More on Leadership
Will Lockett
2 years ago
Tesla recently disclosed its greatest secret.
The VP has revealed a secret that should frighten the rest of the EV world.
Tesla led the EV revolution. Elon Musk's invention offers a viable alternative to gas-guzzlers. Tesla has lost ground in recent years. VW, BMW, Mercedes, and Ford offer EVs with similar ranges, charging speeds, performance, and cost. Tesla's next-generation 4680 battery pack, Roadster, Cybertruck, and Semi were all delayed. CATL offers superior batteries than the 4680. Martin Viecha, Tesla's Vice President, recently told Business Insider something that startled the EV world and will establish Tesla as the EV king.
Viecha mentioned that Tesla's production costs have dropped 57% since 2017. This isn't due to cheaper batteries or devices like Model 3. No, this is due to amazing factory efficiency gains.
Musk wasn't crazy to want a nearly 100% automated production line, and Tesla's strategy of sticking with one model and improving it has paid off. Others change models every several years. This implies they must spend on new R&D, set up factories, and modernize service and parts systems. All of this costs a ton of money and prevents them from refining production to cut expenses.
Meanwhile, Tesla updates its vehicles progressively. Everything from the backseats to the screen has been enhanced in a 2022 Model 3. Tesla can refine, standardize, and cheaply produce every part without changing the production line.
In 2017, Tesla's automobile production averaged $84,000. In 2022, it'll be $36,000.
Mr. Viecha also claimed that new factories in Shanghai and Berlin will be significantly cheaper to operate once fully operating.
Tesla's hand is visible. Tesla selling $36,000 cars for $60,000 This barely beats the competition. Model Y long-range costs just over $60,000. Tesla makes $24,000+ every sale, giving it a 40% profit margin, one of the best in the auto business.
VW I.D4 costs about the same but makes no profit. Tesla's rivals face similar challenges. Their EVs make little or no profit.
Tesla costs the same as other EVs, but they're in a different league.
But don't forget that the battery pack accounts for 40% of an EV's cost. Tesla may soon fully utilize its 4680 battery pack.
The 4680 battery pack has larger cells and a unique internal design. This means fewer cells are needed for a car, making it cheaper to assemble and produce (per kWh). Energy density and charge speeds increase slightly.
Tesla underestimated the difficulty of making this revolutionary new cell. Each time they try to scale up production, quality drops and rejected cells rise.
Tesla recently installed this battery pack in Model Ys and is scaling production. If they succeed, Tesla battery prices will plummet.
Tesla's Model Ys 2170 battery costs $11,000. The same size pack with 4680 cells costs $3,400 less. Once scaled, it could be $5,500 (50%) less. The 4680 battery pack could reduce Tesla production costs by 20%.
With these cost savings, Tesla could sell Model Ys for $40,000 while still making a profit. They could offer a $25,000 car.
Even with new battery technology, it seems like other manufacturers will struggle to make EVs profitable.
Teslas cost about the same as competitors, so don't be fooled. Behind the scenes, they're still years ahead, and the 4680 battery pack and new factories will only increase that lead. Musk faces a first. He could sell Teslas at current prices and make billions while other manufacturers struggle. Or, he could massively undercut everyone and crush the competition once and for all. Tesla and Elon win.
Caspar Mahoney
2 years ago
Changing Your Mindset From a Project to a Product
Product game mindsets? How do these vary from Project mindset?
1950s spawned the Iron Triangle. Project people everywhere know and live by it. In stakeholder meetings, it is used to stretch the timeframe, request additional money, or reduce scope.
Quality was added to this triangle as things matured.
Quality was intended to be transformative, but none of these principles addressed why we conduct projects.
Value and benefits are key.
Product value is quantified by ROI, revenue, profit, savings, or other metrics. For me, every project or product delivery is about value.
