Kalshi uses account limits to reduce risky trading

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 51:37

   some of them are going to get addicted there are similar impulses i mean look i think there's a few ways to think about it so so let's talk about the policy and then actually what we're doing because i care about like i think about that a lot and i care about that yeah um it's like my paranoid brain i don't want people to get hurt and with all technologies people whenever we get hurt they will use it in a bad way right this is true for airbnb and you know and are you hearing from mothers yeah and actually it's mixed because so let me kind of walk through a few things so first the policy aspects i think and this is important for everyone at some point you're going to build something very big especially in consumer and when it truly hits mainstream you're going to get haters there's going to be a bucket of society that's going to be worried

2. 52:14

   because they don't understand it or they don't get it and they're worried about the risks and they don't see the like a lot of people don't see the point of ai why why lose our jobs over someone something that can do our homework better i think they're missing the point obviously but you need to educate that part of society and then you have incumbents because inevitably if you go mainstream you're going to be taking it someone and those incumbents would go very hard after you when the taxis went after uber they didn't go after them saying hey our margins are threatened that's why you should shut it down what they say they said it's unsafe and kids are getting hurt and kidnapped and airbnb was the same thing with the hotels like they would find one case of one person that you know had a very terrible

3. 52:49

   bad experience or something really horrible happened and they would blow it up in the new and you know so for us the easy low-hanging fruit is called gambling and it's interesting because pretty much all trading products that has ever come to society have come through a fight like have basically emerged through a fight of them being called gambling so grain futures were actually legalized with the supreme court decision in the 1900s like futures a boring commodity futures market at the time the states were were suing and there was my son is not trading commodities futures.

4. 53:26

   But they used to be. Fine. The farmers weren't. But kids weren't. No, that's not true. Like, I mean. Oh, is it really? I don't know anything about that. The farmers were 20 and 18. All right, fine. By the way, the age to trade futures is 18. Okay. Right? It's actually, you know, that's what it is. I mean, now there's other more interesting. Maybe my son runs in a different crowd, but none of them trade.

5. 53:46

   By the way, I want to address this. But I'm saying, but that's because society evolved. Like, there's now crypto and meme coins and all these other things, right? Like, at the time, there was nothing else. This was the primary mechanism of speculation. That's what everybody was doing. But the claim at the time was like, this is gambling, and we should basically regulate it as gambling and not as a financial market.

6. 54:02

   And the Supreme Court said speculation does look like gambling because it does. Yeah, so it's the stock market. Yes, exactly. But there's a price discovery aspect to this where you're on an open, transparent exchange where people are trading against each other that makes it a financial market. And that's why we need to regulate it as a financial market and so on and so forth. Fast forward to us, there's a few things that are very important.

7. 54:24

   One, the incentive structure in the model. Gambling, I don't gamble. I don't really like gambling. I like trading. Gambling is a business model where the revenue of the company is equal to the customer's losses. So over time, you block the winners, which is what they do. They don't want the smart, mathematically oriented people that are doing research. And they want the people that continuously lose.

8. 54:43

   And those people, they give them promos to come back. And that's how you create these addictions. But they cannot really solve the problem of addiction because the revenues are equal to the losses. So over time, what do you do? Well, you have to increase the losses. That's what you do. You have to create those types of behaviors, or at least not throttle them too much. The losses don't go to me on Kalshi.

9. 55:00

   It's the beauty of a derivatives market or my market. Liquidity goes to you. Yeah, I take a 1% fee whether it's somebody who loses or not. So when someone is exhibiting bad patterns, those laws are going to someone else. I have all the incentive in the world to basically throttle them and figure out how to get it right. But let me just push back a little bit on that. In a casino, they try to block the car sharks.

10. 55:20

    Yeah. But in your world, there's a lot of car sharks betting against my son's friend who… For sure, but that's like… Who's going on a gut feel. Yeah, that's absolutely right. Like, absolutely. Now, it depends on the incentive structure. I want smart trading. I want to incentivize people to do research because the more liquid, the better the forecast, the more truthful my forecast, the more people look at it, the more my top of funnel increases.

11. 55:44

    I want the smart traders. There's a very different structure from the casino, which is like, you don't want the smart behavior. You want just the excessive money-losing, continuously money-losing behavior, right? So there's that. now it's important to understand not everybody wins on cal she of course not everybody wins in the stock market not everybody wins in the options market not everybody wins in athletic competitions not everybody wins in competitive environment the highly competitive environments right it's a highly competitive it's a competition it's a highly competitive activity in nature and inevitably there's gonna be some people that win and win more like how many people win the nba finals or how many people win you know the champions league it's a small percentage of participants now here's

12. 56:24

    what's interesting everybody can win it's a fair neutral platform and my incentive is to give as many tools as possible for people to do the right thing and do research and do all of that and what we do and what we do really well is we do take this sort of issue of excessive behaviors pretty seriously so for example in the 18 to 20 buckets i think um the data doesn't show dramatically different behaviors but society tends to be worried about that we add a lot more throttling to the accounts what does that mean like you cannot basically lose too much in excess we add throttling and we start asking for additional verification that makes it so hard add a lot of friction for you to keep going or to keep going going into success and the reason we do that because the positive sides of this so when i ask the parents and the mom question and their 25

13. 57:06

    year old is training on cash what they get excited about is like they're actually getting smarter about the future they're smarter about the word because the alternatives they're spending time on instagram and social media where it's like extremists and all the hate and the constant brain rot and all these different things whereas here and they get addicted to that of course but they can't lose all their money on it i think they're losing a lot more they can lose their they can they turn their brain i mean i think i sometimes I'm losing my brain on that. I mean, you know, but like, I think there's all sorts of other issues there. But my point here is like, they're spending time getting smarter about the world, which I think is the whole premise of what we're building. Like, I think this is going to be the ultimate antidote to a lot of the polarization extremism we're seeing. Because, you know, these, these calibrated, well reasoned takes are not getting rewarded on social media, but they get rewarded in prediction markets. And that trains people over time to get a little bit smarter. And I want it to be a tool for that, especially for younger people, rather than a tool that like, I'm losing

14. 58:00

    all my money and i'm doing excessive behaviors and there's easy ways to do that which is like you can cap how much people are doing you can throttle these accounts um you know one of the things we do very well i think better than even some of the financial brokers or traditional brokers um we think we self-regulate we don't just do what regulation requires us to do we go above and beyond because i think about all the risks so miners for example we obviously they're banned and we do kyc and all these different things but the way that miners access all these platforms is they use their parents ids so one of the things we create is a parent portal where moms and parents can give us their ID and tell us don't let anyone else use it. That solves 95% of the issue. And I think we're doing a great job. And the numbers show like, you know, the

15. 58:37

    percentage of people that show these signs of these patterns of excessive behaviors or are losing excessively or losing in general on Kalshi is actually lower than options trading. And it's lower than any active trading of stocks. So if you buy a stock and hold it for five years, it's investing. But if you're trading in a daily basis, et cetera, 75, 80% of people lose. And I think people have not come to terms that there there are irresponsible behaviors in all these markets and the way to do it is basically you have to figure out how to flag these behaviors and basically get better at throttling them okay i guess my last question this this this um pod is a lot of ceos