Co-founder Tarek Mansour noted that Kalshi recently raised $300M+ at a $5B valuation, led by Sequoia and a16z. Since then, he claims that they have grown more than 3x, reached $50B of annualized volume, and became the largest prediction market in the world. And now, Kalshi is going global (140+ countries. 1 liquidity pool).
a16z explained why it is investing in Kalshi, which is described as a regulated exchange for trading on prediction markets. As covered, prediction markets are a modern implementation of a more traditional economic concept, one that has been clearly articulated by Friedrich Hayek.
Hayek has argued that no central planner will ever be able to access the dispersed knowledge that is said to be held by millions of people across an economy. This is considered to be a fundamental challenge that has come to be referred to as the “knowledge problem.”
According to a blog post by a16z, much of this knowledge is “tacit and unspoken, embedded in people’s experiences, circumstances, and preferences.”
To be clear, Hayek was not merely pointing out the so-called limits of central planning. He was provide a solution. In his 1945 essay The Use of Knowledge in Society, Hayek maintained that the solution lies in looking outward, not inward: “We need decentralization,” as he had noted.
Markets, according to Hayek’s perspective, are not simply allocation mechanisms but they also qualify as information systems.
Prices tend to serve as signals, “compressing vast amounts of local knowledge into actionable information.” Moreover, the blog post from a16z noted that prices tend to create incentives: they encourage people “to make decisions and act in ways that drive information back into the system.”
And this creates a so-called “iterative feedback loop, an engine that drives better performance.”
The update from a16z added that today we might say that the answer to the knowledge problem is “not to give central planners more sophisticated computers.”
According to the blog post, the answer is that “markets themselves are the computers.”
Prediction markets make this idea “concrete, applying it to questions about the future and turning collective knowledge into prices that reflect probabilities.”
This is why a16z said they are enthusiastic about prediction markets, and why they’re investing in Kalshi.
As noted in the update:
“Kalshi is bringing prediction markets into the mainstream with a compliant, scalable platform for event contracts covering everything from elections and economics to sports and culture. It has already seen billions in trading volume and continues to grow quickly. Kalshi also plans deep crypto integrations, work we’re excited to collaborate on, and today announced they’re expanding globally to 140 countries.”
The blog post also stated that they are “not the only ones excited about the potential of prediction markets.”
For businesses and investors, event contracts “can hedge risk, such as exposure to economic or policy changes.”
For policymakers and analysts, market prices “offer real-time forecasts that can outperform polls and expert predictions. And for society at large, prediction markets create an open, transparent, and incentive-driven way to aggregate beliefs about the future.”
This is the right moment for prediction markets, according to the team at a16z.
They added:
“As trust in established institutions reaches historic lows — at least according to the polls — we need new systems that can earn trust in different ways. We believe the answer lies in open, decentralized systems. DeFi provides an alternative to traditional finance, stablecoins to conventional payment providers, and prediction markets to expert forecasts. Where people once trusted banks or pundits, they can now trust protocols and markets.”
In summary, Hayek’s main insight and observation was that “knowledge is too widely distributed for any one authority to possess.”
Instead, we need systems “that harness the intelligence of the many.”
Kalshi puts this idea into action, “transforming dispersed information into concrete, market-based forecasts.”