Most project managers, especially those schooled 5-10 years or more ago (thousands working in huge corporations worldwide), understand the world in terms of the iron triangle. What does that imply? They worry about:
a) enough time to get the thing done.
b) have enough resources (budget) to get the thing done.
c) have enough scope to fit within (a) and (b) >> note, they never have too little scope, not that I have ever seen! although, theoretically, this could happen.
Boom—iron triangle.
To make the triangle function, project managers will utilize formal governance (Steering) to move those things. Increase money, scope, or both if time is short. Lacking funds? Increase time, scope, or both.
In current product development, shifting each item considerably may not yield value/benefit.
Even terrible. This approach will fail because it deprioritizes Value/Benefit by focusing the major stakeholders (Steering participants) and delivery team(s) on Time, Scope, and Budget restrictions.
Pre-agile, this problem was terrible. IT projects failed wildly. History is here.
Value, or benefit, is central to the product method. Product managers spend most of their time planning value-delivery paths.
Product people consider risk, schedules, scope, and budget, but value comes first. Let me illustrate.
Imagine managing internal products in an enterprise. Your core customer team needs a rapid text record of a chat to fix a problem. The consumer wants a feature/features added to a product you're producing because they think it's the greatest spot.
Project-minded, I may say;
Ok, I have budget as this is an existing project, due to run for a year. This is a new requirement to add to the features we’re already building. I think I can keep the deadline, and include this scope, as it sounds related to the feature set we’re building to give the desired result”.
This attitude repeats Scope, Time, and Budget.
Since it meets those standards, a project manager will likely approve it. If they have a backlog, they may add it and start specking it out assuming it will be built.
Instead, think like a product;
What problem does this feature idea solve? Is that problem relevant to the product I am building? Can that problem be solved quicker/better via another route ? Is it the most valuable problem to solve now? Is the problem space aligned to our current or future strategy? or do I need to alter/update the strategy?
A product mindset allows you to focus on timing, resource/cost, feasibility, feature detail, and so on after answering the aforementioned questions.
The above oversimplifies because
Leadership in discovery
Project managers are facilitators of ideas. This is as far as they normally go in the ‘idea’ space.
Business Requirements collection in classic project delivery requires extensive upfront documentation.
Agile project delivery analyzes requirements iteratively.
However, the project manager is a facilitator/planner first and foremost, therefore topic knowledge is not expected.
I mean business domain, not technical domain (to confuse matters, it is true that in some instances, it can be both technical and business domains that are important for a single individual to master).
Product managers are domain experts. They will become one if they are training/new.
They lead discovery.
Product Manager-led discovery is much more than requirements gathering.
Requirements gathering involves a Business Analyst interviewing people and documenting their requests.
The project manager calculates what fits and what doesn't using their Iron Triangle (presumably in their head) and reports back to Steering.
If this requirements-gathering exercise failed to identify requirements, what would a project manager do? or bewildered by project requirements and scope?
They would tell Steering they need a Business SME or Business Lead assigning or more of their time.
Product discovery requires the Product Manager's subject knowledge and a new mindset.
How should a Product Manager handle confusing requirements?
Product Managers handle these challenges with their talents and tools. They use their own knowledge to fill in ambiguity, but they have the discipline to validate those assumptions.
To define the problem, they may perform qualitative or quantitative primary research.
They might discuss with UX and Engineering on a whiteboard and test assumptions or hypotheses.
Do Product Managers escalate confusing requirements to Steering/Senior leaders? They would fix that themselves.
Product managers raise unclear strategy and outcomes to senior stakeholders. Open talks, soft skills, and data help them do this. They rarely raise requirements since they have their own means of handling them without top stakeholder participation.
Discovery is greenfield, exploratory, research-based, and needs higher-order stakeholder management, user research, and UX expertise.
Product Managers also aid discovery. They lead discovery. They will not leave customer/user engagement to a Business Analyst. Administratively, a business analyst could aid. In fact, many product organizations discourage business analysts (rely on PM, UX, and engineer involvement with end-users instead).
