Kalshi's Plan to Build the Largest Exchange on Earth

Transcript

Bankless Nation. I'm here with John Wang from Khi. John, welcome to the podcast. >> Thank you for having me. >> John, is Koshi a crypto company? >> Uh, I think so. Yeah, I think in the crypto world like there's obviously an onchain definition of like onchain or crypto company. Um, I don't think we're on chain company by any means. Uh, and there are onchain prediction markets out there for sure. Um but uh crypto is our second largest business line behind sports. Um we have 90% market share in the crypto predictions world. Um we uh a lot of our like biggest you know partners are in the crypto industry like Coinbase um Robin Hood crypto like

Phantom um and some others. uh they route their orders and trades through us and so I think we're pretty deeply embedded in the industry and um that's pretty much what my role is is you know to help us get get even deeper. >> Okay. So crypto is like there's the cryptosphere of influence and I think what you're saying is Khi is somewhat inside the cryptosphere of influence in a number of different ways but you're distinguishing it from Kelshi is not an onchain company. Does Kelshi want to be an onchain company? Um, ultimately we just want to build like products that are super easy to use and accessible to people. Um, like normal people that don't necessarily aren't necessarily

like super experts in crypto. Um, and so uh, our approach has always been to like go the regulated route and I think US regulations are heading more towards being on chain. Um, you know, with all the different like legislature that's coming out. Um but uh at the current state of US regulations like it's it's not compatible. Um I think in you know several years I that's somewhere where we want to get to. Um but product wise I think the products that we've been building um have been either like you know around trading crypto for example the largest crypto companies in the

world I would say are like Binance, Coinbase Kraken um these centralized exchanges they are all about allowing their users to trade the price of crypto and uh that's pretty much what our crypto prediction markets offer to our users. Um we also have our new regulated per offering which is the first regulated perpetual futures exchange in the US. Um that's like the first time essentially you have a per app on the app store. You have um you know legal novpn access for normal US users. Um kind of like your your your mom, your cousin um even like uh your friend could access it. and also

US institutions like comp can compliantly access it via like the type of infrastructure that they utilize. Um also I think like the deposits and withdrawals aspects of being like a centralized exchange is a large reason why many people still use centralized exchanges. Um and for us crypto is an important rail uh for depositing and withdrawing from the platform. So obviously we have like the ability to just you know deposit and withdraw uh stable coins or crypto assets um in the US but internationally we're open in 140 countries. The crypto rail is the only rail that we currently accept um for people to come into platform uh put

their money in because we found it's the most frictionless way to get like you know global monetary access um and sort of uh the the most frictionless way to convert from you know the local currency to the actual US dollar that we accept. >> I see. I see. So the for Cali to accept international customers, the only on-ramp that's viable and easy to integrate is like the stable coin or yeah local local stablecoin local fiat stable coin onramp into into Kelshi. H how much of Kelshi's businesses business volume and trading volume is from outside of the US? Like how dominant is that side of Keli? Yeah, we're still predominantly a US company um in terms

of user base, but uh I think the international side is a huge focus of ours. Um we are taking a somewhat unique approach there which is obviously like even in the US there's there's these two paths to growing a prediction market you know six seven years ago which is you go offshore and um you kind of take the unregulated route or you go onshore and work with the regulators in the US um and kind of like that's like the really hard hard path right like spending years just doing legal stuff um while like shipping a product in beta and not even being able to you know market it and

such. So we're kind of taking a similar long long-term approach to our international markets as well where we're working with like either the regulators or like the largest brokers in each country um uh to to sort of embed our prediction markets inside their products similar to how we've been embedding them into Robin Hood or Coinbase. And so we've been able to secure deals with like Wealth Simple in Canada or like XP, which is the largest broker in Brazil. So overnight, like it's the long game, but overnight we can essentially unlock like uh the entirety of like a country's tradable like trader user base um if we get some of these partnerships. But we're also

doing a lot of like um on the ground efforts to to try and um you know find a dialogue with each individual regulator. As Ryan and I have watched the growth of prediction markets, we have frequently used the comparison between Kelshi and Poly Market as kind of like Tether and Circle. You have the compliant onchain onshore version, which is the circle, you know, it wants to work with the regulators, be very compliant. That's kind of the structural edge that Circle has. And and then there's Tether, which is kind of like playing in the offshore Euro dollar world, which is a very big world. And uh Tether has been able to grown actually grow pretty aggressively

because it's actually not onshore and because it's not really constrained by the regulations. And we kind of took that same growth story between the two largest stable coins, Circle and Tether, and we kind of have applied them similarly to the prediction markets between Kali, the onore version, and Poly Market, the the offshore version. Do you think that that is an accurate comparison? And uh where do you think that comparison or or yeah that comparison breaks down if it does? >> Yeah. Well um it's it's always good to uh have some analogies to like reason across but I think with stable coins in particular it's um the product ultimately is like selling the US dollar. Um and there's a much greater

product market fit or like need for the US dollar at least historically in like these third world country nations or offshore countries. So I think tether has just f like found a greater pain point for the customer. um and therefore like their growth internationally has been quite astron astronomical. Um whereas with prediction markets I think it's less about like um you know we're shipping something that is like uscentric to the rest of the world. It's more about like each country and each type of really just group of people they have different questions about the world that they care about. And ultimately um

