Luana Lopes Lara on Kalshi’s CFTC Approval Journey

all sorts of really fascinating places. They are the only such marketplace that has been approved for this sort of events trading by the Commodities Futures UH Trading Commission, the CFTC, which makes them both fascinating and unique. There's nothing else

like them. UH. This pro vides away for individuals and institutions to hedge all sorts of really interesting events and as opposed to having think about, well, if this happens, what's the ramification in gold or oil or inflation or interest rates, you can actually bet on that exact event and hedge your business or your portfolio. It's really quite fascinating. I thought this was a really interesting conversation and I think you will also so with no further too, my

conversation with cal She co founder Luana Lopez Laura. This is Mesters in Business with Very Results on Bloomberg Radio. My special guest this week is Luana Lopez Laura. She is the co founder of Calci, one of the only derivative trading marketplaces that allows the trading of a event contracts in order to hedge against major business and political events.

CALCI is the only marketplace to receive approval from the Commodity Futures Trading Commission, who regulates the trillion dollar derivatives industry. Luana Lopez Laura, Welcome to Bloomberg. Thank you so much. I'm very happy to be here. So so let's start just with that unusual UM intro. You're the only CFTC approved way to trade on the outcome of events. Explain that a little bit right exactly, UM. Cal She is a financial exchange that allows people to trade on the

outcome of a lot of different events. UM. So things from will inflation keep going as high as it is right now? Will the Feds raise rates to like? Will twenty twenty two be the hottest year on record? Um? And already sets us A part is that we're the only the first and only ones regulated by the CFTC to do this um in the United States. So let's talk about that, because I love this story about you guys,

you and your co founder. You start calling attorneys and one day you end up calling like sixty or seventy lawyers in a single day, and pretty much every one of them said, people have been trying to do this since the nineteen eighties. It's never been approved. Just forget about it. It's not happening to tell us about that, right. So, we really wanted to build Cauchi the right way, so to be that exchange that is sustainable and can be

a pillar of the financial world. UM. We wanted to make this really big, get the right partners on board, and really try to build something that's gonna out last seeing me, you know, like c's around there for like a hundred fifty years. And the way to do that for us was to build a proper financial exchange, build this right. Uh. And we knew that getting regulated was the first step in like figuring out how to do it right. But obviously me and my co founder of

both computer scientists, we knew nothing about regulations. So we sat down and put on a spreadsheet that names and and emails of five different lawyers that we thought maybe could be related to this, and we called one by one. I think we split who was gonna call um who, and all of them were just like, that's not gonna happen. The CFC won't allow this. It has already they already

said no to this in the past. Um. But because of a friend of a friend of a friend, we ended up getting to Jeff Benman, who works with us to today. Uh, he's an ex official the CFTC, and he really understood the commission and helped us navigate started helping us start navigating the entire situation. Um. And Yeah, it was two years of of that entire engagement and iteration of the CFTC with all their core principles and concerns that they had that to address them and really

end up getting regulated in November. So it sounds like it wasn't so much that the CFTC was against the idea of event contracts in order to hedge on these circumstances. They just didn't like what was um presented them previously over the previous forty years, or did something change that they suddenly said Oh, we used to think this was a bad idea, and now we think it's a good idea.

I think it was it's more of the first I think it was about presenting to them why we thought event contracts were so important and how they could really be used for hedging um and every day hedging like like retail and Americans every day can hedge things like inflation, like rates, the risks that we see and read about

like in the news or or on TV every day. Uh. And it was really like presenting to them and getting them to comfort with how these markets work, how they weren't easy to manipulate, how the rules could could operate. So really getting them to comfort with how the exchange, the markets, and all of our contracts could could operate. And that's what took that long. It wasn't um in my opinion. It was more like explaining what we wanted to do. They were fantastic from the beginning to really

listening and working with us. UM. It wasn't that they were just like, no, wait, we're never going to do this. I think it's interesting that it took people from outside of the world to finance to bring an idea into finance from a technology perspective and say, whatever the logistical hurdles we have to meet in order to receive regulatory approval.

