MonsterCripto

🚀 My take on @Kalshi, and why it's NOT a gambling business. Today's post deals with a completely new topic, one that I don't think has been discussed yet in the Spanish media. I'm bringing it up because we've been debating for weeks what they are, what they aren't, and above all, because I see a lot of confusion surrounding the understanding of the model itself. Considering that we are talking about a business that has just reached a valuation of $11 billion, I imagine that many of you are interested in the details, in case it ends up becoming a trend. 🥁 It all starts at Kalshi As I said, in recent weeks, the world of digital assets has been talking about practically one thing internationally: prediction markets. On December 2, the business world, and especially Fintech, woke up to the news that Kalshi, a startup founded by a former ballet dancer and a mathematician (who met at MIT and have become the youngest billionaires in history), had raised $1 billion in a funding round, at a post-money valuation of $11 billion. They came from a round of 300 million. If you don't regularly deal with billions, as is my case, let me give you a couple of comparisons so you can get a better idea of the scale of the matter: In Spain, the largest round in 2025 was that of TravelPerk, which raised $190 million at a valuation of $2.7 billion. The best thing is that Kalshi is a company whose business model practically no one understands. Why? Well, here's what I've been saying for years: because it's a Fintech company that combines sophisticated technology (which is already difficult to understand in itself), financial markets (traditionally far removed from the daily lives of ordinary citizens), and digital assets (which in many cases still suffer from the prejudices of the past in the minds of many people). Let me give you an example: Phantom, the world's largest wallet, has just signed a partnership agreement to launch its own prediction markets within Kalshi. Either you find someone who has been in this industry for a long time and can explain it to you, or I can assure you that any lawyer, no matter how modern, will have serious difficulties doing so. 🎯 What is a prediction market? In recent weeks, you may have read about 200 times that Kalshi is “a success story for collective gambling addiction”. As I mentioned, prediction markets are a new creation of recent years. Polymarket was possibly the best known before Kalshi burst onto the scene. Technically, they are a hybrid of regulated markets, automation with smart contracts, and retail access to investment. And this generates, in part, a lot of revenue and, in part, a lot of criticism. In order to form our own opinion on whether Kalshi, Polymarket, etc. are legitimate, let's take a detailed look at the percentage of each of these areas, which are fully regulated, that prediction markets have. While writing this post, I couldn't think of a better way to do it than with this analogy: If we ask a traditional regulatory lawyer what a PM (prediction market) is, what Polymarket is, they will probably tell us that they do not appear in any financial regulations. If we ask a developer, they will tell us that it is a combination of smart contracts with internal or external oracles. And if we asked a Twitter user, most of them would tell us that they are nothing more than betting houses. None of them would be giving a sufficient or accurate explanation. Let's turn to regulation, which always clarifies things: 📈 a) Derivatives Derivatives are very common in financial markets, which are VERY regulated, and are contracts in which the value depends (derives) on the price evolution of another asset, the underlying asset. Or as the Bank of Spain itself says: Financial derivatives are financial instruments linked to a specific instrument, financial indicator, or commodity, through which specific financial risks can be traded on financial markets themselves. Financial derivatives include options, futures and similar instruments, and swaps. Definition from the CNMV 's(Spain's regulatory authority) website A derivative is therefore a contract between two parties that establishes how a transaction will be settled in the future based on: - The price of an asset - A rate (exchange or interest) - A verifiable event The underlying asset is not necessarily exchanged, but rather rights and obligations over it are traded. At Kalshi, you can open binary contracts (yes/no) on future events, as shown in the image below: Therefore, at Kalshi, each contract: - Has an underlying asset → an objective and verifiable event. - Has an expiration date. - Is settled for a fixed amount (usually $1) if the event occurs, or $0 if it does not occur. As you can see, this literally meets the classic definition of a derivative: an instrument whose value derives from an underlying asset other than the contract itself. If we now zoom out and consider that the platform is a standardized system for this type of contract, then we are looking at what is technically called an “organized market” for derivatives, or “Designated Contract Makers (DCMs)”. NOTE: A DCM is not a technology platform, but a market infrastructure recognized and regulated by law. What is NOT a DCM? ❌ It is not a betting house - this is obvious. ❌ It is not a bilateral OTC market - it is open to be used at the same time by any user. ❌ It is not a decentralized protocol - it is completely centralized and also requires that the market holder, and therefore the activity authorization holder, comply with a series of guarantees and requirements. ❌ It is not a simple technological marketplace - which, for example, distinguishes it from Polymarket, which is NOT a DCM because it does not have CFTC authorization and because it does NOT have the same technical characteristics as Kalshi. 