all our markets are just about creating like the types of relevant events and markets that people want to trade. Um and so obviously both uh like all the leading prediction markets in the world right now have mostly had US teams that are like focused on creating US specific markets. We found like um even some of our like uh markets in certain like whether it be like cricket um good great adoption internationally um the world cup was great for international adoption um crypto has been actually quite a strong like uh you know everyone in the world knows about

bitcoin everyone in the world knows about ETH and so that's also crossed a lot of borders so Um, no I don't I don't think it's exactly a one to well it's not the I think the analogy breaks down in terms of like what the product actually is but in terms of the approach I think um yeah could be somewhat similar although I think we are like compared to like most regulated companies like a Coinbase or a Circle um or or insert other regulated company Koshi is much leaner and much more aggressive um than than these other companies. In my view, just like my personal view, we have a team of around 180 people. Um, which is probably like

20 to 40x smaller in terms of headcount than these other types of companies. Um, and we're just have like an insane, um, insanely aggressive like product velocity and shipping speed. Um, and also even from the regulatory side, like we we pushed to legalize prediction markets and perpetuals. For prediction markets, we actually had to sue the CFTC. Um, so it's it's it's uh by no means like um we're not really, you know, pushing for what's best for our customer.

>> What's the steelman for why the onshore compliant strategy for prediction markets is is the right one? >> The steelman? You you mean like uh why why it might be the right choice? >> Give give me the argument. So like I think you could make two arguments. One is like the offshore version of the prediction market platform is going to be able to win based off of XYZ. >> Or you could make another argument saying the onshore platform for prediction markets is going to win because of ABC. >> I want I want you to give me the one where like well Calry is the onshore prediction market platform. It's trying to lean into regulatory compliance and clarity and work with work with all the three-letter agencies. Why is that the

best strategy? Why is that the winning strategy? >> Well, CFTC is a four-letter agency actually. >> Um, that's a good point. >> But we love we love our we love our agencies. So, um, >> yeah, the steelman I would say is you always have this choice of of going, you know, offshore and like VPN and that does that actually It it does make like doing no KYC and stuff like that. It does it it does make onboarding the like crypto native user base easier I would say uh because they've jumped through these hoops before it's kind of what they're used to. Um, but for like the 99% TAM of the world, which I really think is the TAM that we should be

trying to tap into at this stage where we're trying to find the marginal user to bring into the crypto industry, um, or to trade uh, this like very exciting new instrument, well, not new, but like very exciting instrument that was born out of the crypto industry, perpetual futures. Um, that is the user set that we should be hunting for. And the only way to tap into that user set I would say is you're able to like run paid ads on Facebook and Instagram. You're able to like put up billboards. You're able to partner with like household consumer names. Um and like uh find get integrated into large brokers and financial institutions. Um be on the app

store. Um and like as you grow to a larger scale as well um you're obviously like under much more regulatory and compliance scrutiny. So I think it's really a critical thing to take this like onore regulated approach if you want to tap into that user set which I think is like the next user set that that is up for the taking. I've been trading crypto for almost a decade and I've used so many different wallets, the exchanges aggregators different frontends over the years and I'm always kind of looking for the same thing, just one interface with deep liquidity across a bunch of chains and assets where I can access all the markets like per earn yield, trade confidentially, and still control all my own funds. And I've never

really found this experience and I'm always switching wallets, juggling gas fees, and just getting eaten by slippage. Near.com is not that. It feels fundamentally different to me. I can do everything I want from any chain and I keep all my activity confidential. I can even earn yield confidentially. It's the way crypto should work. The near.com wallet is powered by Near and it's moved over $25 billion crosschain using postquantum signing and has run over 5 years on mainet with zero downtime. Near.com is simply the best way to be onchain and be in control. Get 20% of your trading fees back using the bank list link in the show notes. Not investment advice. Self-custody won, but it still has a usability problem. A seed phrase on paper is still a single point

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competitive place to be in right now. Like perfs are pretty hard. Uh, two of the best per platforms that I really pay attention to, Hyperlid and Lighter, have just some pretty insane technical chops to them and they're they're really just becoming hyper optimized around trading and the perpetual as an instrument specifically. So, what makes Koshi think that it can compete in this very competitive landscape around the perpetual? Yeah, I mean the um the landscape for per is competitive, but I think even the the larger landscape of like futures is is um you know I guess even more competitive because the there's I mean there's tons of futures platforms out there. Um CME is like um an order of magnitude larger than

even like there are like pro exchanges in crypto right now. Um so it's a very competitive landscape but the reason why we are throwing our hat in the ring is because um firstly I think we can deliver a product experience on par with like uh t some of the crypto like trading platforms that you know I personally am familiar with you're familiar with um for example we shipped a koshi pro recently which is the first like uh official prediction market for a trading terminal like released by a prediction bucket. Um, but we also have like a pers pro interface which is like more similar to the types of interfaces that you'd see um uh in across the

industry. And so our fees for that are quite competitive. Um and our liquidity is actually uh it's it still there's obviously like a ways to go but um you can throw in like a six figure order size and not experience like too much slippage. Um and we're still working to grow that even more. Um so from like a pure like trading execution competitive competitiveness of economic standpoint um you're at no disadvantage trading on Koshi purps and um we're soon to launch like our non-crypto asset classes as well. Um I think it was announced that we filed for gold and