That wasn't like an ideological problem to you, was a well, this is a logistical problem that we have to solve, and once we solve it, we can get this going. So how long did the back and forth with the CFTC take to get approval? Yeah, it was two years or two years and a half. Um. And yeah, we used to say, it's like we were climbing a very high mountain, and then as we would started climbing more, we would see it's actually so, I says high, and

we would keep and it would keep multiplying. Because the thing is we would go to them and they would have concerns and issues, so we would go back and solve the issues. A lot of it, as you mentioned, was related to technology really doing analysis and similar markets, what we could do and view the surveillance systems and all of those things, and going back to them and then they're like, okay, that's fine, but we have all these other issues now, and then we would go back

and and figure them out and do that one by one. Um. It was like walking in the desert a little bit. We didn't know where where the end was, but it ended up working out. So so let's talk a little bit about your platform. This is unlike futures, and it's unlike derivatives in that when you are purchasing a contract, you're putting up the full dollar amount. It's not like where you're putting up ten cents on the dollar or one cent on the dollar. If you're making a thousand

dollar bet, you were posting a thousand dollars. How much did that factor influence the CFTC that this wasn't just going to be reckless speculation and people um falling around. This was really hedging right. So we are fully cash collateralized. So every as you said, every dollar that you can lose, every dollar that you your trade, you have to have it with us before UM. And I think this really helps with the safety off the platform, and it really

started from us. UM. We really want to start in a way that it's very safe for everyone and we can really understand the system before going like too far ahead. UM, and we really see this as very important. So all the funds are fully cash collatalized, but obviously from from the CFTC perspective. It adds to their comfort to the fact that there can be like leverage or marginal more risk added to the system that all the money's collatalized and the retail is protected because of that. So equities

you can put up half the dollar amount. Two to one futures are something like ten to one options. If you go out of out of the money and far enough into the future, it's it's a hundred to one. Is there ever a plan to move away from the one to one dollar for dollar Maybe not option hundreds on one, but certainly margin and equity market seems to be pretty reasonable at two to one UM. At the moment, we really focused on retail and fully cash collateralization fullick

being fully cash colatalized UM. But at in the future, as think, our goal is to be like the New York Stock Exchange for events, so having being really the central place of the ecosystem and having like different brokers and institutions, hedge funds, market makers plugged into us the exchange. At that point it would make sense to start considering UM something like that, But right now we're completely focused on retail and UM having a fully cash glatalized stuff.

Once it becomes a big institutional exchange, then then you can explore that. So since it's retail, let's talk a little bit about retail. Gamification is a real big issue. We've seen robin Hood do this, We've seen a number of other UH sports gambling platforms doing this. What are your thoughts about gamification when it comes to events trading. Yeah, I think the gamification question is a very interesting one because I think it's less about the asset class and

more about the actual platform and the mechanics. So, for example, you can trade equities on robin Hood or Charles shob Um. The conversation about gamification is a lot more on Robin hood Um then Altarl shrob even though the underlying like it's the same, you're trading equities. So we really believe event contracts are have a very big economic purpose and can be used for hedging and all of those things that we talked about, and the gamification would come only

in the platform. But we're very, very um focused on beauting a platform that's safe, easy to understand and to use, but not not gamified. So let's go over some of the type of events that you guys trade. You could you can make bets on COVID nineteen and vaccination, on economics, inflation, mortgage rates, politics, climate and weather, world culture, science and technology.

Let's let's uh, let's take some examples from this. I love the idea, will the thirty year fixed rate mortgage be above three point nine percent on April fift In other words, if I'm buying a house and closing on it and concerned that rates might rise, I could take a trade against that and hedge that position. And I don't have to be a billion dollar hedge fund. I could just be someone buying a house exactly. I think all of our contracts UM have economics purpose and they

can really be used for hedging. UM. For example, all of our COVID markets during the omicron wave, you could really see, like even before the news started reporting it UM the amount that it was ticking up, and then we would talk to the users and there, oh wow, like I might not be able to go back to school. I want to hedge like that that situation and all of that UM. SO a lot of the contracts I'm very interested in. For example, is the half point rate

hike for for March. I think it's it's a market that went up a lot to during I think one of the there was some news that that he was going to go up by that and then he went down again, and and um. Other ones are GDP and inflation. Really just getting into the economic situation we have in nowadays number of Americas. So these are all yes or no contracts, pretty clearly determined. It's black and white. Will two hundred and fifty four million Americans be vascinated by

May one? But I saw a contract will America achieve her immunity by September one? Who is the determiner of whether or not her immunely? How do you define those terms? Yeah, that's a great question. All of our markets are like legal binding documents, so they're like forty pages determining what the real rules are, uh to really make sure that there's no room for indeterminacy or anything of the sort.

Uh So this market specifically, I'm not exactly sure. I think it's definitely the CDC or some number around there. But if you like all of our rules, if you go to our rule book, it has very specifically defining um where which number we're using, how we're using, which target, if it has to be above or below a certain number and it ends up being very determined. But for COVID markets, we're using CDC numbers for settlement sources. So I mentioned world culture. Um, that's kind of interest thing.

