Episode Transcript
[00:00:00] Speaker A: Predicting.
[00:00:00] Speaker B: Predictable predictions.
[00:00:01] Speaker C: Predict Predictable predictions.
[00:00:03] Speaker B: Predictable.
[00:00:03] Speaker A: Predicted.
[00:00:04] Speaker C: Predictable. Predictable.
[00:00:08] Speaker B: Predictive programming. Episode two. And today we have a guest, of.
[00:00:12] Speaker A: Course, our first guest.
[00:00:13] Speaker B: We have AI not going to try the last name.
[00:00:17] Speaker C: Maybe I just go with a mononym like Usher.
[00:00:20] Speaker B: You. You're. I. People tell me that they're going to talk to Audie like they're making a pilgrimage.
[00:00:26] Speaker C: Wow.
[00:00:26] Speaker B: Like, I talked to Chris from crypto.com last week, and he's like, I'm on my way to see Adi. Nice.
When Chris and I decided to start this, one of our big goals was to bridge the gap between people coming from sports and sports exchanges, which have been around for a long time but are relatively new in the US and people coming from prediction markets.
And Adi is pretty firmly on the prediction market side, but I think more than anybody has made the effort to understand the parts of the business that are new to him and to bridge those gaps and have those conversations.
I think everybody in sports woke up one day and was like, well, my feed is full of prediction market stuff. How did the algorithm do this? And I think a lot of that was Adi reaching out to everybody, making these connections, and kind of shaking up the entire Twitter algorithm, which I've mentioned to you before. Like, I think some of the things you. You write and do actually have market impact. And that seemed to make you feel queasy, the idea that you were having that much influence. But anyways, Adi, welcome. Good to have you.
[00:01:35] Speaker A: So if you want to just give, like, a quick minute on who you are and why you matter in the prediction market space.
[00:01:41] Speaker C: All right. Well, thank you for the kind words and I'm glad to be here. I'm Adi and Adi Rajaprabhakaran is my last name, but I'll just go by Adi and that's fine. I worked Kalshi for three years and most of the three years as a trader for their internal market making team. And so I joined back when, like, no one had heard of Kalshi. It was pretty niche.
And that was like, in the summer of 2022. And before that, I had been trading prediction markets for two years professionally before Kalshi. So now it's been five years. And I come from a background of caring mostly about politics and economics, and that's what I was trading on. But now I've taken an interest in sports, if only because this company that I worked for has been completely transformed by the onset of sports contracts. My entire night, my entire net worth is, like, tied up in the company stock. So, like, I've Been learning a lot about how this sports thing works. And what is it gonna continue? Is it gonna like, work out and like, what is Kalshit doing to enter this world? Because I, I do look at the market caps of like flutter and draftkings and I'm wondering, wow, is Kalshi like going to become like one of them? And what does that mean for me personally? So that's, I mean, if I'm being honest, it's like kind of a selfish motivation to understand sports betting. It does help that one of my great friends, Kanzi, is like a professional sports bettor and he's like helped me and kind of brought me into the world and maybe part of the Twitter algorithm thing that you're talking about. But yeah, it's just like I never imagined myself being in this world like this, but it is the world we live in, so that's why I'm here.
[00:03:21] Speaker B: Yeah.
[00:03:21] Speaker A: So it's interesting. I come from sports betting and I'm just learning about prediction markets. You've already helped me in a great way understand about them.
And I want to start off with just a question.
What do you think the biggest thing that sports bettors miss about prediction markets.
[00:03:43] Speaker C: When it comes to the actual users trading the markets? I think the biggest thing that you have to get used to is that there's these, like, rails that the exchange runs on that allow the exchange a lot less flexibility than a sportsbook. So, for example, like a sportsbook, when they book your parlay, they only have to just take the bet from you and they don't have to worry about whether or not they have the money in the bank to pay you out. If they take a bunch of different parlays, then they can just rely on the idea that most of them are not going to hit. Actually very few of them are going to hit. And so they don't have to like have all the money in the bank. But with a CFTC regulated prediction market exchange, every trade at the moment, every trade has to be fully cash collateralized. So that's like one constraint that the exchange has to deal with.
Another thing is that the exchange and your counterparty are different entities.