silver which should be um coming in a matter of weeks and uh obviously we're looking to expand to other asset classes beyond beyond just that. And um really that is the frontier right for PEPS the PEPS industry nowadays like hyperlquid I think around half of their volume nowadays is from these real world assets um and the the center of all this real world asset liquidity is the United States um it's the US retail and large US institutions that um are currently providing liquidity or trading on a lot of these traditional financial platforms um that need to access like a regulated um easy to access US platform um but

they so far hasn't haven't had the opportunity to sort of get the benefits and the innovations of perpetual futures um you know no needing to like roll your futures no expireies cheaper costs all these things um they haven't had access to until until now with Koshi so I think in this like next frontier of real world assets will also be able to um sort of like I I think actually be the industry leader in terms of liquidity um access distribution um and also just product experience um although you know we still haven't released it yet so um we can only celebrate it once we've done that

but uh I think that's that that's the thesis at least. >> Mhm. The last I checked uh it was still just the Bitcoin per contract that the CFTC had approved. Is that still uh accurate or what are the markets currently available on the Koshi per platform? >> Totally. Yeah. So we get a CFTC approval like this quarter 40.3 filing for every single new asset class that we list. So the Bitcoin one essentially approved crypto as an asset class for us. We now have like over a dozen crypto assets on our per exchange. Um >> what are they just really quickly? Just Bitcoin, ETH, Salana. What what what are the the crypto pers that you guys have?

>> Yeah, we um Bitcoin, ETH, we we have Hype, we have Salana's, Zcash, Near, SUI, Durge, um XRP, if I haven't said that. >> So, did did the Bitcoin did the approval of the Bitcoin contract from CFTC did that give Koshi the ability to what was it called? self uh like self-register or like autoregister uh >> self-certification. Thank you. Yeah, so you guys can self-certify uh crypto asset per now.

>> Yeah, exactly. Um obviously we have to run our own risk models that that that have been CFTP CFTC approved. So it kind of like follows the same process that it would for a Bitcoin pump, >> but it is much easier to like list something like >> So the Bitcoin per gave you guys like a framework that like if the Bitcoin can be approved with these risk frameworks, then any other crypto asset that also passes the risks frameworks can therefore also be approved. >> Exactly. Yeah. And I think um you know our leverage limits are lower than other uh sort of offshore platforms and there are trade-offs for that. Like obviously some some traders don't don't want to like they don't want to take like lower leverage limits. Um based on our like

sort of like uh data analytics um on like you know onchain and other per platforms um only like 20 to 30% of users trade above like our per uh leverage limit which is like 6x. Most traders we actually find they trade between 2 to 4x. Um, so that captures like the vast lion's share of of traders. So it's actually not as prohibitive as you might think, but for our like upcoming non-crypto per um the leverage limits for those will be much higher given that they're like much less volatile of an asset class.

um you'll actually be able to get similar leverage limits to the existing per RWA platforms that you've been seeing out there um via Koshi and uh and our economics or like our fees are are are pretty competitive. I think um you know compared to like Binance or um like a hyperlid um we have lower fees at every tier currently. >> What's the plan for the couch per platform to evolve from here? Uh and just as as a frame of reference I'm pretty familiar with like the the lighter road map for example or at least what they want to do and one of the things they really want to do is they want to get tokenized real world assets.

So like a real basis for the perp to also trade on spot. So you have like three ingredients here. You have the actual tokenized equity or tokenized real world asset. You have a spot market also built into the platform. And then you have the the perpetual itself. And with those three ingredients, you can really blossom into a bunch of different like optionalities, strategies, baskets, you know, it's kind of like open-ended in the permutations. And so that's how that's like lighter's opinion for how it kind of grows as a as a per platform.

It's does Koshi also want to grow in that direction because you would also need to have like a spot market uh and then also try have like a cash settled underlying. uh what's what's the evolution plan for like the Cali perpetual platform? >> Spot is definitely something we've considered. Um and uh if it makes sense to add to it um for example like margining in Bitcoin or like noncash that's pretty interesting. It depends on regulatory unlocks but um it's definitely something that I've been pushing for internally. Um in in terms of like actual roadmap I would say we're uh primarily concentrated on um well firstly we're rolling about out a bunch of interesting incentive programs soon.

Um so those would make it pretty attractive I would say to to trade on our platform. um also to trade specific coins. Um and also if you're like a big trader um you can you know we we'd like to make it such that our pack platform is like the best place for you to place your trades most liquid um or like you don't have any troubles uh around order execution and stuff like that. Secondly, I think um our Koshi Pro product we're leaning into pretty hard. Um, so, uh, obviously like the per side of things, we have like the trading view integrations and the types of other

integrations that you might want to see um, with like a more traditional brokerage for stocks or options like a mumu, a tasty trade, stuff like that. Um, so providing like a product experience with par to those that user that user set. Um, and then also like cross-selling our uh existing predictions traders and acquiring new like more advanced traders that might be interested in predictions. Like that's where we see our like differentiation being. Um, and then we're working really hard on unlocking these new asset classes. Uh, as I mentioned before, like starting with gold and silver and metals. Um, I would I think like purps is uh well

where we lie with per like our purpose product is isn't just like shipping a great purpose product but it's also like how can we co-mingle it with the benefits of our predictions product. So on our purpose product um not only do we have like this like we have this Koshi social which is similar to like um FOMO or like uh I think Robin Hood social recently released something that looks similar to our platform. Um so that's quite that's quite exciting. There's like a troll box on purpose like gives me flashbacks to BIMEX uh back you know 2017 2018. Um but uh our predictions product itself we