Is there a lot of activity in who's gonna win Best Picture or who's going to be the best actress at the oscars? How is that a seasonal thing when each year or how does that trade? Yeah, the launching the oscar markets were was very important for us because they were the very very first regulated derivatives I guess

in the entertainment industry and in academy awards. Um. We have traded more than a hundred and fifty thousand contracts in the oscars so far, and it's only been a couple of weeks, and we really expect the trading there to to be a lot higher closer to to the

ceremony or during the ceremony. UM. But it's interesting a lot of people say that the oscars are are dead or irrelevant, but the movie industry is so big to nowadays that there's so much so many people that are so impacted by the results of these awards and things of the sort. Um. And yeah, well this is analogy point. I think The interesting thing about the entertainment industry is that you have awards, for example, like the Oscars or

the Grammys, that we also have markets on. But you have weekly things, for example, album sales numbers, UM billboards, charts and things like that that that we offer markets on every week and have a lot of room for like modeling and aupha and things of the sort. So so I know, studios spend a lot of money on marketing and promoting leading up to the Oscars, because if let's say a small independent film wins Best Oscar, it seems a you it gets a huge uptick in subsequent

box office and other sales or streaming rights. I'm wondering if part of their marketing plan is going to include hedging on Best Oscar. They can not only spend you know, a million dollars on promotion, they could buy a contract that offsets not winning Best Oscar. Yeah, that's our goal. Let's forget all of them to come and really hedge all this risk that they have. So so where's the volume today? Where are you seeing the most amount of activity?

Is it? Is it inflation and fed activity? Is a GDP? What where where's all the money flowing? On your platform. Right. It's actually interesting because when we launched, we really expected it to be categories specific or concentrated in specific UM categories or economics, UM, entertainment, transportation, technology, But it really is about what what the news are, So what's top of the New York Times, what's in the newspaper the

whole day? Uh, what's in the news? And right now, as you mentioned the Fed March meetings, is is very is a very uh is a market with a lot of right, it's very hot, yeah, for sure. But for us, we've we've seen this like news based activity, a lot like the onm ground wave um as like Dojo and the infrastructure bill was passing, there was a lot of activity over there, or when j. Powell was going to get renominated, there was a lot of activity in that market.

So it's really about what's in the news and what people see UM there was associated with and and where they can they think there's most room to make money. And right now the Federates UM people are really disagreeing on that and there's a lot of volume of volatively on that market. So so you guys didn't exist when Brexit had come up. That was before your time. But you have been around with Russia and Ukraine and I noticed there's not a lot of activity there. Why not

do a futures contract on will Russia. It's obviously too late today, but in January or December you could have done a will Russia invade Ukraine by February one, March first April one. Right, we avoid any contract that's related to war, terrorism, assassination, or violence of any kind. Um. We don't want to have those those markets on our platform. Um. But we do have markets there are adjacent to that. So for example, markets on the price of ruble or or the price of oil natural gas in the US

and Europe, So we have markets that adjacent. We just don't want to have markets directly related to war, terrorism, assassination, or makes sense, you don't want to incentivize anybody misbehave. In the past, I've heard futures described as a marriage between hedgers and speculators. So if you're an airline, you want to hedge the price of oil, but someone's got to be on the other side of that trade, so incomes the speculators. Are you seeing that same sort of

relationship amongst CALCI clients. Yeah, I think she is one of the most pure forms of exactly this hedging and speculation UM match. I think one a very simple example to understand this. If you think of rain in New York City right like you can have like an ice cream truck buying. UH. An ice cream truck will be ready really hit if if it rains for like a lot of days, because people will buy less ice cream, so they can buy a guess contract to really hedge

that offset that they have UM. On the other side, there can be someone that is going to speculate and seeing there's a forecast of for rain UM in the next couple of days, and they're willing to take UM the no side because they think that there's only twenty percentages it's going to rain, and it seems like they

can make money. So then you can really have a match of like people that actually need to have a contract for hedging almost like insurance, and people who who because of forecasting and probability and what they think the fair value is, is going to take the other side. And then at the settlement, for example, if it does rain, it ends up being that everyone is happy because the

speculator makes money because they work correct. UH. The head is protected against and the speculator on the trade right exactly and exactly, you got it totally right. So let that raises a really interesting question, who are your clients? Are they hedge funds and institutions, are they retail investors or is it a whole spectrum of people. Um, we really focused now on on retail, and our our biggest amount of users right now is the traditional option trader,