When you go on DraftKings and you make a bet, DraftKings has you as a captive audience, right? Like you have deposited your money on DraftKings, you can only trade against DraftKings trading team. And when you want to cash out, you have to accept the price that they give you. But when you trade on an exchange, you might buy it from person X and sell it to person y. You don't really know what's happening. And um, but that is also like an advantage. You will always get a good price. You're not like subject to the whims of a single person or a single operator who can do things like give you a bad price or give you bad cash out or ban you. Right. I think like these are the trade offs you make when you go from trading on a sportsbook. They can, they have the flexibility to offer you like an amazing customer experience in many cases in a way that exchanges can't, but you do. There are some positives you get from going to an exchange model.
[00:05:38] Speaker B: So you say your counterparty isn't the exchange.
As a customer, how performatively angry should I be when I find out that's not true?
[00:05:51] Speaker C: So are you referring to.
[00:05:53] Speaker B: Well, I'm referring to. And it depends on the product, but internal trading teams, fee rebate structures that are designed to be very difficult to achieve if you are not the internal trading team. Any kind of negotiated deals, including rev shares with partnered market makers, things that have gone on for a long time and that, like I personally would say, do not definitionally make for a negative customer experience, but maybe muddy the waters on some of the narrative, you know.
[00:06:28] Speaker A: Because, you know, echoing off of that if, if there's ever a questionable ruling and I get rules in one way and I found out that Kalsi was on the other side.
[00:06:37] Speaker B: Yeah.
[00:06:37] Speaker A: Doesn't matter if they were acting ethically, I'm always going to have that question in the back of my mind, etc. Etc. Were they fair?
[00:06:43] Speaker C: Yeah.
So I think like, if you're getting into betting, sports betting exchanges for the first time and you're trying to conceptualize who am I betting against?
Couple things. Like one, you don't. You will never really know for sure. Are you trading against sig? Are you trading against flop? Like you don't really know.
And yes, there are these deals like that exchanges will make with market makers to make it to sweeten the deal. Right. In terms of providing liquidity. And so that includes rev sharing agreements or equity or whatever. And that's only a product of like, the reality is that providing liquidity to an exchange is difficult and it's like a service. And so if you think of market makers as a service provider instead of simply just the person who wants to bet against you, things might make more sense. Because if you're an exchange and you're trying to bootstrap liquidity and you're starting from scratch, like you have this cold start problem. You don't have a lot of order flow, you don't have like a lot of liquidity and they beget one another. So it's. If I get like there might be skepticism of the idea that you're not trading against the house, you are trading against the house, who is the house? This and that. Like there's these backroom deals.
I get this like skepticism, but there's a reason for it. It's because in the way I see it, market makers are a service provider to exchanges and the exchange. So the exchange is the customer of the market maker and then the traders who like you, if you download Kalshi, you're a customer of the exchange.
So it all is like this kind of loop.
[00:08:19] Speaker B: It's funny because real quick, the sportsbooks do have like white label deals with service providers for odds like candy and then, and a lot of people don't know this.
Many of the sharp sports books have this like action betting concept where they work with big ticket sharp individual sports bettors and say give me your fares or give me your buy prices.
And as we take bets at open, if we cross with you, we'll unload risk into you.
And that's part of how they can get their limits so high so quick and get price discovery faster. And so that basically is a bet online or a Chris being a silent exchange that is just, you know, kind of identified who are the actual high value, you know, people. So it, it really is the case that the more you dig in any of these business models, there's nothing new under the sun. And, and I don't even know horse races, but people are into horse racing. You're like, oh no, this, this all goes back 100 years to, you know, all of these concepts and technologies.
[00:09:26] Speaker C: I mean it goes thousands of years.
[00:09:28] Speaker B: Right, right.
[00:09:28] Speaker C: Of course, like the whole, the whole field of probability was created because of like random Greek philosophers wanting to understand how to bet on dice rolls and stuff like that.
[00:09:38] Speaker A: So, so I would argue that sports books and exchanges are more similar than people realize. And what I mean by that is, you know, a lot of people think that it's you versus the book or you versus Vegas, it's really you versus another individual. Because if I want a certain line, but every other sharp wants it, it's whoever was first gets it and it's going to keep moving the line, moving the line, etc. Where in the exchange it's, it's advertised as you verse, peer versus peer. But really a lot of the times it's peer verse exchange, peer verse, sorry, internal trading, peer versus market maker.