have like these traders are able to price the odds of Bitcoin hitting a certain price like predicting the price of Bitcoin on a hourly, daily, monthly, we like annual basis and um we sort of distill those insights into our purpose product as well. So people are able to like see the odds on the chart in the inside section like the stats around like what what the market expectation is. Um and that's like act we found that's helped a lot of our traders who might be it's their first time trading per um and these types of like market expectations um or just like the way we package per into like up or down instead of long or

short. um and the way we like make leverage um you know much more understandable for our user base like th those types of things have helped a lot um and uh I think we're going to keep leaning more into that in terms of our road map which is like how do we combine the best parts of pups and predictions together um and build it to like a user base that is new to pups and they may be like a simple pups trait trader or like a more advanced day trader >> is there a vision vision of just like a single unified Khi platform where predictions and pers and that social feature that you were talking about is all kind of unified in one single interface because as I understand it now

like per the prediction markets are just not the same thing a separate platform is siloed. Uh is there like a is there a grand unified version of koshi in the future or how do you guys think about just like the the synergies of these products actually coming together? So our uh PEPS like simp at least like the simple product is quite integrated into our um app already. So if you go on our mobile app we have a tab for PEPS. Um if you go onto our web app um we also have a tab for purp. And then the the current bifurcation is more so with like our simple experience and our pro experience. Um, and we're working to

like combine that a bit more or like make it a bit seamless, more seamless in switching. But um, it is quite integrated and um, I would say that we do want to provide a like a pretty cohesive experience. Let's get into into prediction markets since uh, that's the the main bread and butter better of Koshi. There's there's just this central trade-off around prediction markets that I think uh prediction markets just kind of have to figure out how to walk the line here. The and what I'm talking about is like prediction markets are accurate because they pay people who have private information to reveal it with their trades. Like that's kind of the whole point of prediction market is like if you have alpha, you can come to a prediction market. You can come to

Koshi and you can sell that alpha to the market and you're basically selling it to noise traders, the the uninformed retail crowd. And so the the retail crowd, the noise traders, they come and they basically fund the incentives for people with private market information to reveal their private market information to to the market. And that's how we gain information from these prediction market platforms. But there's a tension here between if Kalshi or any or you know prediction market platform whatever is too permissive with the insider trading quote unquote the the the alpha traders coming and selling their market information to the market.

they're too permissive. Prices are very accurate, but retail kind of just feels that the game is rigged and they can't really they it's not fair to them because they don't have any of the alpha and they're the ones financing the information coming into the market. On the flip side, if it's too restrictive, if like overly restrictive surveillance cuts off the informed flow from the market, the market degrades into just being like a sentiment poll rather than like actual news or actual information. And so there's a tight rope that a prediction market has to walk here where you do need to attract retail customers to incent.

But you can't allow for too much extraction from retail or else then the retail won't come. They'll just all the the fishes at the poker table will get milked and then they won't be able to come back. What's this strategy for Koshi to find the equilibrium between these two polarities? >> Yeah, that's a great framing. You know, I think it is definitely a spectrum. Um, where we sit on that spectrum is we are like a markets first company. Like ultimately we are building exchange. Um, one like strong byproduct of that is that people are um using our website to you get a get better informed about the world or like see what people um, you know, the market is expecting, what

people's consensus is currently. Um and then also for traders who do have spe like you know insights into a certain topic or have done more research than other others um are are more like resourceful or curious um they are able to also profit off of um that those you know their their extra research and their curiosity. So we do draw a bright red line um about insider trading and I think um there are also many markets that like uh it's like insider trading I think is uh um you know like there there are many markets where like users would

actually be able to uh do research and get edge um without resorting to sort of insider information or quote unquote like private alpha Um there there are these types of things where as long as you're curious and resourceful and you're you can build systems which are actually easier to build now in the age of clawed AI, we've seen a lot of traders just like do exceptionally well. Um even in our like music char markets where you might think that um you know it's it's kind of like voodoo magic. Um, that's that's kind of just like what you what you might think as as kind of like an outside observer, but if you're in the trenches, you're

like looking at these music charts all day. Um, we have this guy called Grande Top 10. He's um basically been like a music chart like YouTuber like ranking sort of type of guy and super in the weeds of Ariana Grande uh Billboard charts etc. um he's just consistently been able to find edge by being super involved in these communities and um these uh like different information sources and so um you know there there are definitely fair ways to find edge. Um we have a ton of like infrastructure around preventing

insider trading from even happening in the first place but also surveilling the markets and tracking it when it does happen. Um for example like we have lists of politicians, people in their campaign groups um or sporting teams u people who work at the sporting team um like people uh peripherally around them. There are like uh already these types of like surveillance platforms that offer these services to sports companies, sports betting companies, um prediction market companies and uh um for stocks for insider trading. There are companies that provide lists of like uh executives

and all their associate people. Um so yeah I think it we've done like a lot of work around preventing and enforcing against insider trading. Um and then there's this like philosophical question that you mentioned which is is it even like worth preventing insider trading um if the goal is to be kind of this like information source of truth type of platform. And so my response to that and I I thought about this a lot when I was joining Koshi is um you know ultimately we want to service people at scale and bu like scale our financial markets to the their