like informed retail option traders. UM. But the way that we see this this growing is we want to keep growing within the so trading an options trading community. And then our next steps getting brokerages on board so that you can now go and trade on event contracts for

your interactive brokers or each trade account um. And then after debuting enough liquidity to start bringing more prop shops in and smaller firms, and then hedge funds and and then institutions and mimic can have maybe um burger king hedging, UM, I don't know, price of plastic draws or something like that. So so the platform eventually becomes an exchange exactly exactly. I think we see it as a beaut up of

liquidity from from retail. That's like smaller amounts, but but but higher velocity to to higher bigger and bigger institutions all the way to become like a full flash financial exchange like the New York Stock Exchange or seeing me. So let's talk a little bit about how you guys, you and your co founder created Calci. You kind of were the opposite of Facebook. You know, Mark Zuckerberg famously said move fast and break things. Companies like you and coin base and block fi spent a lot of time

getting approval from the regulators. Tell us a bit about why you took that approach as opposed to moving fast and breaking things. Yeah. I think a lot of times UM people are making the short term trade off for speed.

UM and in finance, I think it's different. You can, obviously you go to market faster if you choose the unregulated route, but with financed there's been like a lot of historical examples of unregulated platforms getting meaningful volume and then being shut down by regulators because they weren't properly

regulated and doing things right from the start. UM. We really think that the opportunity really shrinks if if you don't take regulation into account, because then you can't get real money in the platform, you can't get real good partners, as we just talked about brokers, market makers, hedge funds on board. Sometimes you can't even offer products to you ask customers. You really boxes into something small very quickly. And and that's for us to be the New York

chockics change for events, because that's our goal. The only way to do that was to do uh A right from the start, going through the regulated path and and eating on the cost of the two years and a half waiting, but but making sure that we're set for success. So you're your co founder, Turek Monsour. He was an equity derivatives intern at Goldman Sachs in the same year

you were a quantitative trader at Citadel Securities. So you guys both had a pretty bright career path had you not decided to go out and launch this whole new platform. Tell us what motivated you to say, Goldman Citadel, that looks too easy, let's let's launch a new startup. Well that that's funny because actually most of our M I T time we were both very focused on just getting finance jobs and never even thought about um starting a company.

But yeah, we were both very interested in math, financial history finance from from the very start of our school years, and and we worked at various finding show firms as you Man Shtaric worked at Goldman UM, I worked at Bridgewater UM, Five Rings Capital, which is a small prop shop, and then Citadel Securities UM. At the internships, we really saw the behavior that we say is the cowship behavior over and over again. It's like firms making trading decisions

based on events. As we think the European Central Bank is gonna raise rates, Let's take this massive position already find the structure to make that work. But the idea really crystallized in our heads when we were working both together at Five Rings and there we were playing this

game almost the whole day. It's called the makeup market game that people that the everyone would be putting like bids and offers in the probability of something UM, and then the other person can only tighten the spread or or trade against you UM. And there was a single there was a day that we were just trading, playing

this game the entire day. And then I, I don't remember exactly what market it was, but I took a massive position on Trump doing something I don't remember exactly what it was UM, and everyone thought I was crazy and and debated me a lot on that, but I ended up being right UM. And then when I was we were walking back to to where the insurance were staying, it was stuck in my head like why isn't there

a place for people to do this? Like we love doing this, We do this the whole day, like we see in every place we work at, like very big positions people were trading based on events, Like why is there no place to do this? And then I sat down and started talking to talk about it, like why isn't there, why don't why don't we do it? Um?

And we stayed the whole night up talking about it, and it was just something we were so passionate about UM from the finance side, the product side, everything we always loved and if it was gonna be someone to figure it out, I was gonna be us. It just didn't leave us the idea for another six months up until we were like, okay, like this is a calling,

we have to do it. So when you say your desks are and you guys are trading back in trading events, you couldn't incredibly bet any sort of volume on events like cal she does today, you had to go to secondary or tertiary markets. So you're betting on gold, if you're thinking about inflation, you're betting on oil. If you're concerned about war, it's it's always once removed, which raises the issue. Even if you're right, it may not express itself in a market the same way that the bet

was supposed to go right exactly. I think that in the beginning of COVID you had this exact thing happening with the economy and how we would think about the smp UM and the beauty about it in contracts is that is direct exposure and what you think there's not like a lot of variables for you to keep track of or or think about are things that can go wrong.