The Product Manager must drive user interaction, research, ideation, and problem analysis, therefore a Product professional must be skilled and confident.
Creating vs. receiving and having an entrepreneurial attitude
Product novices and project managers focus on details rather than the big picture. Project managers prefer spreadsheets to strategy whiteboards and vision statements.
These folks ask their manager or senior stakeholders, "What should we do?"
They then elaborate (in Jira, in XLS, in Confluence or whatever).
They want that plan populated fast because it reduces uncertainty about what's going on and who's supposed to do what.
Skilled Product Managers don't only ask folks Should we?
They're suggesting this, or worse, Senior stakeholders, here are some options. After asking and researching, they determine what value this product adds, what problems it solves, and what behavior it changes.
Therefore, to move into Product, you need to broaden your view and have courage in your ability to discover ideas, find insightful pieces of information, and collate them to form a valuable plan of action. You are constantly defining RoI and building Business Cases, so much so that you no longer create documents called Business Cases, it is simply ingrained in your work through metrics, intelligence, and insights.
Product Management is not a free lunch.
Plateless.
Plates and food must be prepared.
In conclusion, Product Managers must make at least three mentality shifts:
You put value first in all things. Time, money, and scope are not as important as knowing what is valuable.
You have faith in the field and have the ability to direct the search. YYou facilitate, but you don’t just facilitate. You wouldn't want to limit your domain expertise in that manner.
You develop concepts, strategies, and vision. You are not a waiter or an inbox where other people can post suggestions; you don't merely ask folks for opinion and record it. However, you excel at giving things that aren't clearly spoken or written down physical form.
William Anderson
2 years ago
When My Remote Leadership Skills Took Off
4 Ways To Manage Remote Teams & Employees
The wheels hit the ground as I landed in Rochester.
Our six-person satellite office was now part of my team.
Their manager only reported to me the day before, but I had my ticket booked ahead of time.
I had managed remote employees before but this was different. Engineers dialed into headquarters for every meeting.
So when I learned about the org chart change, I knew a strong first impression would set the tone for everything else.
I was either their boss, or their boss's boss, and I needed them to know I was committed.
Managing a fleet of satellite freelancers or multiple offices requires treating others as more than just a face behind a screen.
You must comprehend each remote team member's perspective and daily interactions.
The good news is that you can start using these techniques right now to better understand and elevate virtual team members.
1. Make Visits To Other Offices
If budgeted, visit and work from offices where teams and employees report to you. Only by living alongside them can one truly comprehend their problems with communication and other aspects of modern life.
2. Have Others Come to You
• Having remote, distributed, or satellite employees and teams visit headquarters every quarter or semi-quarterly allows the main office culture to rub off on them.
When remote team members visit, more people get to meet them, which builds empathy.
If you can't afford to fly everyone, at least bring remote managers or leaders. Hopefully they can resurrect some culture.
3. Weekly Work From Home
No home office policy?
Make one.
WFH is a team-building, problem-solving, and office-viewing opportunity.
For dial-in meetings, I started working from home on occasion.
It also taught me which teams “forget” or “skip” calls.
As a remote team member, you experience all the issues first hand.
This isn't as accurate for understanding teams in other offices, but it can be done at any time.
4. Increase Contact Even If It’s Just To Chat
Don't underestimate office banter.
Sometimes it's about bonding and trust, other times it's about business.
If you get all this information in real-time, please forward it.
Even if nothing critical is happening, call remote team members to check in and chat.
I guarantee that building relationships and rapport will increase both their job satisfaction and yours.
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Katherine Kornei
2 years ago
The InSight lander from NASA has recorded the greatest tremor ever felt on Mars.
The magnitude 5 earthquake was responsible for the discharge of energy that was 10 times greater than the previous record holder.
Any Martians who happen to be reading this should quickly learn how to duck and cover.