greatest ham. Um and uh at at the at scale right that's when these types of markets work the best because you have the most people pitching in. you have the most accurate consensus, you have the greatest liquidity and the only way you can achieve that um is by preventing insider trading. Um the the reason why insider trading is banned for example in the stock markets. You might think it's kind of like for an ethical reason, which there is definitely an ethical component. Um but the greater reason is actually like a market structure reason which is like once you have a lot of toxic flow of like informed traders um coming in market makers aren't going to

quote anymore liquidity providers are going to pull their quotes um and therefore like no one will have a liquid market to trade against and then you won't have a signal anyways. Um, and so you just have to draw this line against insider trading if you want to have market integrity and healthy markets that thrive and scale. >> Is insider trading properly defined uh for the prediction market use case? Uh I maybe I should have looked into this a little bit better before doing this podcast but like insider trading I think is very well defined for the securities context. Do you think that the definition of what secure what insider trading is appropriately carries over in

like a high fidelity way into prediction markets or do you think prediction markets as a platform could use a an alternative definition of insider trading to be more permissive in certain types of markets or more strict in certain types of markets? like do you do you think do you think we need to reconsider what insider trading means in the prediction market context or do you think that those laws are actually pretty uh well defined in the first place? >> Yeah. Well, the great thing is um uh we actually defined like insider tra in insider trading is on every market um and we flag those types of markets that are at a higher risk of insider trading.

Halchi defines what insider trading is for its own markets. Is that is that what you just said? >> Well, no. There is a framework for defining in insider trading at like the regulatory level, but then like when it comes to um sort of communicating the and setting the bounds for our users, um we have like extra guardrails up at the market level. Um so for example we uh on the UI we say that politicians or politically associated persons congressmen etc are not allowed to trade on our political markets. They can trade on our sports markets and stuff like that but they can't trade on our political markets.

>> They can't they can't trade on any political markets. They can't trade inside the political category. Well, um I'd have to check on like the specific um because it I think it depends a lot on like what type of person, political person you are. Um also I'm more so on the crypto commodities and perpetuals side of the business. But um uh I I think like generally we we don't want people who are like in Congress to trade political markets. I think I think I'm pretty sure that one um like 90% sure that one is true um that we we prevent them. And so

um yeah like uh there there's there's like the preventative step and then there's like the um at the market step you on the UI. Um and then even even for like our markets we um like uh as you mentioned like sometimes in insider trading does happen like it's it's uh there's no bulletproof solution to prevent insider trading in the stock market. Same thing applies in prediction markets. Um and there are different types of trade-offs and risks that we also face here. Um the best thing that we can do is to make the traders our traders um as aware as possible of like

the risks that they're facing and like the types of precautions that we have put in place just so that when you're entering this type of market that you're not caught caught off guard, right? Um and so we we do have flags like before you enter um certain types of markets. I think sometimes on on like our some different interfaces like every single market um that it like uh we just have kind of this like disclosure about like the risks of insider trading and um you know how to report it, how to prevent it um and how how we uh what we do to to prevent it. I do think it's interesting that prediction markets have run up

against the whole notion of IP, intellectual property and and maybe could to kind of go back and like set the same stage of the the original question. We had we had the the famous case of the the 2024 um presidential election, the guy in France, I think, who financed a bunch of polls domestically in the United States to go get information. And so he paid they paid this one trader paid for a bunch of polls to be made in in swing states. Uh and like the nature of the poll was very precise and this trader just got in this information and then they as a result of hearing those the the outcomes of the polls they made a very large position on Donald Trump. Is that insider trading?

Absolutely not. Like not in the slightest. That is a very motivated trader just being very shrewd and clever and is extracting information from the world to make a trade on a on a prediction market. So, is that inside trading? Definitely not. And then and then there's like other examples of like the Google employee who uh made a trade about when like the next Google model was going to get released. Now that information was owned by Google in a sense like Google as the corporation owns the information as to like what day of what month of what year is it going to release its next models and like the Google employee came to some I don't can't remember which prediction market

platform came to a prediction market platform and then sold that information to the market if you will sold information sold IP that wasn't his. I don't know if that counts as insider trading because again, insider trading is like typically in the securities context, but from a property rights perspective, it makes sense to me that that Google employee ought not have sold information that was owned in again in theory by the company. And it seems to me that like Khi the private market is is just a just sticking its finger up in the air and be like that doesn't feel right and so therefore we're not going to allow it to happen on the platform.

But I'm wondering if if it would be better if we could actually create a framework of what insider trading is or intellectual property as it relates to prediction markets. that needs to be something worked out by the regulators for the benefit of prediction market platforms because it would make your guys' job easier and you guys would actually have to regulate less if this was just like I don't know a law in Congress or something just stated as a rulemaking from the CFTC. What do you think about that? >> Um I would say all our public com so far about this type of topic is that we're in full support of it. Like we want more clarity. um we want the regulations to be there and and clear and um to protect our traders and to also you know satisfy

um people's concerns and uh really it's just codifying the types of things that we've already been doing on our own like extra steps that we've been we've been taking purely because it's in the best of our interest to protect our traders and our the integrity of our markets just so happens to be that it it's it's also So like uh the types of things that people want codified in in actual wars in the regulatory world as well. Um so yeah, that's that's something we've been pushing for. We're very pro-regulation when done the right way um and when when it you know comes with um benefits such as like giving everyone a better sense of clarity. Now, I I really like your

