivative rather than gambling. It also made Kalshi the first prediction market to successfully obtain a formal financial market license globally.

Screenshot of Kalshi's official DCM license approval document

In an interview with Forbes, Lara stated that after the outbreak of the COVID-19 pandemic in 2020, she went to London, UK, to continue advancing the compliance process, while Mansour returned to his hometown. During the Beirut port explosion in August 2020, he helped with cleanup and rescue efforts during the day, while continuing to work for Kalshi at night.

Kalshi's two years of persistence successfully broke the regulatory bias, but the struggle was far from over.

Crossing the final regulatory threshold

When Kalshi officially launched in July 2021, the competitive landscape it faced was entirely different from two years prior.

Polymarket had rapidly risen in 2020, attracting a large number of users with the convenience of cryptocurrency and its global reach. However, in January 2022, the CFTC imposed a $1.4 million fine on Polymarket for "operating an unregistered binary options trading platform." As part of a settlement condition, Polymarket agreed to block all U.S. users, leaving a huge gap. At the same time, PredictIt, another compliant prediction market operating in the U.S., was limited by the CFTC's "no-action letter," which restricted each market's participant numbers and trading scale, preventing large-scale expansion.

Kalshi became the only legally operating prediction market platform in the U.S. that could function on a large scale. User funds on Kalshi were held in bank accounts insured by the FDIC and not directly managed by Kalshi, meaning that even in the event of Kalshi's bankruptcy, users' funds would remain secure. Even when the option to use USDC was added in November 2025, it was still held by Coinbase Custody.

"Many users do not understand what FDIC insurance means," Lara admitted, "but for those who do, it is a strong signal of trust. It tells users: we are a real financial institution, not a cryptocurrency experiment."

Kalshi's compliant identification made it the only prediction market platform that institutional investors could legally use. Lara's former employer, Bridgewater Associates, began using Kalshi's data for macroeconomic analysis; one of the largest institutional bond trading platforms globally, Tradeweb, partnered with Kalshi to provide prediction market data to its institutional clients. Additionally, in December 2025, both CNN and CNBC partnered with Kalshi to integrate Kalshi data for analysis and other commercial purposes.

"We wanted to serve institutional investors from day one," Mansour said. "It's not that we dislike retail; it's just that institutional funds are key to making this market truly liquid. And institutions will only come to compliant platforms." After launching in 2021, by the end of the year, Kalshi's total trading volume was approximately $10.4 million, which grew to about $76.4 million the following year, and reached $183 million by 2023.

While the growth rate was not slow, it seemed far from the explosive growth one might envision. The reason lies in the fact that although they obtained a fully compliant license, the types of contracts Kalshi was allowed to launch were still limited, mainly revolving around U.S. macroeconomic data, climate, entertainment, and other areas, mostly consisting of binary options with only yes or no options. This fell far short of their original goal of providing institutions a way to hedge against high-impact events directly.

The "bleakness" stems from the CFTC not permitting political events to become tradable. In June 2023, Kalshi applied to the CFTC to launch a market predicting which party would control both chambers, but after three months of review, the CFTC denied the application on the grounds of "involving gambling" and "illegal activities under state law," asserting it was "contrary to public interest," clearly establishing the CFTC's stance on political events.

However, we have also observed the enormous impact of political events such as presidential elections, tariffs, and wars on capital markets. If Kalshi cannot break free from these constraints again, its market share will eventually be consumed by offshore prediction markets. In November 2023, Kalshi officially sued the CFTC, seeking to lift restrictions on political prediction markets.

In September 2024, the federal court in Washington, D.C. issued a historic ruling: the judge ruled that the CFTC had overstepped its statutory authority, stating that election contracts do not involve "illegal activities" or "gambling," and revoked the CFTC's injunction. This marked another milestone in the history of prediction markets: for the first time in over a century, Americans could legally bet on election outcomes on a regulated platform.

Though the CFTC later appealed, it did not alter the situation where political events were included in prediction markets. In May 2025, the CFTC withdrew its appeal and formally accepted the ruling.

Overtaking Polymarket with "compliance power"

With the political markets now opened up, the 2024 U.S. presidential election became the highlight for prediction markets.

In 2024, Kalshi's trading volume reached $1.9 billion, more than ten times that of the previous year, with nearly half contributed by political events including the election. However, at that time, the hottest prediction market was not Kalshi but its neighbor, Polymarket.

Polymarket, as an offshore platform on-chain, became the "darling" of the prediction market space during the 2024 election and for a long time after. Without strict regulatory constraints, its low fees, quick settlement times, and global liquidity made Polymarket the preferred choice for users worldwide. For investors in the Web3 industry, with meme coins fading and macro conditions impacting coin prices, idle funds began to flow into this gray market.

Beyond basic betting, various arbitrage strategies sprouted up like mushrooms, making this grayish market a money printer for many savvy financial speculators. In 2024, Polymarket's total trading volume reached nearly $9 billion, five times that of Kalshi, whereas previously, Polymarket's volume had been significantly lower than Kalshi's.