If we fast forward 10 years, what do you think the end game is of exchange of exchanges? Do we think it's going to be just like what it is now, a lot of peer versus market maker, or really primarily peer versus peer?
[00:10:33] Speaker C: I think a good analogy would be what does the stock market look like and what does the options market look like? And so when you go on Robinhood and you buy a bunch of Palantir call options, like the person on the other side of your trade is probably Citadel or Jane street. And if only because pricing options is kind of hard and you have to be really smart to do it. And when you are also the best in the room at pricing, say a specific thing like Palantir call options, you tend to like win the market. Right. So there isn't like even much of a market for people to be on the other side of your Palantir call option like request to trade. You can go and sell a call like that is a thing you can do on Robinhood. But when it comes to being the person who is ready and waiting to take the other side of your trade at any given moment, that tends to filter down to the, the people who are the best in the game at doing that are going to start gaining market share and you're most likely going to be doing that. But if you smart, if you're smart and like pick your spots, like you can take advantage of the fact that you can make a resting order and get the price that you want and compete with Jane street and Citadel. And there are people out there who do this are smaller options shops, but they just like, you know, if you're smaller and less well resourced, you're probably going to focus on like one particular product and just get really good at that. So I think the, the long run, the long game, it's always like the smartest people in the room are going to be getting the market share on the fill rate. And that includes people like you. But that includes also people like jump trading or whoever wants to get into this. Yeah.
[00:12:21] Speaker A: So do you.
I get very irritated looking at prediction mark Twitter. When it's like it's prediction, it's predicting, it's not gambling and you're getting, you're betting against another peer, not the house. Anyone can win.
Do you agree with that, the prediction mark Twitter sentiment or what's your take there?
[00:12:39] Speaker C: Yeah, I mean, if only because I did it on my own for two years, like I lived off of Predict It. Predict It.org, which is the original. Well, not the original, but one of the older. I would maybe call it like the. My Space. Yeah, the MySpace to the current Facebook and Twitter of prediction markets. And like the way I made money was just by, I don't know, working harder and being smarter, maybe getting a little luckier than, than the other people in the exchange. So like when it. The idea that you can win, it is true, but you just have it not. There's no free lunch. Like you have to be good.
[00:13:15] Speaker B: And we're putting the screws on this a little bit. And, and obviously I actually am very pro prediction market, of course. And, and I will say, you know, so there are all these market types that all the existing operators, all of them including big sharp offshore sports books, do not want to have any hand in trading. And it is, it's smaller market sports and then it's player props and a lot of derivatives.
And there is so much headroom for higher quality trading, higher quality price discovery. And we see it happen on our platform where it's. I was using the analogy of people say like, wow, Alcaraz and Sinner are so far above Djokovic, he just can't catch them. And nobody can compete with Djokovic, which really gives you a sense of when he's gone, how far. Heather, be like, there are people using Bat X or establish the run or common modeling techniques that are sort of well known and discussed in Discords who could annihilate any of the existing sportsbooks and have. And have burned through all their accounts doing it, who then come and trade with us and say this is really difficult and there are some killers out here.
And so that I think that does speak to. There's. There's so much room. We're so early kind of vibes, which is cool. Like we did over a million in volume on the WNBA season opener. You know what I mean? Like that's, that's very new and there's, there's going to be a lot of growth in some of those areas.
[00:14:57] Speaker A: I want to ask you, you lived off of predicted for two years. You think about that. You think you can do that in 15 years? Like, my argument would be that if someone like you who is. I'm not trying to be you obviously weren't sophisticated at that level yet compared to what could be if someone like you can make a living off of that and there must be hundreds of people like you, some big shop like a Citadel or a Sig is gonna come in and make sure that doesn't exist and they get all the alpha.
Could you. And when I say you, I don't mean actually adi. I mean like a random new user.
[00:15:34] Speaker B: You already won.
[00:15:35] Speaker A: Yeah. Think hard, think hard.
[00:15:37] Speaker C: That's why I write a substack.
[00:15:39] Speaker B: I asked adi, I was like so you're just writing but like you have the skills. You could get rich, right? He's like I am rich.
What are you talking about?