That's why we also think it's very it's the most like natural way of investing, especially if you think for retail they can't like keep track or have food desks of people trying to understand what's going on. It's a lot easier to do when you have one opinion and you have a very clear way to get the exposure on what you believe and being right or wrong. So so you've spoken about the gambling industry and how incentives are somewhat cloudy. Um, how does your platform correct for that? Right?

The key part about gambling is that the house takes the position in the bets, So the house has an interest on the outcome of of the bet or or the market if you want to call it that, but it's more just the beat. We are just a financial exchange, so you can think of Guacha as a matching engine. We match people that believe something will happen with people that believe something will not happen. Um. If they have

equivalent prices, we match them. So we have no uh interest in in in whether the market will go away in a certain way. We do have an affiliate trader that's there to provide liquidity so that people can trade, especially as we start the exchange, but the exchange doesn't take any positions ever, we're simply matching other participant orders, so there's no conflict of interest between us and our members.

So so when you look at a race track and the odds are set on horses, those odds don't quite add up, and the shortfall is the house take, so it's never quite fifty fifty. What is it costs to trade on this platform. What what's the so in other words, if I'm betting a hundred dollars that something is going to happen and I win, do I get two hundred dollars back? Or how how does that work? Right? So, so the way that it works is that the yes and the noe prices are from one to and whoever's

right gets one dollar. UM. So let's say I'm buying a yes for forty cents. It means there's someone buying a no for sixty cents UM and if I am correct, I make one dollar, which means I'm profiting sixty cents, which is from my counter party. Right, what's the cost of that trade? Meaning? How does calcie make money? And I assume, since it's fully collateralized, there's a float that's going to be a good source of revenue UM over time. UM.

We don't make money on float. All of our are all of the user member funds are in a fully regulated CFTC clearing house which is f t x UM derivatives, the US derivatives there are clearing house UM and we make money on the transaction and fee. So we have a small transaction fee that varies on the price of the contract. What is it average bullpark? What does that cost? I think alright, So we will have a conversation after

we're done, and I will show you that. UM I think it was Schwab when they moved to free trading, their float became fifty seven percent of the revenue. So we'll have a conversation. We'll see if we can help raise your your revenue target and we'll go from there. Because especially it's one thing if you're looking at events that are days and weeks out, but if you're making bets on will be the hottest year in history. Hey, you're sitting with that money for twelve, eleven, ten months.

There's a lot of top line to be gained from from a little float. We'll we'll work that out with the SEFTC. That'll be that'll be easy. You guys raised thirty six million dollars in a series A. Sequoia Capital was the lead, probably the most storied venture capital firm in Silicon Valle. Charles Schwab not the entity I was talking earlier about Charles Swab in the float, but Mr Charles Swab was an investor. Henry Cravis is an investor Silicon Valley angel Um is one of the early investors.

And were you at y Combinator when you were first launching. Yeah, so, so that's quite an esteemed list of of people who said, hey, there's some value here. Tell us a little bit about the experience UM at ye Combinator and then doing an a round with some really bold faced names. Yeah, our experience at White Combinator was actually very different from most of the other startups. Like we were measuring regulatory traction um and other start ups are measuring user growth or

revenue or or things things of the sort. Um. Yeah, and about the Series A, getting a d c M was was a key part of of that Series A. I think cow she is really one of those asymmetric type of investments. Um, We're going to face obviously a lot of challenges, and but we if we execute against the challenges, we're got to have massive outlier potential. And

we were really trying to find partners and investors. They really understood the long term vision of the company and shared that obsession that we have with event contracts and and buting this entire trading ecosystem. UM. So Alfred from Sequoia is one of those people he did a PhD in these types of markets. He really really understands it and sees the potential and obviously it's it's it's Sequoia, Sequoia, as you said, So that was that was definitely something

we thought about. But but Alfred specifically has historically invested in a lot of like paradigm shifting companies like Airbnb and door Dash, so he really thought it was a good it was a good fit. Um. And then after Sequoia was our lead investor, we were really trying to feel the round with Wall Street investors that could really help us navigate this industry. UM. So yeah, talk my

co founder. He's obsessed with barbarians at the gate. So so when um right, So when when one of our seating vessels, Joli Barto vi Um said he could intro and we could talk to Henry, I think um Taric was just like absolutely fascinated and they had a fantastic conversation. He was very interested from from the very beginning, and with with Charles Schab it was something similar. It was

also Ali Bartovi introguing us too. To him also very interested from the start, and he actually told us that our early days that call she looked very similar to his early days starting Charles Schwab, So that was very exciting and and yeah, they help us so much to today, so it's fantastic. The funny thing about Schwab is people don't realize the guy you see with the gray hero and commercials, that's Charles Swab. That's not an actor. He