NASA's Jet Propulsion Laboratory in Pasadena, California, reported that on May 4, the planet Mars was shaken by an earthquake of around magnitude 5, making it the greatest Marsquake ever detected to this point. The shaking persisted for more than six hours and unleashed more than ten times as much energy as the earthquake that had previously held the record for strongest.
The event was captured on record by the InSight lander, which is operated by the United States Space Agency and has been researching the innards of Mars ever since it touched down on the planet in 2018 (SN: 11/26/18). The epicenter of the earthquake was probably located in the vicinity of Cerberus Fossae, which is located more than 1,000 kilometers away from the lander.
The surface of Cerberus Fossae is notorious for being broken up and experiencing periodic rockfalls. According to geophysicist Philippe Lognonné, who is the lead investigator of the Seismic Experiment for Interior Structure, the seismometer that is onboard the InSight lander, it is reasonable to assume that the ground is moving in that area. "This is an old crater from a volcanic eruption."
Marsquakes, which are similar to earthquakes in that they give information about the interior structure of our planet, can be utilized to investigate what lies beneath the surface of Mars (SN: 7/22/21). And according to Lognonné, who works at the Institut de Physique du Globe in Paris, there is a great deal that can be gleaned from analyzing this massive earthquake. Because the quality of the signal is so high, we will be able to focus on the specifics.
Marco Manoppo
2 years ago
Failures of DCG and Genesis
Don't sleep with your own sister.
70% of lottery winners go broke within five years. You've heard the last one. People who got rich quickly without setbacks and hard work often lose it all. My father said, "Easy money is easily lost," and a wealthy friend who owns a family office said, "The first generation makes it, the second generation spends it, and the third generation blows it."
This is evident. Corrupt politicians in developing countries live lavishly, buying their third wives' fifth Hermès bag and celebrating New Year's at The Brando Resort. A successful businessperson from humble beginnings is more conservative with money. More so if they're atom-based, not bit-based. They value money.
Crypto can "feel" easy. I have nothing against capital market investing. The global financial system is shady, but that's another topic. The problem started when those who took advantage of easy money started affecting other businesses. VCs did minimal due diligence on FTX because they needed deal flow and returns for their LPs. Lenders did minimum diligence and underwrote ludicrous loans to 3AC because they needed revenue.
Alameda (hence FTX) and 3AC made "easy money" Genesis and DCG aren't. Their businesses are more conventional, but they underestimated how "easy money" can hurt them.
Genesis has been the victim of easy money hubris and insolvency, losing $1 billion+ to 3AC and $200M to FTX. We discuss the implications for the broader crypto market.
Here are the quick takeaways:
Genesis is one of the largest and most notable crypto lenders and prime brokerage firms.
DCG and Genesis have done related party transactions, which can be done right but is a bad practice.
Genesis owes DCG $1.5 billion+.
If DCG unwinds Grayscale's GBTC, $9-10 billion in BTC will hit the market.
DCG will survive Genesis.
What happened?
Let's recap the FTX shenanigan from two weeks ago. Shenanigans! Delphi's tweet sums up the craziness. Genesis has $175M in FTX.
Cred's timeline: I hate bad crisis management. Yes, admitting their balance sheet hole right away might've sparked more panic, and there's no easy way to convey your trouble, but no one ever learns.
By November 23, rumors circulated online that the problem could affect Genesis' parent company, DCG. To address this, Barry Silbert, Founder, and CEO of DCG released a statement to shareholders.
A few things are confirmed thanks to this statement.
DCG owes $1.5 billion+ to Genesis.
$500M is due in 6 months, and the rest is due in 2032 (yes, that’s not a typo).
Unless Barry raises new cash, his last-ditch efforts to repay the money will likely push the crypto market lower.
Half a year of GBTC fees is approximately $100M.
They can pay $500M with GBTC.
With profits, sell another port.
Genesis has hired a restructuring adviser, indicating it is in trouble.
