Throughout history, finance and technology have been two of the most important forces driving human progress. Technological innovation generates new knowledge and opportunities, while financial markets decide which of these opportunities to support with capital. This creates a powerful feedback loop: new technologies make new markets possible, and in turn, new markets create more capital that supports technological development.
If financial markets exist to allocate capital efficiently, then derivatives exchanges exist to mitigate the risks associated with this allocation. The first organized futures exchange started in 1710 with the Dojima Rice Exchange in Japan, but derivatives have been an established financial tool for hundreds of years. Every choice of capital allocation involves risk, and derivatives contracts allow investors to anticipate future risks and decide which they want to bear and which they want to sell or "hedge".
In recent years, the finance-technology feedback loop has intensified, in large part because of the Internet. The number of novel asset classes is growing exponentially as a new digital economy takes its place alongside the traditional physical one. We are living in a world where the market for human attention is quickly becoming just as important as legacy markets for trading physical commodities like oil and gold. As a result, the universe of assets with financial value has dramatically expanded over time. Five hundred years ago, the primary sources of financial value were precious metals and crops, but today, even Michael Jordan sneakers are traded back and forth on exchanges.
Unfortunately, the derivatives industry has fallen out of sync with the feedback loop of human progress. In today’s news-driven Internet economy, where events and data can move markets quickly and decisively, most derivatives are still based on physical commodities and conventional indices. Investors are facing risks that are not being covered by the traditional derivatives industry, such as those tied to geopolitical events, climate change, public health, and online media. Existing exchanges focus on institutional investors and complex structured products rather than on clear, simple tools that allow hedging.
Kalshi is here to realign the derivatives industry and write a new chapter in the history of financial services. We’ve created a technology-driven exchange that enables investors to trade a new kind of derivative called event contracts. Event contracts are simple, elegant, and structured as easily understandable questions with discrete “Yes” or “No” outcomes.
At a fundamental level, all investing is based on asking and answering questions, whether they are about a single company or about the world. A good thinker working from a set of basic assumptions generates questions on a daily basis and then attempts to answer them with careful observations and data-driven analysis. An investor uses these answers, along with financial leverage, to generate a return from their correct answers.
With a financial instrument for events, you can capture pretty much the entire universe of questions that are worth asking, especially since an “event” is just another word for an observation. We believe that an exchange built to trade event contracts can provide direct exposure to a wide array of risks that are relevant to the modern investor. Risk hedging, an esoteric superpower currently controlled by insurance companies and exotics desks at investment banks, can now become a daily and democratized experience for millions of retail investors via Kalshi’s web platform and mobile app.
The diverse scope of topics that markets on Kalshi have the ability to cover will lead to a level of optionality that has never before been seen in financial services. Retail investors will come to view Kalshi’s markets as the ultimate expression of their internal thought process.
Polarization is at an all-time high, volatility is rapidly increasing across the globe, and the Internet has exponentially increased real-time information availability. Traditional power structures are being disrupted, our climate is changing, and uncertainty about the future has never been higher. As the systems and norms that have governed life for decades give way to new paradigms, forecasting the future and the process of formulating and asking questions will become more important than ever.
Event contracts have the potential to capture all of these changes into the form factor of a simple and user-friendly asset class. All you need to invest on Kalshi is an opinion - not limited to stocks, bonds, commodities, currencies, interest rates, or market indexes - but an opinion about anything that matters to your bottom line, from believing that New York City’s rent prices will go up next month to having a strong conviction about the streaming success of your favorite musician. At Kalshi, we truly believe that event contracts have the potential to change the world, and we’re working every day to make that vision a reality for a new generation of investors.