[00:15:50] Speaker C: But yes, I mean that is like kind of the motivate I obviously Kyle, she's doing well and I've worked there but for I was early and so one thing, I guess my motivation here is like I don't need to be grinding every day. And this actually dovetails really well into your question that you just asked which is like what's gonna happen when you like these small players are competing for the EV that's on the table one it's just like, it's just a grind and that's why I, I'm not like heads down doing it right now. I really enjoying the blogging and it's opened up a lot of doors. But um, part of the thing is like there's a direct I think of like from a systems thinking perspective like there is a threshold at which the size of and juiciness of the fruit has to be at a certain level for Citadel and Jane street to go for it. Right? Remember Jane street is paying 23 year olds like $600,000 a year, right? So what point, what is the point of asking that guy to go to a market where you could make 200k, right? There's nothing. But if you have a job that you hate and you want and you like, you understand EV and you understand markets and you love the game, you know. Yeah, you can like make a decent living like $200,000 a year is a great living. Right? And so what is going to happen is like there's all this opportunity in the the lower hanging fruits that are too small for your Citadel jump or even the Novig trading team or the Kalshi trading.
The bigger the shop, the bigger the fruit they want and the smaller you are, the smaller fruits you should go for. So like there's always going to be as market as this market segment and market structure ecosystem expands.
Kalshi and Polymarket are going to engage in this like and every prediction market are going I think I see engage in this like sort of mimetic competition where it's a race to just list as many more and more new markets as possible.
And every new market that they list, that especially if they list something no one has ever thought of, like how do you price? Like a pickleball prop. Or like there was a market apparently where that Kashi did list, which is like how many times is this professional counter strike player going to buy a sniper rifle in, in the match? Like no one has ever thought about that. So the lines are going to be soft there. And so as, as enterprising prediction market trader, you want to look for the markets where the lot, the opportunity is ripe, the lines are, are, are soft and the EV is there that it's yours to pick up instead of, but it's too small for like Citadel securities to go.
[00:18:35] Speaker A: I gotta ask about this because I see all these new markets.
[00:18:38] Speaker C: Yeah.
[00:18:38] Speaker A: And the first thing that comes to my mind is, why should I even bother? I'm just gonna get run over by insider trading. And every time there's a new market, like you know, will we. I've been seeing all these reports like Mr. Beast Insiders, like even though they question with the CS go like, yeah, that's someone that could actually like inside a trade very, very easily. And it's like hard to regulate, hard to keep in mind. Is that not just going to be a rampant problem that just turns everyone off? Because I don't want to trade against just like maybe $4 of rec liquidity and then like, oh, I have leave an order up and some insider comes in.
[00:19:14] Speaker B: And a legal problem too because even if the users all decide this is the price of playing ball, like the CFTC might not see it the same way and say, you can't be just letting all this slide.
[00:19:26] Speaker C: I think you just have to factor in, just throw insider trading into the lump of adverse selection. And that's what he kind of said. But also like, I know that sounds, I don't know, maybe that will like make waves, but my take on this is like if you don't trust the exchange to enforce insider trading, then fine and just pick your spots accordingly. So like if you see it, oh like I'm going to get run over by either a literal insider or someone who just has better information than me, then don't do it, like move on. Right. There's plenty of other opportunities. So like most of, I mean a huge part of the skill here is in terms of making money in prediction markets and say like the next five, 10 years is like your taste for what opportunity looks like and smells like. Like if you, you can't just like, oh, this is whatever I'm Gonna make a line and then what? I'm gonna. You have to be very critical and like, tasteful about where you pick your spots. And if you are critical about thinking about how I can get adversely selected.
[00:20:33] Speaker B: What.
[00:20:33] Speaker C: Whether it's in a legal way or in an illegal way, they're really the same the way I feel about it, at least. And so just like get good at. Not get good. Yeah, just get good.
[00:20:45] Speaker A: I mean, okay, don't do.
[00:20:46] Speaker C: Just get good. Don't do stupid things.
[00:20:48] Speaker A: I'm also, look, I'm also seeing a bunch of accounts come in and they're saying, like, from crypto. Mostly come from crypto. And they're saying, like, I built this thing to front run settlement news, where I built this thing to front run news. And it's clearly pass posting. And as we all know, I'm not afraid to pass post or to take an angle shot. But if this is what people are only using the exchange for, does this not just like deteriorate the exchange to such a level that it could kill the entire exchange? Because if I have someone out there, that's their only purpose is pass posting and angle shooting.