Rehypothecation
Every crypto problem in the past year seems to be rehypothecation between related parties, excessive leverage, hubris, and the removal of the money printer. The Bankless guys provided a chart showing 2021 crypto yield.
In June 2022, @DataFinnovation published a great investigation about 3AC and DCG. Here's a summary.
3AC borrowed BTC from Genesis and pledged it to create Grayscale's GBTC shares.
3AC uses GBTC to borrow more money from Genesis.
This lets 3AC leverage their capital.
3AC's strategy made sense because GBTC had a premium, creating "free money."
GBTC's discount and LUNA's implosion caused problems.
3AC lost its loan money in LUNA.
Margin called on 3ACs' GBTC collateral.
DCG bought GBTC to avoid a systemic collapse and a larger discount.
Genesis lost too much money because 3AC can't pay back its loan. DCG "saved" Genesis, but the FTX collapse hurt Genesis further, forcing DCG and Genesis to seek external funding.
bruh…
Learning Experience
Co-borrowing. Unnecessary rehypothecation. Extra space. Governance disaster. Greed, hubris. Crypto has repeatedly shown it can recreate traditional financial system disasters quickly. Working in crypto is one of the best ways to learn crazy financial tricks people will do for a quick buck much faster than if you dabble in traditional finance.
Moving Forward
I think the crypto industry needs to consider its future. This is especially true for professionals. I'm not trying to scare you. In 2018 and 2020, I had doubts. No doubts now. Detailing the crypto industry's potential outcomes helped me gain certainty and confidence in its future. This includes VCs' benefits and talking points during the bull market, as well as what would happen if government regulations became hostile, etc. Even if that happens, I'm certain. This is permanent. I may write a post about that soon.
Sincerely,
M.
Liam Vaughan
2 years ago
Investors can bet big on almost anything on a new prediction market.
Kalshi allows five-figure bets on the Grammys, the next Covid wave, and future SEC commissioners. Worst-case scenario
On Election Day 2020, two young entrepreneurs received a call from the CFTC chairman. Luana Lopes Lara and Tarek Mansour spent 18 months trying to start a new type of financial exchange. Instead of betting on stock prices or commodity futures, people could trade instruments tied to real-world events, such as legislation, the weather, or the Oscar winner.
Heath Tarbert, a Trump appointee, shouted "Congratulations." "You're competing with 1840s-era markets. I'm sure you'll become a powerhouse too."
Companies had tried to introduce similar event markets in the US for years, but Tarbert's agency, the CFTC, said no, arguing they were gambling and prone to cheating. Now the agency has reversed course, approving two 24-year-olds who will have first-mover advantage in what could become a huge new asset class. Kalshi Inc. raised $30 million from venture capitalists within weeks of Tarbert's call, his representative says. Mansour, 26, believes this will be bigger than crypto.
Anyone who's read The Wisdom of Crowds knows prediction markets' potential. Well-designed markets can help draw out knowledge from disparate groups, and research shows that when money is at stake, people make better predictions. Lopes Lara calls it a "bullshit tax." That's why Google, Microsoft, and even the US Department of Defense use prediction markets internally to guide decisions, and why university-linked political betting sites like PredictIt sometimes outperform polls.
Regulators feared Wall Street-scale trading would encourage investors to manipulate reality. If the stakes are high enough, traders could pressure congressional staffers to stall a bill or bet on whether Kanye West's new album will drop this week. When Lopes Lara and Mansour pitched the CFTC, senior regulators raised these issues. Politically appointed commissioners overruled their concerns, and one later joined Kalshi's board.
Will Kanye’s new album come out next week? Yes or no?
Kalshi's victory was due more to lobbying and legal wrangling than to Silicon Valley-style innovation. Lopes Lara and Mansour didn't invent anything; they changed a well-established concept's governance. The result could usher in a new era of market-based enlightenment or push Wall Street's destructive tendencies into the real world.