🎱 b) Betting - Gaming Law. The legal definition of gambling under the aforementioned Law 13/2011 (Article 3) is that of any activity in which sums of money or economically assessable objects are risked in any form on future and uncertain results, dependent to some extent on chance, and which allow their transfer between participants, regardless of whether the degree of skill of the players predominates or whether they are exclusively or fundamentally based on luck, wager, or chance. Seen in this light, it may sound like what happens in Kalshi, yes. BUT the legal nature (how flows between users are structured, the standardization embedded in all the options available), the contractual structure, and the regulatory regime applicable to its business model belong to the financial law of derivatives, not to gaming law. The difference lies in the details, many of which are regulatory and highly complex. It is normal that they are not easily understood and are confused with something that is easy for all of us to understand: betting. If we now combine both analyses, we can use a real comparison to draw conclusions: 👉🏼Betting houses versus financial markets: 👉🏼Both allow people to make predictions 👉🏼Both involve risking money 👉🏼Both depend on uncertain outcomes BUT Betting houses profit from bets and set the odds. The financial market aggregates information and reflects the collective expectations of traders. People can “gamble” on the stock market by trading recklessly, but that does not make the NASDAQ or TESLA a casino. User behavior does not define the platform. Because Kalshi is a futures market BUT many users will use it to gamble. That does not change its legal nature, but rather the use that some people make of it. 🎬 New Fintech business models are not “like” anything that has come before. It is true and undeniable that Kalshi is a platform for speculation. But many people forget that derivatives markets are too. Perhaps the problem is that, as these markets have traditionally been restricted to the average retail user, and financial regulation of derivatives is very complex to understand if you are not involved in this field, it should come as no surprise that there is a lack of understanding of them. If we add to this the fact that human beings, when faced with an innovation, tend to use “it's like X” to explain it, we have the most reasonable explanation for why Kalshi is said to be a gambling company. As I read the other day from an English author, “in Fintech, comparison misses the point,” which is something like saying that in Fintech, when you compare, you completely miss the point. That's right. Because new business models are not “like” anything that came before. Historically, the formula: novelty + innovation + financial regulation + success often translates into ignorance + aversion. It happened in 2017 with tokens, it happened in 2022 when many of us commented on the tokenization of trading and settlement systems with the Pilot Regime Regulation, and it is happening now with prediction markets. All of them were born out of innovation, with financial regulation, and had their moments of success, which were accompanied by hordes of criticism, even a social problem in Spain with young people literally betting on many tokens that ended up disappearing. However, just as a pyramid scheme does not make the issuance of tokens a crime in itself, the use of a prediction market for betting does not bring it within the scope of the Gaming Law. Any traditional lawyer will tell you this: in law, things are what they are, not what they are said to be. All of the above reinforces an idea that I have been mulling over for some time and of which I am increasingly convinced: the success of business models in the financial sector lies in their intersection with the newest technologies, based on completely artisanal work and surgical precision in regulation. Fintech products and services such as Kalshi make their founders billionaires for two reasons, which are simple but very difficult to achieve: they are born legal from their very design (Legal by Design) and they find the perfect combination of technology and financial services (what we have been calling Fintech). In Fintech, and this is my message in this post, you have to tread very carefully. Very carefully. Otherwise, not only do you run the risk of making mistakes, but you also risk missing out on both major financial innovations and investment opportunities. The future is Fintech. The future is understanding technology, knowing financial regulations inside out, and adding value by having a lot of previous experience in digital assets.