Kalshi Explained: What It Is? Who Founded It? and Why It Matters to Traders?
- Iftekhar Khan
- 4 days ago
- 4 min read
What Is Kalshi?
Kalshi is a CFTC-regulated U.S. exchange that offers event contracts — financial derivatives that pay out based on whether a specific real-world event happens.
These events include inflation levels, unemployment rates, government shutdowns, policy decisions, and economic data releases.
Kalshi lets traders hedge or speculate on outcomes that traditionally move markets but could never be traded directly.
This is why it's suddenly in every major financial publication.
Why Is Kalshi in the News?
Kalshi has exploded into the headlines because it sits at the centre of a major debate in finance:
Is it innovative hedging… or is it too close to betting?
Financial Times, Bloomberg, CNBC, and The Economist have all covered Kalshi’s rapid rise — not just because of the concept itself, but because of the regulatory battles surrounding it.
The biggest flashpoint was when Kalshi attempted to launch a contract allowing traders to hedge on which political party would control Congress. The CFTC pushed back, sparking industry-wide discussions about:
ethics
risk
financial innovation
market structure
political influence
This regulatory friction is exactly why Kalshi keeps making headlines.
Who Founded Kalshi?
Who are the people behind Kalshi?
Kalshi was founded by Tarek Mansour and Luana Lopes Lara — two MIT graduates with deep expertise in mathematics, machine learning, and market microstructure.
Why does this matter?
Because the founders did something nearly unheard of:
They convinced the CFTC to approve a brand-new class of exchange offering event-based derivatives.
This required:
technical expertise
academic research
policy knowledge
rigorous risk modelling
substantial institutional backing
The Wider Team
Kalshi’s team includes:
former CFTC staff
PhD economists
quantitative engineers
market structure specialists
regulatory compliance leaders
This intellectual and regulatory firepower is one of the key reasons the exchange has credibility in the financial industry.
Investors Include:
Sequoia Capital
Charles Schwab
leading economists & academics
Not the typical “speculative startup” investor list — another reason the media takes Kalshi seriously.
How Does Kalshi Work?
Kalshi works by offering yes/no contracts tied to specific events.Each contract settles at $1.00 if the event occurs, and $0.00 if it does not.
Traders simply choose:
Yes (they believe the event will happen)
No (they believe the event will not happen)
Prices trade between $0.01 and $0.99 depending on market expectations.
This model mirrors the mechanics of futures, options, and binary event derivatives — but with simpler outcomes and cleaner probabilities.
Is Kalshi Legal and Regulated?
Is Kalshi legal?
Yes. Kalshi is fully legal in the United States.
Is Kalshi regulated?
Yes. Kalshi is regulated by the Commodity Futures Trading Commission (CFTC) — the same body overseeing major U.S. futures exchanges.
Why does regulation matter?
It places Kalshi firmly in the category of financial derivatives, not gambling or prediction entertainment.
This is the biggest point of confusion for the public — and the biggest reason it’s making headlines.
Why Is Kalshi Controversial?
Kalshi’s controversy comes from what can be traded — not how the platform works.
Political event contracts
These triggered intense regulatory debate, with critics arguing:
potential political manipulation
ethical boundaries
voter influence
market distortion
moral hazard
The CFTC rejected Kalshi’s proposal for congressional control contracts — but the dispute itself created global attention.
Public misunderstanding
Many assume event contracts = betting. The regulatory classification disagrees.
What Does Academic Research Say About Event Markets?
Here’s where things get interesting — and where Kalshi gains credibility.
Peer-reviewed research over 20+ years consistently shows:
✔ Prediction and event markets often outperform polls
(University of Chicago, Iowa Electronic Markets, UPenn studies)
✔ Markets aggregate information more efficiently than surveys
✔ Real-money incentives reduce bias
✔ Probabilities derived from markets are more accurate near major events
✔ Hybrid forecasting models combining markets + macro data improve accuracy
This academic foundation is one of the major reasons financial analysts — and journalists — take Kalshi seriously.
Why Kalshi Matters for Traders
Whether you trade with Kalshi or not, the platform signals a major shift in market structure.
1. A New Way to Hedge Macro Risk
Traders can now hedge:
CPI releases
unemployment numbers
fiscal policy decisions
recession probabilities
Fed-linked announcement deadlines
government shutdown risk
These have always been impactful — but never directly hedgeable.
2. Cleaner Probability Signals
Instead of polls or forecasts, traders could use:
“CPI > 3% is trading at 62% probability on Kalshi.”
Pure.Quantified.Forward-looking.
3. A New Asset Class
Event derivatives may become as common as:
rate futures
volatility futures
economic index futures
Every major derivative started with doubt and debate.
4. Institutional Interest
Kalshi is attracting:
macro hedge funds
risk desks
quant funds
academic researchers
Because it formalises information and expectations into a tradeable format.
Is Kalshi Good or Bad for Markets?
The Benefits
increases transparency
formalises event risk
improves forecasting accuracy
democratises certain hedging tools
aligns with decades of academic research
The Risks
political events remain sensitive
potential for misuse
liquidity is still growing
retail misinterpretation of probabilities
Both sides are valid — which is why the debate is so loud.
FAQs
Is Kalshi a betting site?
No. Kalshi is regulated by the CFTC as a financial exchange offering derivatives, not gambling products.
Who owns Kalshi?
Kalshi was founded by Tarek Mansour and Luana Lopes Lara. The company is backed by Sequoia Capital, Charles Schwab, and prominent economists.
Is Kalshi safe?
Kalshi operates under strict regulatory oversight, risk controls, margin rules, and position limits, similar to other U.S. derivatives exchanges.
Why are event markets important?
They allow traders to hedge real-world outcomes that influence asset prices, providing cleaner probability measures for macro risk.
Can event markets influence elections or policy?
Regulators remain cautious. Certain political contracts have been blocked to avoid ethical issues.
Final Word
Kalshi isn’t just another trading startup. It’s a regulated exchange pioneering a new asset class, built by academically-driven founders and backed by some of the strongest names in finance.
For traders, analysts, and educators, Kalshi represents:
a new way to hedge
a new tool for forecasting
a new source of market probability data
a major shift toward information-driven markets
Event markets aren’t a fad — they are the beginning of a new era in financial market structure. And Kalshi is leading it.