If Kalshi's founders lacked experience to bolster their CFTC application, they had comical youth success. Lopes Lara studied ballet at the Brazilian Bolshoi before coming to the US. Mansour won France's math Olympiad. They bonded over their work ethic in an MIT computer science class.
Lopes Lara had the idea for Kalshi while interning at a New York hedge fund. When the traders around her weren't working, she noticed they were betting on the news: Would Apple hit a trillion dollars? Kylie Jenner? "It was anything," she says.
Are mortgage rates going up? Yes or no?
Mansour saw the business potential when Lopes Lara suggested it. He interned at Goldman Sachs Group Inc., helping investors prepare for the UK leaving the EU. Goldman sold clients complex stock-and-derivative combinations. As he discussed it with Lopes Lara, they agreed that investors should hedge their risk by betting on Brexit itself rather than an imperfect proxy.
Lopes Lara and Mansour hypothesized how a marketplace might work. They settled on a "event contract," a binary-outcome instrument like "Will inflation hit 5% by the end of the month?" The contract would settle at $1 (if the event happened) or zero (if it didn't), but its price would fluctuate based on market sentiment. After a good debate, a politician's election odds may rise from 50 to 55. Kalshi would charge a commission on every trade and sell data to traders, political campaigns, businesses, and others.
In October 2018, five months after graduation, the pair flew to California to compete in a hackathon for wannabe tech founders organized by the Silicon Valley incubator Y Combinator. They built a website in a day and a night and presented it to entrepreneurs the next day. Their prototype barely worked, but they won a three-month mentorship program and $150,000. Michael Seibel, managing director of Y Combinator, said of their idea, "I had to take a chance!"
Will there be another moon landing by 2025?
Seibel's skepticism was rooted in America's historical wariness of gambling. Roulette, poker, and other online casino games are largely illegal, and sports betting was only legal in a few states until May 2018. Kalshi as a risk-hedging platform rather than a bookmaker seemed like a good idea, but convincing the CFTC wouldn't be easy. In 2012, the CFTC said trading on politics had no "economic purpose" and was "contrary to the public interest."
Lopes Lara and Mansour cold-called 60 Googled lawyers during their time at Y Combinator. Everyone advised quitting. Mansour recalls the pain. Jeff Bandman, a former CFTC official, helped them navigate the agency and its characters.
When they weren’t busy trying to recruit lawyers, Lopes Lara and Mansour were meeting early-stage investors. Alfred Lin of Sequoia Capital Operations LLC backed Airbnb, DoorDash, and Uber Technologies. Lin told the founders their idea could capitalize on retail trading and challenge how the financial world manages risk. "Come back with regulatory approval," he said.
In the US, even small bets on most events were once illegal. Under the Commodity Exchange Act, the CFTC can stop exchanges from listing contracts relating to "terrorism, assassination, war" and "gaming" if they are "contrary to the public interest," which was often the case.
Will subway ridership return to normal? Yes or no?
In 1988, as academic interest in the field grew, the agency allowed the University of Iowa to set up a prediction market for research purposes, as long as it didn't make a profit or advertise and limited bets to $500. PredictIt, the biggest and best-known political betting platform in the US, also got an exemption thanks to an association with Victoria University of Wellington in New Zealand. Today, it's a sprawling marketplace with its own subculture and lingo. PredictIt users call it "Rules Cuck Panther" when they lose on a technicality. Major news outlets cite PredictIt's odds on Discord and the Star Spangled Gamblers podcast.
CFTC limits PredictIt bets to $850. To keep traders happy, PredictIt will often run multiple variations of the same question, listing separate contracts for two dozen Democratic primary candidates, for example. A trader could have more than $10,000 riding on a single outcome. Some of the site's traders are current or former campaign staffers who can answer questions like "How many tweets will Donald Trump post from Nov. 20 to 27?" and "When will Anthony Scaramucci's role as White House communications director end?"
