Domer❤️🔥@Domahhhh
Isaac acknowledges that prediction markets are different from sportsbooks right off the bat:
"Sportsbooks really do limit and ban winners. Casinos really are extractive by design. Kalshi really does operate as an exchange rather than a bookmaker, profiting through transaction fees instead of directly from user losses."
But then eventually warps it into something predatory, specifically this quote:
"Kalshi pitches itself as morally superior to casinos because it isn’t on the other side of users’ trades, so it has no stake in whether they lose. That is a lie. Kalshi does not need to beat users directly. But it does need enough regular users to keep losing to sharper ones, while charging a fee on every trade."
And my rewording of his original tweet: "Kalshi's incentives are fundamentally the same as a casino's incentives."
One immutable fact here is that, because the markets are player vs player -- one person wins all and another person loses all -- and because markets are not operating as charities, then there will be some extraction of funds in terms of fees (and Kalshi is def on the more aggressive end of charging fees at the moment). Overall, across the universe of users and funds, people will lose a tiny percentage of money, and that money will be sent to the exchange.
And from that business necessity of some type of fee, the conclusion reached is that Kalshi is churning through losers in order to feed the fee machine, much the same way a casino needs to maximize traffic into their establishment. And that, therefore, these two business are "fundamentally" the same.
It is a seductive argument, but I'm going to (try to) explain why this is totally batshit slop/misleading propaganda.
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Let's start with me. I am not some super genius (If you've been following me on here you probably have come to realize this! And if you know me better than that, you realize this even more! Lol.) Yet I've made millions doing this. It didn't start that way. My first $100 on poker was gone in a few hours. My first bet on something other than a card game was a $2 loser on a Knicks game. I was/still am a regular person. I'll come back to this later.
I was just at a couple of prediction market conferences over the past few weeks, and during both of them I was on a panel with other traders. I bring that up for two reasons:
The first is that all of the people who were up there with me were/are also just normal people who found a niche. At the Kalshi event, the person who was sat next to me is an Ariana Grande superfan making a small fortune predicting music charts. He is a school teacher.
The second reason I bring that up is because I was asked, "Are prediction markets more of an art of a science?" and my answer was, among other things, "Neither one, they're hard work."
A regular person can make money on prediction markets if they find a niche, do actual work, and stay disciplined.
There will be some degree of unpredictability in any endeavour that you pursue, but as someone who has bet on crypto, stocks, cards, sports...the one that I've found most rewards hard work, above all else, is prediction markets. Yes, even more so than active stock trading, where markets can react arbitrarily. Yes, even more than poker, which involves luck in the short term. My career is a testament to the fact that you can simply show up to a market, do the work, out-compete your counterparties, and win money.
I may be an outlier because of the length/time devoted to doing this, but there are thousands of people churning out big/medium/small wins. One of my real-life friends deposited $100 a few months and has grown it to $1000 (then withdrew the initial $100 back out so his wife wouldn't be worried about it lol).
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The distinction between casinos/sportsbooks and a prediction market is a large one. The incentives that drive each business are fundamentally different.
The relationship between a sportsbook/casino is predatory. And given that it is predatory, then the users/customers are literally the prey. And these companies have optimized to take as little risk as possible these days; in other words, they want easy prey. Easy prey does as much gambling as possible, and as little work as possible (the extent to which these companies try to maximize users gambling can be, in a word, disgusting). Someone who is smart and hard working and finding a niche is totally anathema to them. It's like sunlight to a vampire. They will shriek at an ear-curdling pitch if they find you are a profitable bettor, and ban your ass.
The relationship between a prediction market operator and a customer, meanwhile, is bordering on collaborative. An exchange wants to put up interesting markets. They want to put up fair markets. They want users matching offers with each other as much as possible. The goal is a seamless, easy-to-use exchange for predicting topics that people care about. The areas where you are their 'adversary' are much fewer (and, principally, really just the fees).
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Now, let me synthesize both of these thoughts (1) my usage/observed usages of others with (2) the stark difference between a casino/sportsbook and an exchange:
On prediction markets, a user, like me, has far, far, far more CONTROL.
The user can deposit what they want, deposit when they want, bet on what they want, bet when they want, bet the amount they want, choose the price they want to buy at, choose to be a maker or a taker, choose when and where to sell. And, if you are a user, and you spend hours looking at every single market and can't find anything interesting, you can literally ask them for a new market on something you DO want.
Most importantly, on a prediction market, you control the why. Bets are accepted from anyone along the continuum of "I have a PhD in this topic and I've created a model to crush my opponents" all the way down to "Well I'm bored and I'm rooting for this to happen and I guess we'll see how it goes??"
The leap from playing against adversarial companies to playing against other users on a fair, agnostic prediction market is power and control. I...me alone, as a person in the world...am able to use hard work to make money against other people in the second lane, but not really the first.
And the INVERSE of the user having the power is that Kalshi's control over a user's trading on the site is minimized. They have very little control over all of the variables above. Just as Robinhood has very little control over someone buying risky stock options. Or a DEX has very little control over someone betting on a crypto token. Or Schwab has very little control over someone day trading.
Criticizing companies for users using that control to lose money is a silly, slippery slope argument. The reason it is is a slippery slope is that you can already make legal and socially-acceptable bets in far more reckless and far more idiotic venues (look at the Wall Street Bets subreddit). [Tbc, if you want to criticize prediction markets for their marketing, then I will probably be on board with those criticisms.]
But, anyway, from that unlock of user control, all sorts of things will arise. We get good things (better pricing on the future, cool stories of big wins on smart bets) and bad things (navigating insiders, rule fights, and hearing stories of people losing money being stupid).
Simply by virtue of the fact that you have people losing money does not equate with a prediction market's incentives being "fundamentally equivalent" to a casino's incentives. A prediction market, much like a stock exchange -- or any of the other millions of service companies in the US -- gives you a cost to use it. We can debate what that fee should be, but it's going to be above zero.
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To summarize: Prediction markets give the user control, whereas sportsbooks and casinos offer up the illusion of control.
Lumping these two very different businesses into the same category is not only objectively wrong, but it does a disservice to outside observers and regulators.
And, finally Isaac et al.: I'm sorry to break the news to you, but a free market where users have control is absolutely morally superior to an adversarial company that preys on its customers. We can argue the absolute morality of doing ANY of the above, but the differential in morality between the two types of business is not close.
