‘Kalshi Truth’: the Claims, the Facts, But Not Much Nuance
Where do op-ed writers get their water?
Kalshi has launched a new public relations effort through a site called KalshiTruth.com. The site purports to debunk 11 hostile claims that Kalshi feels have been made about it.
To be sure, Kalshi and the rest of the prediction market industry have received an abundance of criticism. Quantitatively speaking, a lot of it lines up with the 11 claims Kalshi debunks. However, Kalshi is certainly not going out of its way to find the most robust and nuanced criticisms to push back on.
It probably wouldn’t be fair to call the claims strawmen. They’re hyperbolic and untrue if taken literally. However, there are enough people angry about prediction markets that it’s probably possible to find someone making each of those claims and mentioning Kalshi in the same breath.
At the same time, Kalshi’s responses are oversimplifications that gloss over perfectly valid criticisms that are merely qualitatively similar to the claims it debunks. In some cases, it also appears to take exception to general claims about prediction markets that apply more to its unregulated peers than to Kalshi itself.
Let’s take a look at what Kalshi claims is being said about it, its responses, and the details it’s glossing over on this new site. For each of these items, the “claim” and “fact” are taken verbatim from the site.
Insider Trading
Claim: “Critics argue that prediction markets enable trading on nonpublic information, including officials or candidates betting on their own decisions.”
Fact: “Kalshi has banned insider trading since 2020 and reports all suspicious activity to the CFTC.”
Nuance: Kalshi’s refutation depends on a particular reading of “enable.” It is true that its policies forbid trading on material nonpublic information. However, “enabling” could also refer to a failure to enforce those policies adequately, something that is less cut-and-dried and more a matter of opinion.
Even conventional financial markets struggle to prevent insider trading. It might be fair for Kalshi to claim it’s being unfairly singled out in that regard, but that’s a separate argument.
As worded, the claim is also directed at prediction markets generally, not Kalshi specifically. Applied to the offshore portion of the industry, it’s almost irrefutable. Polymarket, for instance, has framed it as a desirable feature, as it serves the goal of exposing information before it reaches traditional media channels.
Legislative Obstruction
Claim: “Prediction markets don’t cooperate with Congress.”
Fact: “Kalshi actively supports bipartisan legislation strengthening prediction-market rules.”
Nuance: As phrased, it’s hard to argue with this one. I’m not sure who is making this claim, however, as it’s not one I’ve personally encountered.
Why would prediction markets be uncooperative with Congress when they have the overt support of the current administration? Their problems aren’t with Congress but with legislators at the state level. With those, they most certainly are not cooperating, since they see themselves as exempt from state regulation.
What could be said is that there are questions as to whether prediction markets comply with the intent of the previous congressional lawmakers who drafted the Securities Exchange Act and subsequent legislation. That is specifically the claim that’s currently being tested in courts around the nation.
Enforcement Issues
Claim: “Kalshi doesn’t enforce its own policies.”
Fact: “We’ve opened ~200 insider-trading investigations in the past year alone.”
Nuance: The question isn’t whether Kalshi enforces its policies at all. I don’t think anyone would claim that except as a bit of rhetorical exaggeration.
The question is whether 200 investigations and a handful of fines are in proportion to the breadth of the problem. The jury is still out on that.
Political Bias
Claim: “Kalshi is politically biased because Donald Trump Jr. has an advisory role with the company.”
Fact: “Kalshi markets are legal contracts that resolve to reality. Safe, trusted, free of bias.“
Nuance: The response refutes only a very narrow interpretation of what sort of “bias” is being referred to. It’s true as it goes: there’s no evidence that Kalshi’s contract resolution process is biased.
However, as far as Kalshi’s role as a truth engine goes, there are some indications of bias among its users. For instance, a Bloomberg study found that markets on whether Donald Trump would follow through on something he’d said he would do were consistently overpriced, and that it was possible to profit by betting against them.
The idea of prediction markets has also become politically polarized. And that’s due, in part, to the relationships between the Trump family and the major players in the space. It’s also due to the dramatic reversal of the CFTC’s policies under the new administration compared to the Biden era.
Addiction Issues and Corporate Incentives
Claim: “Kalshi is addictive and does not do enough to protect vulnerable users.”
Fact: “Unlike casinos, we have an incentive to stop irresponsible behavior, not profit from it.“
Nuance: Kalshi and regulated casinos both include responsibility features, so that’s not at issue. The question of whether those measures are “enough” is, like the enforcement issue, a matter of opinion.
What struck me about this claim is that Kalshi doesn’t actually specify — even in its elaboration — what it thinks is different about its incentives. I emailed the company to ask for a better explanation, drawing a parallel between Kalshi’s transaction fees and a poker room’s rake. From a purely financial perspective, both types of business make more money if their users wager more.
I received the following response from a company representative:
“Our revenue is not contingent on irresponsible behavior, and we don’t want it to be. Our founders have said repeatedly that they want to do everything possible to prevent problem trading, which is why Kalshi was the first prediction market to partner with the National Council on Problem Gambling to support ‘trader health and safety.’
The poker room analogy doesn’t hold because the product is fundamentally different. A poker room is recreation. We are an information source. Our business only works if our markets produce accurate forecasts, and that requires informed, responsible traders.”