According to PredictIt co-founder John Phillips, politicians help explain the site's accuracy. "Prediction markets work well and are accurate because they attract people with superior information," he said in a 2016 podcast. “In the financial stock market, it’s called inside information.”
Will Build Back Better pass? Yes or no?
Trading on nonpublic information is illegal outside of academia, which presented a dilemma for Lopes Lara and Mansour. Kalshi's forecasts needed to be accurate. Kalshi must eliminate insider trading as a regulated entity. Lopes Lara and Mansour wanted to build a high-stakes PredictIt without the anarchy or blurred legal lines—a "New York Stock Exchange for Events." First, they had to convince regulators event trading was safe.
When Lopes Lara and Mansour approached the CFTC in the spring of 2019, some officials in the Division of Market Oversight were skeptical, according to interviews with people involved in the process. For all Kalshi's talk of revolutionizing finance, this was just a turbocharged version of something that had been rejected before.
The DMO couldn't see the big picture. The staff review was supposed to ensure Kalshi could complete a checklist, "23 Core Principles of a Designated Contract Market," which included keeping good records and having enough money. The five commissioners decide. With Trump as president, three of them were ideologically pro-market.
Lopes Lara, Mansour, and their lawyer Bandman, an ex-CFTC official, answered the DMO's questions while lobbying the commissioners on Zoom about the potential of event markets to mitigate risks and make better decisions. Before each meeting, they would write a script and memorize it word for word.
Will student debt be forgiven? Yes or no?
Several prediction markets that hadn't sought regulatory approval bolstered Kalshi's case. Polymarket let customers bet hundreds of thousands of dollars anonymously using cryptocurrencies, making it hard to track. Augur, which facilitates private wagers between parties using blockchain, couldn't regulate bets and hadn't stopped users from betting on assassinations. Kalshi, by comparison, argued it was doing everything right. (The CFTC fined Polymarket $1.4 million for operating an unlicensed exchange in January 2022. Polymarket says it's now compliant and excited to pioneer smart contract-based financial solutions with regulators.
Kalshi was approved unanimously despite some DMO members' concerns about event contracts' riskiness. "Once they check all the boxes, they're in," says a CFTC insider.
Three months after CFTC approval, Kalshi announced funding from Sequoia, Charles Schwab, and Henry Kravis. Sequoia's Lin, who joined the board, said Tarek, Luana, and team created a new way to invest and engage with the world.
The CFTC hadn't asked what markets the exchange planned to run since. After approval, Lopes Lara and Mansour had the momentum. Kalshi's March list of 30 proposed contracts caused chaos at the DMO. The division handles exchanges that create two or three new markets a year. Kalshi’s business model called for new ones practically every day.
Uncontroversial proposals included weather and GDP questions. Others, on the initial list and later, were concerning. DMO officials feared Covid-19 contracts amounted to gambling on human suffering, which is why war and terrorism markets are banned. (Similar logic doomed ex-admiral John Poindexter's Policy Analysis Market, a Bush-era plan to uncover intelligence by having security analysts bet on Middle East events.) Regulators didn't see how predicting the Grammy winners was different from betting on the Patriots to win the Super Bowl. Who, other than John Legend, would need to hedge the best R&B album winner?
Event contracts raised new questions for the DMO's product review team. Regulators could block gaming contracts that weren't in the public interest under the Commodity Exchange Act, but no one had defined gaming. It was unclear whether the CFTC had a right or an obligation to consider whether a contract was in the public interest. How was it to determine public interest? Another person familiar with the CFTC review says, "It was a mess." The agency didn't comment.
CFTC staff feared some event contracts could be cheated. Kalshi wanted to run a bee-endangerment market. The DMO pushed back, saying it saw two problems symptomatic of the asset class: traders could press government officials for information, and officials could delay adding the insects to the list to cash in.