point about the best market structure is the most fair one, which is an argument for like a more restrictive constraint on alpha traders, traders with alpha traders with information. And so like you need to be in my previous example, you really need to be the person who does a lot of effort, makes a lot of work to find information in the world, fair information in the world that anyone could have aggregated through through whatever means possible. And then and then now you have that alpha and now you get to sell that to the market because you harvested it from the real world as opposed to somebody actually doing insider trading. And so like, you know, one is fair, one one is less fair. And I and I take the point the more fair version of the prediction

market creates a more healthy market structure. You attract more market makers. Retail feels that it's more fair and less extractive. But also at the same time, I do think that just like a little bit of insider trading is good too. Just a smidge. Just like just on the on the line across the line of like what insider trading is on on occasion just because like that's the whole point. And this is something something that Robin Hansen says who's like one of the originators progenitors of like the concept of prediction markets is like yeah like this is how we get information out. This is why the in from an information perspective this is how we attract it and prediction markets can bring more information into the world if they're allowed to do this.

And there in addition to pred prediction markets there's whole like second third fourth order consequences of like different layers on prediction markets that could be built if this was the case things like futarchy for example need this information to come be financed and come into the market. Uh and so like how would you respond to that? Just like what if we just were allow just a smidge of insider trading in order to really lean into the information side of prediction markets. those types of prediction markets, they actually were the predominant type of prediction markets before I guess like uh like Koshi really took off commercially over the past two to three years. um

prediction markets, they originated from being kind of like either this play money or like um like not not really like commercially scalable thought experiments by like academic institutions and research think tanks to get to what you just said which is like the this like uh sort of really accurate beacon of truth where people um you know uh they don't really have any like many rules tools, I guess. And um so I guess like my my answer is like yeah, if you have that then it'll probably look something like that and it probably won't look like um a multi-billion dollar asset class that is

like very liquid and traded by a lot of people. Um, and so it's it's uh you're just going to get into this kind of like cycle of um you're not increasing your liquidity and um your scale and being forever kind of constrained to like a much smaller scale as like a a nice thought experiment but not super I guess useful um beyond uh beyond the pure like number that you create if that makes sense.

>> Let's talk about uh what prediction markets want to be when they grow up versus more or less kind of like what they are today in their current form. In the current form, sports trading across all prediction markets is more or less the dominant category for prediction markets. Something like 80 70 to 80% of like trading volume is in like the sports category. Obviously, prediction markets as a platform want to be more than an alternative to like the sports books, you know, sports books and currently where prediction markets are valued in the twodigit billion dollar value range, like the 1020 billion dollar value range that it kind of positions prediction markets as just like a valid and upgrade competit upgraded competitor to sports bookies to

like the FanDuel, the DraftKings of the world. But I think everyone who's paying attention to prediction markets wants more from prediction markets. We and p prediction markets themselves are trying to like look towards the CME you know something in the three-digit billion dollar valuation like the 10020 $300 billion valuation and that also comes with that some level of like financial utilization some sophistication like we're talking about insurance companies and uh you know financial hedge funds coming in and you would I would guess you would see a very big drop in sports trading volume to the because everything else grew like I don't know the weather or you know more markets around like the

Federal Reserve things like this. How do we get from where we are today where the prediction markets just kind of look like uh an upgraded version of sports betting venues to competing with a CME? What's the plan from getting A to B? >> That that is our ultimate goal is to be the largest exchange um on the planet, you know. So derivatives for example and uh we our our positioning is that we're kind of like the CME or the New York Stock Exchange in that we're taking a very strong regulated approach but we have the mix of also being a very like fast shipping tech company um while um being kind of like a very aggressive

like consumer growth company as well. Um and so being able to own the you like the trader relationship has been quite important. Um I think it's been important to the growth of Robin Hood. It's been important to you know the growth of IBKR as well. Um so we we have that as a differentiating factor. We we own the trader relationship. Um we also I think have a like a leading um position in the two I would say like newest asset classes when it comes to the traditional global financial scene um that or like instruments I guess being prediction markets and perpetual futures. So um at least from like a

regulated onore perspective. So that's like our our foot in the door when it comes to really having a fighting chance uh at getting to that to that stage and uh taking that institutional like motion and seeing it all the way through um is something that we're currently like allocating a lot of our time to. Um we've been doing a lot more block trades and um doing a lot more uh sort of uh broker relationships as well like we're in basically all of the largest broker broker platforms in the US now. Um we've plugged into a lot of the SCMs which is kind of like the infrastructure

or trading terminals that a lot of these large hedge funds and institutions utilize. Um, we've done some interesting hedges as well through like our weather markets. We had like an ice cream shop do stuff there for the World Cup. There were dozens of bars that hedged promotions through Kawoshi. Um, so they would offer, for example, like um free drinks for everyone if the US won the World Cup like for that game that night.