I didn’t get a clear answer to why the accuracy of the markets is so important to the business. After all, Kalshi doesn’t monetize that information and has no need to protect its lines from exploitation by sharp traders. However, CTO Luana Lopez has said in interviews that Kalshi looks to institutional traders and AI agents for volume, not retail users acting on impulse.
Death Markets
Claim: “Prediction markets are immoral because they let users trade on death and war.”
Fact: “Kalshi prohibits trading on war, violence, and death.“
Nuance: On this one, I largely have to side with Kalshi. The flashpoint for the debate on death markets was the death of Ayatollah Khamenei during the U.S. invasion of Iran. A great deal of trading had been done on whether he would be out of power this year.
Yet, the controversy didn’t result from Kalshi paying out on the event of his death, but rather from its policy against doing so. The problem was that it didn’t have adequate systems in place to determine a fair settlement price, because the market had become distorted by all the trading that happened during the period when his death was suspected but unconfirmed.
The idea that prediction market users are “betting on death” is a claim I hear mostly from congressional Democrats putting forth prediction market bills with little chance of passing. These are largely a political performance related to the partisan polarization of the prediction market issue.
There is a legitimate debate to be had over the limits of markets that are correlated with death or war, but not explicitly about those things. However, most of the boundary-pushing on that front happens with the offshore industry. Polymarket, for instance, caught flak for offering markets on the “failure” of the Artemis II rocket, but nothing of the sort was offered on regulated exchanges like Kalshi.
Is It Gambling?
Claim: “State gaming regulators argue Kalshi’s sports markets are illegal gambling under state law.”
Fact: “Kalshi is a federally regulated exchange, not a state-licensed gambling operation.”
Claim: “Kalshi is just gambling and should be regulated like one.”
Fact: “Kalshi is a Designated Contract Market under the Commodity Exchange Act: same category as CME and NASDAQ.”
Nuance: I’m not sure why these are treated as two separate claims, as they seem to be the same to me. There’s no real nuance here except to say that Kalshi’s claims of fact are currently being tested in federal and state courts across the nation.
It is indisputable that Kalshi is regulated by the CFTC. Whether the CFTC actually has the authority to regulate every type of event contract being offered by Kalshi — those on sporting events most specifically — is a question that seems sure to end up before the Supreme Court.
Market Manipulation
Claim: “Kalshi lets large traders manipulate prices and manufacture false narratives.”
Fact: “Prediction markets are self-correcting: any manipulated price is a profit opportunity for other traders to push it back to reality.“
Nuance: Event contracts are no more or less susceptible to pump-and-dump type manipulation than your average financial product. However, I don’t think that’s mostly what people are concerned about when talking about manipulation.
The type of manipulation I hear the most concern about relates to the outcomes themselves being manipulated. We’ve heard stories about weather traders blowing hot air on weather stations to affect temperature markets, of cryptocurrency traders pumping a token to win bets on short-term price movement contracts, and of bots inflating music streaming counts to change the outcome of Spotify-related contracts.
Kalshi will, of course, argue that these acts are prohibited. However, that comes down again to the subjective question of whether its enforcement efforts are sufficient.
And, as with the death markets, this is a claim that’s more true of Kalshi’s unregulated competitors than of Kalshi itself. Polymarket infamously allows secondary markets on the price of its own direct markets, which is practically begging for manipulation: its secondary markets on the price of shares in the second coming of Jesus Christ is the most notorious example.
Adversarial Relationships
Claim: “Kalshi is designed to make users lose money.“
Fact: “Kalshi’s exchange has no adversarial relationship with traders. Traders transact with one another: every dollar lost by one trade is a dollar made by another.”
Nuance: Taking a prediction market in a vacuum, this is undisputably true. Users trade against one another, while the house takes a cut. To the extent that Kalshi profits from the bets, it is only through fees that depend on volume, not outcomes. It has no real stake in who wins or loses.
It’s not even necessarily a negative-sum game, depending on one’s trading habits. Kalshi offers users interest on their long-term positions, so someone who trades infrequently and holds for a long time could come out ahead with zero informational edge.
What complicates this is that most trades aren’t between two retail users, but one retail user and a liquidity provider playing both sides in the way a sportsbook would. The prediction market isn’t “the house,” but large institutional players in the market act like they are.
What’s most worrisome here is that some of those liquidity providers are affiliated with the markets in which they operate. That blurs the line a little when it comes to claims of not having any skin in the game.
Underage Users
Claim: “Kalshi doesn’t do enough to keep users under 18 off the platform.”
Fact: “The median Kalshi user is 31 years old. Less than 4% of volume comes from 18–21-year-olds.”
Nuance: This is yet another case in which the question is not whether Kalshi does anything, but whether it does enough. I will say this: It does about as much as the online gambling industry, which is also frequently targeted by claims that its age verifications can be bypassed.
There is a related question whether 18 is the correct age limit, or whether it should be raised to 21 like state-regulated gambling. Other gambling-adjacent products like sweepstakes casinos have had to wrestle with that issue as well. However, where to draw the line is very much a matter of opinion, as even traditional gambling isn’t restricted to 21+ everywhere in the world.
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