The idea that traders might manipulate prediction markets wasn't paranoid. In 2013, academics David Rothschild and Rajiv Sethi found that an unidentified party lost $7 million buying Mitt Romney contracts on Intrade, a now-defunct, unlicensed Irish platform, in the runup to the 2012 election. The authors speculated that the trader, whom they dubbed the “Romney Whale,” may have been looking to boost morale and keep donations coming in.
Kalshi said manipulation and insider trading are risks for any market. It built a surveillance system and said it would hire a team to monitor it. "People trade on events all the time—they just use options and other instruments. This brings everything into the open, Mansour says. Kalshi didn't include election contracts, a red line for CFTC Democrats.
Lopes Lara and Mansour were ready to launch kalshi.com that summer, but the DMO blocked them. Product reviewers were frustrated by spending half their time on an exchange that represented a tiny portion of the derivatives market. Lopes Lara and Mansour pressed politically appointed commissioners during the impasse.
Tarbert, the chairman, had moved on, but Kalshi found a new supporter in Republican Brian Quintenz, a crypto-loving former hedge fund manager. He was unmoved by the DMO's concerns, arguing that speculation on Kalshi's proposed events was desirable and the agency had no legal standing to prevent it. He supported a failed bid to allow NFL futures earlier this year. Others on the commission were cautious but supportive. Given the law's ambiguity, they worried they'd be on shaky ground if Kalshi sued if they blocked a contract. Without a permanent chairman, the agency lacked leadership.
To block a contract, DMO staff needed a majority of commissioners' support, which they didn't have in all but a few cases. "We didn't have the votes," a reviewer says, paraphrasing Hamilton. By the second half of 2021, new contract requests were arriving almost daily at the DMO, and the demoralized and overrun division eventually accepted defeat and stopped fighting back. By the end of the year, three senior DMO officials had left the agency, making it easier for Kalshi to list its contracts unimpeded.
Today, Kalshi is growing. 32 employees work in a SoHo office with big windows and exposed brick. Quintenz, who left the CFTC 10 months after Kalshi was approved, is on its board. He joined because he was interested in the market's hedging and risk management opportunities.
Mid-May, the company's website had 75 markets, such as "Will Q4 GDP be negative?" Will NASA land on the moon by 2025? The exchange recently reached 2 million weekly contracts, a jump from where it started but still a small number compared to other futures exchanges. Early adopters are PredictIt and Polymarket fans. Bets on the site are currently capped at $25,000, but Kalshi hopes to increase that to $100,000 and beyond.
With the regulatory drawbridge down, Lopes Lara and Mansour must move quickly. Chicago's CME Group Inc. plans to offer index-linked event contracts. Kalshi will release a smartphone app to attract customers. After that, it hopes to partner with a big brokerage. Sequoia is a major investor in Robinhood Markets Inc. Robinhood users could have access to Kalshi so that after buying GameStop Corp. shares, they'd be prompted to bet on the Oscars or the next Fed commissioner.
Some, like Illinois Democrat Sean Casten, accuse Robinhood and its competitors of gamifying trading to encourage addiction, but Kalshi doesn't seem worried. Mansour says Kalshi's customers can't bet more than they've deposited, making debt difficult. Eventually, he may introduce leveraged bets.
Tension over event contracts recalls another CFTC episode. Brooksley Born proposed regulating the financial derivatives market in 1994. Alan Greenspan and others in the government opposed her, saying it would stifle innovation and push capital overseas. Unrestrained, derivatives grew into a trillion-dollar industry until 2008, when they sparked the financial crisis.
Today, with a midterm election looming, it seems reasonable to ask whether Kalshi plans to get involved. Elections have historically been the biggest draw in prediction markets, with 125 million shares traded on PredictIt for 2020. “We can’t discuss specifics,” Mansour says. “All I can say is, you know, we’re always working on expanding the universe of things that people can trade on.”
Any election contracts would need CFTC approval, which may be difficult with three Democratic commissioners. A Republican president would change the equation.