They're just such a leech on the exchange, it could kill the entire thing. How do you guys on the other side fix this problem? Because to me, I've got to take my shots because if I leave an order up too long, someone's gonna come get me.
[00:21:41] Speaker B: I mean, we had a. There's an account on Twitter that posted a picture of themselves court siding at the Angels game on novig.
And it's like, buddy, you know, that's not in the terms and conditions.
You can do speed bumps. Now, the thing about sports, sports have very good, very canonical feeds, right? So I can actually, I can check official game start official game end certain game events and run that down. The tough thing about content agnostic prediction markets is there's no feeds for all this stuff. There's no official websocket that tells you when a new pope has been selected. There's the smoke. But.
[00:22:27] Speaker A: Well, I push back on that even today. Jaden Daniels just got ruled that he was likely going to be out for week three, which is a massive move on the market. And while that's not a clear pass poster angle shoot, in my opinion, it's the same vein.
[00:22:43] Speaker B: And we talked about the tiers of. There's the leak and then the first tweet and then the official announcement.
[00:22:48] Speaker A: Right.
[00:22:48] Speaker B: And the probability steps up of him not playing at each one of those things.
[00:22:53] Speaker A: The line moved from six to I think I saw some three. That's, that's almost a 10% win probability change. So it's a nice expected value. While it's not a guarantee or anything.
Look, there's people that are willing to take risks and if I got that news, I would have been happy to bet.
[00:23:06] Speaker B: But that's large. We, everybody still books commanders in sports if, if a quarterback is questionable. But the thought is you're much better at parameterizing it, at moving further off a click and so on and so forth.
And every non sports market, or that's not true, there are many new non sports markets that if you were to try and compare them and say, well if this was comparable to a sports market, what kind of parameters would it have? How would I define it? And it would be on the level of like, oh, this is a draft pick prop that could leak at any time, right? Like it should be $25 max and you should fly if you take a click and it should be huge hold.
And they aren't quoted that way right now because the prediction markets are paying money de facto to make sure that they trade tight and that the liquidity is higher because they want to build this thing and they want people to experience it.
I think you should always believe that building for the future can work and that if you just believe in this thing, all this other stuff can catch up.
Everybody in our business had crazy naysayers a year ago and we've all totally outperformed what was supposed to happen.
And so it could be the case that you say, well these Mr. Beast markets leak, but then a month from now somebody creates a startup that is providing high quality real time data about YouTube creators that all of the market makers subscribe to. So now it's actually unbeatable and it's really good because they've discovered that this is popular.
I know that sounds far fetched, it's the first example I can think of. But these are the kind of ecosystems you're betting on developing around these things.
[00:25:10] Speaker A: In the example that ADI gave with the cs, like how many markets are there where just like one individual controls controls it?
[00:25:17] Speaker B: Like let's see, there's NBA player props, there's Johnta Porter, there's guys on two way contracts. Okay, fair, yeah, but that is the right. The whole, the long term history of sports betting always hinged on the compensation of the players far outweighing what they could make by throwing games or point shaving.
But like that's not been the case in college basketball and College football for years and years and years, and we've still managed to book action on that. And they haven't always been the cleanest sports, but, you know, but you'd be kind of exaggerating if you said, oh, they're all rigged. You know, 99.9% of games are played fairly well.
[00:25:57] Speaker C: Your question originally was like, how? I think it was along the lines of how do these exchanges deal with this problem and not get destroyed by the problem?
I'll offer maybe a kind of like purist take, I guess, is that no matter what the conditions are, adverse selections, insider tradings, data availability, one person. Yes. Can control the outcome, etc. Etc.
There is always a correct price and a correct amount of liquidity for the environment and for the situation.
[00:26:32] Speaker A: That's a good answer.
