What's The Deal With Kalshi?

The Popular Online Gambling Platform is Getting Sued by Washington State

story by Quin Ford, design by Thea Batch

“What will the top AI model be next month?” 

“When will the U.S. reach a nuclear deal with Iran?” 

“What will the announcers say during the Lakers versus Thunder game?” 

These are just some of the many real-world events users can wager on through Kalshi. Over the past year, this so-called “prediction market” (PM) has taken the betting world by storm — even if that has meant turning a blind eye to the law. The platform's blatant neglect of Washington’s sports wagering laws has given state officials no choice but to file a lawsuit against it.

What is Kalshi?

Kalshi, founded in 2018 by current CEO Tarek Mansour and fellow MIT graduate Luana Lopes Lora, is a web-based prediction market that can be downloaded on mobile devices. Once you deposit money into the app, you can then bet on ‘event contracts,’ which include wagers on sports, politics, wars and even the weather. 

The year after Kalshi launched, a premier startup accelerator called the ‘Y Combinator’ (YC), took a chance and invested in the company, saying on their website, “We built Kalshi because we believe that people should be able to capitalize on what they know and have opinions on.” With the help of the YC, in 2020, Kalshi became the first federally managed exchange where people can trade on events.  

After four years of even more investors buying in and gaining major media coverage from organizations such as The Wall Street Journal and The Boston Globe, Kalshi became the first fully governed platform in over 100 years to offer legal election trading in the United States.

Unfortunately for Kalshi, ‘legal trading’ translates to ‘illegal gambling’ under the eyes of Washington State's Gambling Act and Consumer Protection Act.

The Big Issue

On March 27, Washington State Attorney General Nick Brown decided enough was enough and filed a lawsuit against Kalshi. According to his office’s website, “The lawsuit argues Kalshi violates the Washington state Gambling Act and Consumer Protection Act, and seeks to halt these unlawful activities, recover money lost by Washingtonians, and assess civil penalties.”

Even Kalshi users recognize the validity of the lawsuit. “It’s not really anything that anyone needs,” says third year Computer Science major Jorge Leos. “It’s probably going to benefit everyone in Washington once it’s gone.” Despite some fun times and a few wins, including on a bet predicting a rise in Bitcoin’s value, Leos admits he’s lost anywhere from $800 to $900 wagering on Kalshi. That doesn’t mean he’ll stop betting if Kalshi goes away. He’s already looking into a site called PolyMarket which he says uses “the same strategy, the same platform and algorithm” as Kalshi.

Washington State’s Gambling Commission website is clear: “Gambling in Washington state is illegal unless the activity is specifically authorized by state law. Gambling involves three elements: prize, chance, and consideration (wager or anything of value).” For over a year, Kalshi was able to side-step state regulations by branding their platform as a prediction market. Although the jig did not last long, the effects of the platform continue to be detrimental in more ways than one.

Democratic Integrity: What’s That? 

One of those negative effects, analysts say, is on democracy itself. The risks associated with allowing users to place bets on elections poses extreme threats to democratic integrity. Say you are using Kalshi and notice that one political figure is favored to win over another, simply because of other users' wagers. This can alter your perception when you go to vote, just by witnessing the probabilities featured on Kalshi. Fourth year Communications Major Cooper Maxey, also a Kalshi user, explains it this way: “Because you can see the live odds and you can see what people have bet on and how much, I think that could potentially sway people to vote or act in a certain way.” 

Forbes Magazine feature and Professor at City University of New York, Nizan Packin, wrote in Science.com in April about how PMs are becoming a public health threat. “Concentrated actors can cheaply shift probabilities, potentially influencing voter perceptions, expectations, campaign donations, and media coverage in self-reinforcing cycles.” Shifting probabilities is a key concern when it comes to PMs and the amount of money users wager on certain events has the power to persuade others to do the same thing. 

In an interview with PULSE, Packin clarified, “If it’s the SuperBowl, you need more people and much more money. But if it’s a much more narrow, less exciting, frequented contract, it’s much easier… [to] manipulate, or change, or modify the final number that you’re seeing and that can be potential for manipulation.”

If shifting and manipulating political probabilities isn’t already bad enough, on April 26, U.S. Army Master Sgt. Gannon Ken Van Dyke, used his insider information to bet on former Venezuelan President Nicolas Maduro’s arrest, using the PM platform PolyMarket.

CBS News reported that “Van Dyke was charged with unlawful use of confidential government information for personal gain, theft of nonpublic government information, commodities fraud, wire fraud and engaging in monetary transactions from unlawful activity.” The website also mentioned that Van Dyke had direct involvement in planning Maduro’s capture. On April 28, Van Dyke pled not guilty to the charges filed against him. A verdict has yet to be determined. 

The Potential For Developing Gambling Addictions

Kalshi markets to cash-strapped college students. Paired with the convenience of being able to place bets on your smart phone, Kalshi and other PMs make it easy to develop a dependency on their platforms. “The user dimension encompasses psychological vulnerabilities (stress-coping deficits, sensation seeking, overconfidence, mental health conditions) that increase addiction susceptibility,” Packin wrote.

From Leos’ experience, PMs like Kalshi make college students and other vulnerable populations susceptible to developing gambling addictions. “It’s a gateway into gambling [addiction] because of how easily accessible it is to the public,” he says. 

While opportunities to develop gambling addictions appear to coincide with PMs, Packin says she believes that the idea of introducing guardrails may limit the vulnerabilities seen in these platforms. “Certain guardrails and certain clearer rules and regulatory frameworks should be put in place so that we can maximize the benefits without really suffering from the risks as much,” she says. “Maybe less addictive design, maximum or minimum amounts like thresholds are based on your levels of experience. Or, for example, certain things we can borrow also from the gambling ecosystem. For example, casinos are not able to lend you money to bet more.”

Given these defensive approaches, there are areas of growth for PMs to explore. The big question is: will they?

What’s Next?

While Kalshi may offer convenience and innovative features, let’s not forget the reason the platform is getting sued. Although a verdict has not been reached, we can expect to see increased litigation in the upcoming months. As college students like Leos and Maxey explore the capabilities of the platform, it is important to remember that gambling can be addictive, which can result in financial and personal harm. If you or someone you know is battling with a gambling addiction, there are resources to help for yourself and those around you. 

Helpful Resources

Washington State offers the “Washington State Problem Gambling Helpline,” at  1-800-547-6133. Additionally, the “Evergreen Council on Problem Gambling” is another great resource, their phone number is (360-352-6133 and are based in Olympia, WA. On a national scale, the “National Problem Gambling Helpline” can either be called or sent as a text at 1-800-MY-RESET.