Um, and that proved to be quite successful and actually like have a lot of utility when it come comes to like hedging out the risk of of these types of proversions. Um, but we've also had like much more serious um large trades like you know seven to eight figure trades based on our clarity odds and block trades happening through our platforms as well. um whether you know the odds of whether the clarity acts will pass. Um but uh beyond that I would I would also push back against like koshi being like a primarily sports business currently. Um firstly we have per which is doing an order of magnitude more

volume in in the first you know month than um any of our prediction market uh markets I guess like since launch. Um, perhaps are just like a monster in terms of volume. But our crypto prediction markets are actually very large, very large part of our business. Like I think they're you know 20 to 30% of total exchange volume now and that's just for crypto um excluding you know politics economics. We recently launched a lot of um the same types of markets and user interface and like our growth uh motions got kicked off for our commodities markets. Um I think we're going to see a similar growth trajectory as our crypto

market prediction markets there. Um and so if you know we see another 20% category from there um with commodities I think sports quickly go from where it is now to becoming like only 20 to 30% of the exchange volume and um yeah so far like commodities markets have done really well like they've grown at a rate a rate of 100x um within the first few days um of compared to like when we first launched our crypto markets. Um I think uh we've learned a lot a lot of lessons from scaling the crypto side of things and now a lot of people are interested in trading gold, silver, oil instead. Um so I think that's going to

be super interesting and um you know purpose is entirely like a non-sports category. Um so that's going to diversify us more. And then on our like political markets um we've been taking a more researchy approach to it similar to like a Bloomberg or like uh even like a Catrini or something like that where um we're creating like indices um around our prediction markets like batching them together and um waiting them so you can actually trade like we have this thing called KPAL which is kind of like the S&P 500 but the US political landscape. Um, and then

seeing how like different shifts in macro and in political developments affect that index. Um, so there's a lot of stuff that we're um doing that uh yeah makes us a much more diversified platform than sports. And I I think currently as well we um crypto is just such a large part of it that that it's by no means only a sports platform. >> Bankless Nation, we've built something for you. Introducing the Bankless MCP. Chad GBT and Claude are great at a lot of things, but ask them anything beyond the basics of crypto about protocol mechanics, tokconomics, or just what happened last week in crypto and the gaps will start to show. The problem is

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it out. There is a link in the show notes and once you become a banklist premium member, you can hop into the Banklist Discord and let me know how you like it. Some exciting news, we are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best crypto cycle investor I know, his name is Michael Nato. He runs the DeFi Report. This is the guy that sent me a sell alert before the 1010 price drop happened. His cycle analysis has been absolutely on point. I've been following him for years, and this year we started recording weekly podcast episodes. Each one, we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes, they're

short, they're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast YouTube Apple Spotify or find a link in the show notes. There's a new episode waiting for you. Now, prediction markets have this thing where um they're similar to crypto in the sense that they are just b they're very bottom up. Uh the prediction markets as an instrument just feels like it all it just organically naturally starts with retail and as more retail comes larger and larger participants arrive. And my my question is how far we think that we can take prediction markets up that stack? Like how far up the pyramid of capital can can prediction markets really really go? And back in 2017, I

think when the crypto industry's imaginations about what crypto could do was at its wildest, we all kind of imagined this idea that prediction markets ultimately would kind of just like democratize or make very efficient markets for the end industry. Like the classic example is like the farmer, right? the farmer needs to like hedge an entire season of weather to pro to protect the value of their crops. And if their crops dies because it's a desert, the farmer gets paid all the same because of because of some bet that was placed on like the rainfall in the region over this month of time. And maybe it's not

the farmer making that bet, but a farmer buys insurance and uh the insurance company can sell insurance to that farmer at a better rate because of prediction markets because prediction markets allow for this like grand hedging. And so it's not the farm, it's not the end farmer. It's not like the retail farmer person that's making this bet, but it's this massive sophisticated quantorientated uh uh insurance company that's using prediction markets and weather to be able to sell insurance to this farmer at a much cheaper, more beneficial rate to the farmer as like this idealized version of a prediction market. And my my concern about prediction markets is they kind of feel like a retail instrument.

Like inherently like the the the prediction market is just like a really good platform for retail. And as we get further and further up the capital stack, it gets harder and harder for large financial institutions to use prediction markets to make very precise opinions and express very precise trades about the market. Like hedging is a very precise thing. And so if you want to hedge something, you need to make sure that the event contract that you buy is actually doing the hedging that you want it to do. And pred prediction markets, at least so far, seem kind of blunt in that in that pursuit. And so the broad question is how far do we think prediction markets

as as an instrument can get sophisticated to attract you know the largest and then the larger and largest amounts of capital in the world to become more like the CME you know like quadrillions of dollars of yearly uh like volume trading hands about very precise hedging and create financial opportunities and make finance more efficient. How far do we think we can go and just like simulate for us like how uh how we actually get there? >> You know, I think it's this this like retail first adoption is pretty symmetric across all types of new markets. You need um early adopters and speculative capital to bootstrap liquidity and interest in new markets

before it reaches the scale that institutions are able to size into. Um I think we are at that scale now where institutions can actually come in and we've seen this institutional adoption happen. Um for example our and I think they can make very precise trades. Our first block trade, for example, was by um some Houstonbased environmental hedge fund, and they wanted to hedge against whether a specific price for May carbon allowance auctions in California would be be would occur. And um there was a counterparty for that and um multiple uh traders that were able to come in um and

sort of like uh help provide liquidity for that trade and price it. And so um you're able you are able to you know reach out to the Koshi team if you're an institution ask us to create a market for a specific hedge or contract or idea that you have and we can spin that up for you. um can be very bespoke and then um that is that market is then available to the rest of the world to go and price and provide liquidity to to give you like a more efficient price than you otherwise would. Um so ultimately the the bet that like we're making here is that um once you take