[00:26:33] Speaker C: If the market sucks, then the, the spreads will be really wide and the liquidity will be really dog. Like, if the market is really good and the rules are bulletproof and they figured out voids and they figured this out, then market makers will be confident enough to quote liquidity, tight and wide or tight and big, or tight and deep. Sorry. So like, when it's like, oh, will this destroy the exchange? Actually, from the exchange's point of view, listing a market is like marginally free. It's not exactly true. It takes the labor of the person listing it and settling it and all that stuff, but roughly free to do it. And the real expense is like, how can we educate, how can the exchange educate customers into getting used to the fact that if a market is like a bad market, it's going to be illiquid and wide? And so that's just something that is going to be on the exchanges to like, change the culture around, around it. Right.
[00:27:30] Speaker B: I think there's, there's skepticism right now because these markets, by and large are tighter and more liquid than they should be because of product decisions. But I remember a few years ago, people would scoff at DraftKings and FanDuel and say they're giving money away with these promos and whatnot. They're so dumb, none of these customers are going to stick around. And now they've largely stopped doing that. And they, they kind of did it right up until they hit the point on the curve where the return on investment was not there. And I don't have their books in front of me, but they probably more or less stuck the landing on how much money they should spend on.
[00:28:07] Speaker C: So sportsbooks had these levers of bringing in the rec flow, which is like giving you Bonuses and stuff like that. Right now it's not like, I don't know if it's super possible or illegal on a CFTC exchange, but the exchange model, their levers are providing liquidity incentives and volume rebates. So when we describe a market that is really crappy or adverse environments, like it would be wide and illiquid, what the exchange can do is start rewarding people who are willing to take the risk and like tilt the balance of the EV equation in the favor of making it tighter. And so eventually the loser in that situation is in the short term is the exchanges and the winner is the market makers and the customers. You get a tighter and liquid market or rebates and.
But in the end the exchange, like you said, like when they're in this growth mode where they're competing with each other and trying to like win and. Because everyone wants to be the Uber, not the Lyft, right? Like this is. The similarities between exchanges and ride sharing platforms are so similar. Like liquidity, price, discovery, availability.
They're actually the same thing. Like when you click the button to call a cab, like you're entering the order book, in my opinion. Right. Maybe I'm a weird market pilled economist, a nerd to think like that. But Uber is dominating Lyft and, but Lyft is still a tens of billions of dollars company. And now you, I think everyone wants to be Uber and people will settle for being Lyft and you don't really want to be the one who isn't one of those two. And so they are going to blast tons of money in the short term to become the market leader and to dominate the market share and then make money later, which is exactly what Uber has done. Uber lost money for years and years and years. Billions, hundreds of billions of dollars until Derek Karshkowsky, or I'm sorry, butchered his name. Speaking of last names, like, feel better now, Dara, he came in after Travis Kalanick was let go and he turned the ship around and slowly, using, you know, a couple tricks and market power, like turned the ship around and started making money. And now Uber is a $200 billion company. So like that is what is going to happen I think in the next 10 years if prediction markets are really unfettered by regulation, like that's a big if. Yeah.
[00:30:32] Speaker B: Okay, you want to do a little DraftKings talk? Yes.
[00:30:36] Speaker C: What happened with Domer?
[00:30:37] Speaker B: Yeah, Domer didn't do anything.
[00:30:41] Speaker C: So.
[00:30:41] Speaker B: All right, so about A week ago, DraftKings does an earnings call or Some board meeting.
They're always getting peppered with questions about prediction markets. They thought about, is it acquiring Railbird? Yeah.
[00:30:56] Speaker C: From the rumors I've heard, it's like, may or may not happen.
[00:30:58] Speaker B: Back to it. Oh, okay. Maybe they're rethinking about.
Seems like they're mostly in a mode of saying, hey, we're the big dog. We can wait and see what happens a little bit and if we have to write a huge check to enter late, we can figure it out.
Robbins gets asked about it and he says, you know, there are a lot of disadvantages to this business model, including the fact that they can't restrict players, they can't profile, they can't cut anybody off. Like, a lot of, a lot of our profit comes from the ability that we can very aggressively manage the flow of what comes.
[00:31:32] Speaker C: The quiet part out loud.
[00:31:33] Speaker A: Yeah.
[00:31:36] Speaker C: Just the out loud part now because he, he has to respond to public investors, equity investors, who know that that is a core, fundamental part of the business proposition here.
[00:31:44] Speaker B: And so, so this gets posted.