really exists and has been running the company. Now I think he's UM chairman, but that was really him for for a long time. So so let's talk a little bit about vent hedging. And I like this quote. These markets are a little like an aggregator of public opinion

in real time. So so what are the implications of this And is that the sort of stuff your UM lead investor at Sequoia was studying when he went to school, right, Um, yeah, this is a very important part of our vision UM over time, we really want CALCI to become the sorts of truth for forecasting these events that we have markets on because because the prices that call should go from one to n cents, they directly translate to the probability

of the event happening. So let's say, uh, the market might be saying there's a twenty percentions there's a recession this year. UM. It means the twenty cents means that there's a twenty percentions that the market believes there's a twenty percentions that there will be a recession this year. And the amazing thing is that there's a lot of theoretical and empirical evidence that they are the most effective

and most accurate ways of forecasting the future. They're way better than polls, way better than like pundits on on the news trying to uh say what's going on? Um. And it's mainly for two reasons. I think. The first one is because when people put money where their mouth is, they are more more likely to say what they really think and actually do research and everything. And the second one is that markets really aggregate the wisdom of the crowds.

You're getting a lot of different people's opinions when they're putting money behind their opinion and really aggregating that, and which makes there's a very powerful tool. And I mean any market lover understands what I'm saying, um and yeah, making and and part of our our vision and what we really want to do long long term is make

these forecasts score to people's lives. UM. It's really part of our mission with with event contracts becoming more widespread, we really hope that people we use data in their lives to prepare better for the future, addressed uncertainty, inform themselves better, and like try to address a little bit of the very biased world and not very data driven world that we live in nowadays. UM. So we're trying

to get started with that. We're already trying to get We have market tickers like any other UM equity or things like that. We have takers for all of our markets. So we're trying to have tickers and prices be used by news and things of the store to really try to get this very important data that we believe is very important data out there. But for Alfred specifically, I think he was doing more than like mathematical and like research.

He was doing a status PhD. So someone related to this, but not really on the on the on this side. But yeah, so so let's let's talk a little bit about prediction markets that are out there. Historically they've only done a so so job, partly because they're not very broad, they're not that very deep, and the dollar amounts that are traded have been modest. I saw an overlay of about half a dozen different prediction markets before the Russian invasion of Ukraine, and you would think they would all

be kind of similar, but they weren't. They were all over the map. Do you have to get to a certain scale that will fix that problem of prediction markets being kind of thin and easily I don't want to say manipulated, but one big trade really has an impact on on how those UM markets trade, right exactly. I think we need a base level of liquidity and volume for for the forecast to really work and be really useful.

In a lot of these, like UM other prediction markets out there, as as we talked about their unregulated they have UM, they're very new. They just pop up, especially the crypto ones, every other day UM, and it's hard to build liquidity and proper volume like that. But UM, we really think the prediction markets are the way to go to have these these very good forecasts of events. But it needs liquidity and needs volume, and that's what

we're working on. Huh. Really really kind of interesting, which which raises the question, UM, how are you going to scale this up? How are you going to get to a hundred million and then a billion and then who knows what from there. Right, we have a lot of ways to to scale the exchange. It's kind of what

we talked about with with building up liquidity. Right now we're really focused on retail, so getting UM we have a lot of options traders are like what we call informed retail traders in the platform, trying to go in more deeper into different communities and trying to get them into test the platform brings off the sword, and then the next step for us is getting brokers in to offer our markets in their platform, so UM E trade, interactive brokers, all of those um and then bringing up

the volume we can bring up like actual liquidity providers, prop shops, hedge funds, and then up until UM I guess insurance companies even um off floating some risk or or like actually big institutions natural hedgers bringing them in. So the way that we're seeing is really starting to build with retail with getting more and more of the current users that we have which are options traders, and having more retail as we go to the to the I guess brokers. So so how big can this get?

I mean, is this ever a billion dollars a month. How how large can this sort of event hedging scale up to? Right, so, event contracts are a lot more like tangible, relatable, and more direct as we talked about UM, then all these other assets that that preceded it UM. So we really think when we actually plug it in the financial ecosystem, it can properly scale. Obviously, it takes a lot of time to get there because we need to be the entire ecosystem around events a completely new thing.