In 2025, Polymarket surged ahead, first securing a $2 billion investment commitment from the parent company of the New York Stock Exchange, then spending $112 million to acquire the trading platform QCEX, which holds a CFTC compliance license, allowing them to reenter the U.S. market.

In the face of Polymarket's offensive, Kalshi did not lose its composure. "We never believed compliance was the only competitive advantage," Lara said. "It merely qualifies us to compete. The real competition is about who can offer better products, deeper liquidity, and more market choices." In 2025, while Polymarket dominated the headlines, Kalshi chose to further deepen its compliance advantage and accelerate product innovation.

In compliance, Kalshi expanded its regulatory moat further by partnering with mainstream brokerages like Robinhood, Coinbase, and Webull, enabling these platforms' users to trade Kalshi's event contracts directly. This means that Kalshi can reach tens of millions of potential users without needing to acquire each customer individually.

"Our goal is to become the 'infrastructure' of the prediction market space," Mansour explained. "Just as Nasdaq provides infrastructure for stock trading, we aim to provide infrastructure for event contract trading. Brokerages are our distribution channels, and compliance is our core advantage."

In terms of product offerings, Kalshi significantly expanded the types of markets it operated. Beginning with economic indicators (CPI, unemployment rate, GDP), it expanded into sports, politics, weather, entertainment, and various other fields. In 2025, Kalshi launched its "parlay" feature, allowing users to combine multiple events into a single contract, greatly enhancing the complexity and appeal of its products.

Additionally, Kalshi explored more application scenarios for prediction markets. In 2025, it introduced a "corporate hedge" product, allowing companies to hedge risks like weather, supply chain disruptions, or policy changes. For example, an agricultural company could purchase a "drought contract" on Kalshi, and if a drought occurs in a certain area, the payout from the contract could compensate for crop losses.

"Our current goal is to launch 100 new markets each week," Lara said. "Ultimately, we hope any event you can imagine, from the Academy Award for Best Picture to tomorrow's weather, can be traded on Kalshi."

Powerful strategic focus and execution were quickly reflected in the data. In August 2025, due to the NFL season kickoff, Kalshi began to outpace Polymarket in weekly trading volume. In September, Kalshi's trading volume reached $1.3 billion, while Polymarket’s was less than $1 billion. In October, the channel advantages brought by partnerships with platforms like Robinhood began to yield results, and Kalshi's monthly trading volume hit a historical high of $4.4 billion, again surpassing Polymarket’s approximately $4.1 billion.

From the end of 2025 to early 2026, Kalshi maintained a market share between 55% and 60%. It is noteworthy that Kalshi's primary users are from the U.S., while Polymarket caters to a global audience.

Two paths, one future

In 2025, the total trading volume of prediction markets surpassed $50 billion, with Kalshi and Polymarket holding the vast majority of the share. More importantly, prediction markets began to be taken seriously by mainstream media, academia, and policymakers.

"The 2024 election was a turning point," Lara said. "When traditional polls repeatedly failed, and prediction markets accurately predicted the results, people started to realize: markets might be more reliable than polls." Following this, Kalshi's data began to be cited by mainstream media such as The New York Times, CNN, and Bloomberg as important references for election analysis. Academic research has shown that the accuracy of prediction markets often exceeds that of traditional polling methods, as market participants invest real money, which makes them take information more seriously.

"We are transitioning from 'gambling tools' to 'information infrastructure,'" Mansour said. "This is the greatest value brought by compliance. When you operate on a regulated platform, people take you seriously."

"We are still at an early stage," Mansour stated. "The total trading volume of prediction markets is still a fraction compared to the stock market. But our vision is that one day, when people want to hedge any event risk, whether it's an election, weather, or pop culture, Kalshi will be the first name they think of."

Before this vision is realized, Kalshi still has a long way to go. Recently, states including Nevada, New Jersey, Illinois, Maryland, Ohio, Montana, and Washington have issued stop orders against Kalshi, claiming that sports prediction contracts fall under state gambling laws, and Kalshi has not obtained the corresponding state-level licenses.

"The essence of this battle is a struggle for jurisdiction," Lara analyzed. "States do not want to lose control over the gambling industry because gambling taxes are important sources of revenue for them. But we believe that prediction markets are not gambling but financial derivatives, and should be federally regulated." Mansour jokingly stated, "Sometimes I envy Polymarket's simplicity; they only need to worry about one regulatory authority, while we have to be concerned with 51. But that’s the cost of choosing compliance, and it’s also where its value lies."

Seeking certainty in uncertainty and order within chaos is the very essence of prediction markets, and Kalshi's path of compliance is the best embodiment of this philosophy. Kalshi's role compared to Polymarket is like Coinbase to Binance. Each path has its stunning scenery and its thorns; it’s neither right nor wrong. As long as you know the destination, the whole world will clear a path for you.

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