How a gambling startup is outsmarting the government (for now)

It's 10pm On a dark, rainy Wednesday night in a small apartment in New York. South park plays on the TV. A kid in his 20s sits at a desk, his MacBook wired into a cable box, picking up the same episode only 28 seconds faster. That Head Start is about to make him real money. He's running a custom script line to code, reading the show's captions in real time. Online, there's a platform letting people bet on what's going to be said in the Trump Elon Tylenol. As soon as one of those words appears, the code buys low before anyone on streaming can react. Seconds later, the prices jump. He's already out, cashing in on the lag between cable and the cloud. But this isn't some underground gambling site. It's a federally regulated startup backed by Wall street and Silicon Valley. Every month, a billion dollars flows through this platform, more than the entire Vegas strip. It looks like a casino, it acts like a casino. But Kalshit doesn't have a gambling license. It has something far more powerful. In this video, I'll break down how Kalshi makes money, whether you win or lose, the legal loophole that keeps them alive even as states try to ban them, and the one thing that could make their house of cards collapse. But before we go further, you need to understand how a bet on Kalshi works. Every bet is called an event contract. It's a yes or no position on something that might happen, like the New York City election or the pro football champion. Each contract trades between 1 and 99 cents. The price is the crowd's odds. For each option, Kalshi matches a trader who thinks yes with another one who thinks no. When new information hits, a poll, a touchdown, a tweet, prices move. Then when the event resolves, all of the money staked by the losing side funds the winners. To make this concrete, let's follow a single bet. You're betting that a South park character says the word Trump in an episode. You put down $1,000 when the price is $0.01. 1%. Odds that gets you 100,000. Yes. Contracts. If Trump has said each contract pays you a dollar and you walk away with 100 grand. If not, you lose it all. That's an extreme case, but it has happened. Like when a punter put $500 on the next pope and made more than 50 grand. Most of the time, prices land somewhere in the middle. Say you bought in at $0.70 and the odds drop to 40. You could lock in a $430 loss by selling or hold and hope it swings back. That's the whole machine. A live market where people trade. Yes, no contracts. And the outcome decides who gets paid. Now that you know how Kalshi works, the question is, how do they actually make money? Every month, roughly a billion dollars moves across the platform. But trade volume isn't the same as revenue. Instead, Kalshi takes a small cut every time money changes hands. Just like an online marketplace, they charge a sliding fee on every transaction, 1 to 3.5%. There's fixed fees as well, 2% on deposits and a $2 withdrawal fee. Win, lose or just trade again. Kalshi earns every time money moves. It's a tax on activity, not on risk. By my estimates, Kalshi's pulling in about $13 million a month, roughly 160 million a year. When this video was recorded, total trading volume passed $11 billion. This earning mechanism is what separates Kalshi from traditional gambling. In a casino, the house sets the odds and bakes in a tiny markup. Every spin, roll or hand earns a few cents. One loss doesn't matter. Over thousands of rounds, those cents stack into guaranteed profit. Kalshi doesn't do that. There's no house, so they have no stake in the outcome. Remember, it's just people trading against each other. Knowing how Kalshi makes money differently to a casino is going to help you understand my next point. Which is why they're allowed to operate. When Kalshi started, 65 lawyers told the founders the same thing. This idea isn't new and it's illegal.

One day we called 65 lawyers, all of them said, no, it's not happening. This is stupid. Yeah.

So they took an unusual path for a startup. As founder Tariq Mansour put it, for this thing to be big, we need to do it by the book.

I'm not doing anything wrong. Like everything we did was actually played by the book.

In mid-2019, Kalshee raised a small seed round and began building. A team of roughly 10 worked on shipping the product. But Kalshi's breakthrough didn't come from tech. It came from the law. Buried in the Commodity Exchange act as a 90 year old clause giving the Commodity and Futures Trading Commission, the cftc, power to define gaming and wagering. But the law never actually defined those words. That gap was Kalshi's opening. Over the next year, the team met more than 30 times with the CFTC. Each meeting was part negotiation, part education, showing how Kalshi's contracts weren't wagers, but Predictions, they leaned on two core arguments. One, similar to how traders hedge gold and oil, each contract is a tool to measure uncertainty in real world events. Two, Kalshi has no stake in the result. And they came armed. Not just a demo, but binders of research, proposed compliance frameworks, risk models, even mock audits. The kind of prep you'd expect from Goldman Sachs. Not a 10 person startup. Against all odds, the CFTC said yes. In November 2020, Kalshi became the first federally approved prediction market in U.S. history. But that alone doesn't explain how they went mainstream. Because after getting their license, platform growth slowed. The founders knew they needed a breakout moment, and they saw one. The US presidential election in 2024. Look what happened. Is this crazy? But they had a problem. Kelshi never got permission to list political event contracts, meaning people couldn't put money on who would be the next president. So they sued their own regulator. Kalshee made the same case from before, only this time the CFTC said no. So Kalshee took the case to federal court and won. Kalshi resuming some of the betting on its platform related to elections as follows. A decision by federal appeals court. For the first time in nearly a century, Americans could legally trade on political events.

100 years ago, election betting, or trading was made illegal. Now it's back to being legal in.

The US the election hype put them in the spotlight, but it was just the start. They've expanded beyond politics, adding sports markets and parlays. Since October 2024 to now, trading volume has surged 200x. But not everybody is a fan. Several states have tried to ban Kalshi, but all those lawsuits have failed so far, including in the us Both federal and state governments make laws. When they clash, federal law wins. It's called preemption. Kalshi's founder summed it up simply, State laws don't apply to us.

Okay, well, let's take it up to the courts and see who's right on the law. And we were right on the law. And so now we're doing it legally.

But Kalshi is aware of its strategic vulnerability. One license is keeping their business alive. If enough states push back, Kalshi's house of cards might not stand forever. This brings me to their next move. How? Kalshi is protecting their license. Since they got it, they've quietly built a powerful network of political and financial allies. Brian Quintenz, a former CFTC commissioner, joined their board in 2021. In 2025, they added Donald Trump Jr. As a strategic advisor and they brought in Sarah Slane, one of the key figures in legalizing sports betting across America. It's not all one way traffic either. Several former coalsee employees have taken roles inside the US government, and their legal counsel, Josh Sterling, is now being vetted by the White House to lead the CFTC itself. This could give Kalshi a direct line inside Washington. On the financial side, Kalshi is backed by three Wall street titans, Charles Schwab, Henry Kravis and Peng Zhao, whose firms collectively manage trillions. All of this, the connections, the capital, the influence, fortifies one thing, their federal license. If that license ever came under threat, it's a safe bet Kalshi could use those connections to defend it, which might soon be necessary. Remember how Kalshi is leaning hard into sports? When they first applied for their federal license, they deliberately stayed away from sports related contracts. Now in 2025, those markets make up nearly 80% of all money traded on the platform. That's a problem. States that allow sports betting collect taxes from it. For example, New York pulled in more than a billion dollars in sports betting tax revenue last year. Guess how much cal she paid? 0. And if there's one thing governments hate, it's not getting their cut. That's exactly why Ohio is now trying to ban Kalshi. Ohio is the second largest sports betting market in the us. The more states that try to tax Kalshi, the more scrutiny it faces. But as long as that federal license stands, Kalshi is a casino the government can't shut down.