But once it's properly plugged in the financial system, UM I can give you some numbers to give some idea, right. I think you mentioned that in the beginning with the CFTC regulating a trillion UM dollar industry like grain futures are seven trillion dollars industry commodities to any trillion. Interest

rate swaps are around I think trillion UM. So I'm not exactly how big the market is, but I think as we expand, event contracts definitely has a potential to be one of these interest rate swaps are five billion or trillion trillion Really that's the notational, not the but at that point that's a giant amount of money. Right, So, really, startups have a tendency to have this defining moment in their lifespans where they sort of either pivot or just a moment of clarity and you could see the whole

roadman up laid out. Um, did you guys have that sort of defining moment at Calcy? I would say the biggest, the earliest defining moment we had was actually before we really started the company. We went to a white Combinator hackathon UM because before we were like fascinated by it, but we didn't think it was got like gonna work. It's like it seems so complicated and like are we crazy? I think that was a big question our head, like

are we going crazy? We're here? Um. Then we went to a combinated for a hackathon and there were like these teams with like a bunch of servers, crazy computers like and it was just me and Taragraph are like MacBooks like trying to to go like a demo. Before we were talking about UM And then we first presented to Michael them, the CEO of y C, and he really didn't like what we were saying from the beginning.

He cut us like the first five seconds He's like that like this is illegal, Like what are you doing UM? And then we would get very upset. We went in like we I think Tara even started drinking UM beer. He's like, there's no way we're gonna be in the top ten, which had to present again, and we ended up being in the top ten. We presented again, and then we ended up being in the top three, which

were the winners of the hackathon. And I remember that night when we're going back to to our friends place where we were staying in San Francisco UM for the hackathon, we were like, wow, like maybe we aren't crazy like we should like maybe like people believe in what we're doing. And it was a very like happy moment for us. And I think right after that we actually got into the White Combinator batch and it was one of the happiest moments we've we've had UM we've had of the company.

So that was really like motivating and encouraging because I was like, told you, we never thought about being founders. We thought about being like he was going to be. We were both going to be traders UM full time. So it was like a big shift for us. So that was a very exciting moment. Huh, really really interesting. Let me throw a couple of curveballs at you. Uh. You and your co founder Tarik both were named to the Forbes thirty Under thirty list in in the Finance category.

Tell us a little bit about that. What was that parents, Like, Yeah, I know, it was very excited. We were very honored to be to be to be nominated, especially being like the head up of the of the finance category. Um, we were really excited after all the work we've done.

And actually a funny story is that because of the four of study under Dirty, I went Vio in Brazil for a little bit because the Brazilian Forbes wrote wrote a piece about how Brazilian was in the American fourb study under Dirty and that because it's very rare to have resilience in the list here. So that was that was that was a funny story. But yeah, because of the four study under Dirty, we also um ended up ringing the opening bell at the Nasdak, which was very exciting.

And one more, one more curveball. You were a ballet dancer with the ball show. You studied ballet tell us about that, right, so very different from what I do now for sure, But um, I'm from Brazil originally and I just came to the US for college, and most of my life before college, I was split between ballet and school. What what I really loved about ballet was the intensity of it all. Um, it was extremely hard to get to the top. It's extremely competitive, uh. And

there's nowhere to hide. You need to be completely on, you need to give it your all. And yeah, and I studied at the Bolshoi Ballet School and it was extremely intense and and um we had to be extremely disciplined, like measuring our food down to like a fourth of a strawberry before this rehearsal to be able to get there. But that was that was one part. And the other part my my parents are both um um engineers and

have stand backgrounds. Uh, so I was surrounded by that outside of ballet, doing like math, olympiads and all of that. I also had to get a hundred on everything on the math and science side. So I used to do like normal school, I guess from like seven am because Brazil schools hours are different, so seven am to like one pm, and then ballet from one like one thirty pm to like nine ten pm, and then I would actually go study. So that was a very intense part

of my life. But I think it really set me up for for being able to go to M I T and and and and injure everything there. And it's something that talks very similar to me. He was actually professional skier before going to college and and we have very similar backgrounds. And I think that level of intensity and discipline is really what help us get through the regulatory process and be where we are today. So tough times, but it's good now. I do the same thing. I

measure my food input down to the quarter strawberry. You see, It's how I maintained my girl. So, so we only have a certain amount of time left. Let me jump to my favorite questions that I ask all of our guests, starting with what kept you entertained during lockdown? What were you streaming, watching, or listening to? Right? Um, I listened to All In and I'm very into American politics nowadays. So I'm finishing up the ten American President's podcast. Um,

But on TV, I think I'm more mainstream. So I just love Succession, House of Cards, West Wing, and so on. Uh. Let's talk about your mentors who helped shape your career. Um. Right, So I think at M I T. I had two professors are very UM impactful in my career and to me. I think the first one was Patrick Winston. He was my adviser and professor of UM a lot of our