this OTC structured products market which is basically bilaterally um negotiated deals in dark markets and you bring them into the light into what we call lit markets like openly traded marketplaces that increases the TAM and the activity and the reduces the um barrier to entry. by a mag like an order of magnitude like 10x. Um so we can for the institutional world I think we can take this like the entire OTC industry bring it into prediction markets take the entire structured products industry bring it into prediction markets and then create like a much more liquid and more readily

accessible version of it. Um and we're still we are iterating on like the types of feedback that institutions give us. um for example like getting margin on prediction markets is probably our top requested feature for um our event contracts and that's something we're working towards. Um um I think uh in the meantime like our pers are like do provide that margin and a lot of institutions have found that to be valuable as well to get you know capital efficient exposure to um these types of assets they want without having to you know roll their contracts. So um yeah I think uh we we are climbing into

those um you know later stages of the capital stack um and there are like the the like crypto and commodities um politics types of markets um especially politics for example you're not able to find you're not a really not able to enter those types of contracts anywhere else like how she is the only place that you can get that that type of uh hedge. And um politics is just so central to the the you know the way that like um our markets have been functioning over the past year that it is really crucial for any hedge fund to

establish some sort of um you know position in prediction markets um if they want to achieve like the best you know risk parameters or pricing efficiency across that portfolio. There's been this like mirror mirror image of Poly Market and Koshi with like with partnerships and like announcements like both I I don't really remember this happening too much recently so maybe it's a thing in the past but I still want to ask about it is like KI and Poly Market both announced like a partnership with XAI inside of the same week back in 2025 like both announced being like the official partner of the NHL inside the same week like first first guy she was the official prediction market partner

of in a shell. Then like the next day, Poly Market announced it. You guys both announced like this pop-up grocery store thing. There's just been this if Kali does it, Poly Market does it. If Poly Market does it, then Koshi does it. And it's that happened like consistently for like over a year. Why did that happen? >> It must be infuriating to see that from the outside. >> I like I'm just so confused. >> It's more infuriating to see that from the inside. Yeah, it's it's like a whole bit. Honestly, I think it's just what happens when you have two big companies pushing each other. Um, and like uh it's kind of like two teams like rowing their boats, right? Like you just um you're just like rowing really hard and um it it makes you perform better. I think it

has subsided a bit over the past um like six months maybe. Um, I guess we've just I mean just honestly like if you look at the metrics we've we've really um grown to be like four to five times larger at least in crypto. We're 10 times larger than them um in volumes. And so um yeah, like uh it's it's just we're we're like not I guess we're no longer um competing as hard for the deals. Um usually partners just like go with us. Um otherwise we're they're uh like uh otherwise like th those deals are getting overbid heavily and um people

are just like burning money in the air. Uh but I think um yeah it's it's we've also found our own lane a bit more you know like um we're focused more about per on purp. We're focused more on institutional adoption. um we're focused more on growing in our computer and commodities markets and um uh I think poly has not um at least in the areas that I've talked about they they haven't really um got into the same stage that we have yet. So like we we're we're still like we're the first to rip a compute forward curve and grow our compute markets. um

our per platform we got regulated and released. Um first I I don't think pol has come out of beta yet. Um uh on the institutional side we've just seen a lot more adoption block trades hedges happen through us as well. So, um yeah, I think we're just we're ultimately probably pulled ahead and um are no longer like uh fighting as hard over over like tits and tats uh day-to-day, but um looking more at more at like the the larger types of uh businesses that we can expand into.

Yeah, one rumor that I heard uh was that the like I don't know if it was the NHL specifically, so I'm not calling them out specifically, but like there were so many of these where like some third party organization like a sports league or whatever uh both would partner uh with with both prediction markets. One rumor that I heard was that like they could smell the competition and so they would offer like they would bid it up between both Koshi and Poly Market and extract from from both platforms. So, it was actually like kind of like the NHL, again, not trying to pick out on the NHL, but it was like the NHL as an example, just saying like, oh, like we'll we'll sell you, we'll let you guys be our prediction market partner and then also go back to to, you know, your

rival and like allow you guys to bid up the opportunity and then just accept both. Was there any sort of uh malice by any of these third parties? Uh, was is there anything to that rumor about like a third party like smelling blood in the water and kind of like swimming like a shark? Honestly, I don't know about the NHL deal. I wasn't part of that deal, but um I think in in general like uh that type of activity or it's just like it's like something you do. You know, if you have two job offers, you're going to like try to make them give you a higher offer. Um we haven't seen as much of that in the past six months.

>> Okay. >> Just a rumor. Oh, but it did h stuff like that did happen. I mean, it was like I was dealing with that type of stuff when like just like random creators that have like 20k followers. Yeah. Like everyone thinks so. Everyone thinks that, you know, they can they can just like play us. >> Command the price, right? >> Yeah. It kind of worked for a bit, but maybe. Yeah. Like uh not not so much anymore though. Yeah. >> Cool. >> John, thanks for coming on the show. >> Thank you, man. Take care. >> Banklistation, you guys know the deal. Crypto is risky. So are prediction markets. But the risk is why we are here. the institutions have landed. So, we are going even further west. This is the frontier. It's not for everyone, but we are glad you're with us on the

bankless journey. Thanks a lot.