Fisher Intelligence classes. He really helped me navigate m I T and set me up to and set my mindset to where I wanted to be to like really start CauSci. And the other great mentor was Peter Kempthorne. He's also a professor of stats and really I started being interested in finance in his classes, and funnily enough, he's actually one rectors off of Cauch nowadays. Because we kept very close contact UM and we talked a lot to him about like the dynamics of markets and all that stuff

we talked about UM. And since we started the company, I think our biggest mentors have been Michael's the CEO of y C up until today. He's helps us so much. And Ali Partovi, who's who runs NEOUM, is one of our seat investors, and they have been really instrumental and like making us better founders UM, not just like making the company succeed, but better founders and how to like do have employees growing company like growing pains, negotiation, all of those things that you like. M I ten Nerds

didn't really know what to do. So let's talk about books. What are some of your favorites and what are you reading right now? Right? Some of my favorite, um, my favorite book is is this book called Americana, but it's not a novel. It's actually the four year history of American capitalism. But whenever I say American and everyone thinks it's the novel. Um. And the other one is this book called predict Predictably Rational um, which is right, yeah,

and it's it's very uh some. It has a lot to do with what cow she does, and I think it's one of the early books I read on prediction, markets and decision making, and I thought it was a fantastic book. Um. And at the moment I am finally Tart would be very happy to hear this. I'm finally reading Barbarians at the Gate after he told me for years that I should, but I barely started. So yeah, and Americana is boo swing enough Boston and might pronounce it right, he was a asked here a couple of

years ago. I love that book. That book because people think that oh, all these companies were, you know, freestanding. It was a public private partnership for a long time. That that is a fascinating book. And I'm surprised someone as young as you has found it. It's sort of off the beaten path. Yeah, no, it's a it's a fascinating book. It made me, especially in not being American, I think it made me understand the country and how

it works so well. I think UM way better. So so this is the first time I'm going to ask this question of somebody who is so recently out of college. But you're twenty five now, is that right? So what sort of advice would you give to a college student or a recent college grad who is interested in a career in either startups and technology or finance and derivative training? Right? I think the finance industry is very there's a very

traditional path that people can take. UM And what really helped me and and Tart understand and and really come up with the Cauchy idea and and and understand it

and work on it. But then we got a lot of exposure to a lot of different types of firms and a lot of different types of roles as well, Like we did I did more of the engineering side than in a bit of the trading than a bit of research and tart that like all types of different tradings, because he also worked at Citadel and Five Rings and Goldman.

And I think that giving yourself a lot of breath, especially when you're in college, is very important to just understand the industry as a whole, understand in their gaps and and seeing like finding patterns like how we found

the coucil behavior. So I really think it's about putting yourself out there, trying to learn different things, do different things, and trying to get a global vision of of what the industry is and why you want to do um and and not be too tied to like the traditional path of like entering us like this level and then going up in a big firm and and things like that. And our final question, what do you know about the world of trading and hedging and investing today that you

didn't know? What do I say four years ago when you guys were first starting out even doing it since so let's call it six years ago, right, Yeah, So what we're really doing is is enabling trading and investing. But if I were an investor. What I think I would have liked to know a couple of years ago is that bold bets are I would take a lot of both bets. I think generally, uh, that's the best that seem ridiculous efforts and there's a lot of debate

and there's no way that's gonna work. Are usually the ones that achieved, like the large outlie results. Definitely, I'm biased because caw she is hopefully one is going to be one of those bets for a lot of our investors. But I really think it's about seeing what the world can be in the future and taking both beats to get there. I think a couple of years ago they very if I were an investor a couple of years ago, they're very scared to do that. But now I would

think that's the way to go to really do meaningful investing. Huh. Quite fascinating. We have been speaking to Luana Lopez Laura. She is the co founder of Derivatives Training marketplace CALC. If you enjoyed this conversation, be sure and check out any of the previous four hundred interviews we've done over the past eight years. You can find those at iTunes, Spotify, wherever you get your podcast fix. We love your comments, feedback and suggestions right to us at m IB podcast

at Bloomberg dot net. You can sign up for my daily reads at Ridolts dot com. Follow me on Twitter at rid Halts. I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Sean Russo is my research assistant. Mohammed Mui is my audio engineer. Paris Wald is my producer. Atika val Bron is my project manager. I'm Barry Rihlts. You've been listening to Masters in Business on Bloomberg Radio.