Our buddy Isaac says, I can't believe I'm agreeing with Robbins here. But like, yeah, this is important. And everything he's saying is basically right. Domer chimes in and says he's not in the same universe as Correct. His fundamental error is thinking of market makers is just dumb. Liquidity at the mercy of the Sharps. Doesn't appear to occur to him that the mms are the Sharps. Also saying, DK is a bunch of scared dummies. I responded, there's not a single market maker on earth who delivers the products DK does to a non counterparties on exchanges. DK are elite. The money is the scoreboard. And he said, is this satire or are you very ignorant? Which. It's the latter. I'm dumb. But on this one point, I think I do have a point.
DraftKings, you want to talk about putting up a lot of markets. DraftKings puts a lot of markets up. Yep. DraftKings. And I, I guess the first thing to say is I actually think that among Sharp sports bettors, the consensus opinion is that DraftKings is, quote, unquote, bad at this. Right. Because they limit everybody so aggressively. They're. That they're not sophisticated and they must be dummies.
[00:32:55] Speaker A: FanDuel is much better, in my opinion.
[00:32:56] Speaker B: FanDuel is better. FanDuel will try to keep giving you some limits.
And then of course, there are the books that give everybody universal limits, although there's no such thing as universal limits. Truly, every book Limits, it's just, it's disguised. Yes. Every book that knows who they're taking bets from discriminates on quantity. If you take a bet over the house limit, you're discriminating in quantity. If you take a bet from somebody, do not move your line and continue to take bets. You are discriminating in quantity. Anyways, the reality is to serve up the enormous menu that DraftKings does and the suite of parlay products and brand new markets and be first to market. With so many of these things, you cannot do that profitably. Like you said, there's a price and a quantity for every market. Right? And, and in an exchange or prediction market environment, the price and quantity on all of those derivatives would be nickels because there's too much correlation, it's too adverse. I couldn't possibly serve it. There's also literal tech infrastructure challenges of if I'm offering 100,000 markets that are correlated and I have a fill on one, I need to update my orders across the other hundred thousand markets. And it, it's not realistic. It would lead to such terrible performance. And ux, it can't happen. They have to operate asynchronously, right? They have to put up a line and it's possible for 500 accounts to hit it at once before they can, you know, cancel it everywhere. They can't do this discreet. There's X dollars of liquidity available.
And I believe, and I'm sure we all believe that that like true pure form of the problem is cool and a fun thing to work on. And we've all worked on it, but they're playing a different game. They're playing a game that is customer first. Like, how do I deliver the best possible thing to 99% of customers and just accept that in this equation there's simply a 1% of customers I cannot take.
I've been to DraftKings offices and seen what they work on. It is very impressive. They have data science teams that are working on pricing that are optimizing around P L, not necessarily accuracy, which is a different problem.
But I've also, I've watched some live trade games and every single error they make, every single flaw with every one of their models and all the traders know what the flaws are and they can see in the game when there's gonna be an issue. There is just a deluge of automated bets from all of these bot accounts because they're the biggest like the problems they face are tough.
So for all those reasons, I do feel like what they have done is very special.
And ultimately the rec liquidity is everything.
The rec flow on prediction markets, there's a lot on Couchy by virtue of Robinhood. It has to be sustained for this to be a long term thing. And maxing out UI UX is the way to sustain it.
And how do you catch up on UI UX to the killers of UI UX if you can't draw on the tools that they think are so important? And that's a big smattering of ideas all mixed together. But that's sort of my bull case on DraftKings if there's one to be made.
[00:36:23] Speaker C: I think it cuts the other way too.
If a OSB who is used to all of the niceties of basically getting to do almost whatever you want with collateral, with the pricing, with cash out, with banning traders and going to a model where you aren't the house necessarily anymore, you aren't able to ban traders. You have to like deal with a designated clearing organization like to.
You don't know how CFTC stuff works. Like so Kalgi has the advantage in all of those things and that they've. We've been working within those constraints for years now. And so it's really, it's a kind of a guess as to who's going to win is like which one is easier to learn. Like being in the difficult regulated area of CFTC and then learning how to do like replicate draftkings amazing UX or vice versa. And we'll just have to see. I think like that's a very interesting question to watch very carefully here.
[00:37:21] Speaker B: Adi, thank you for coming in.
[00:37:22] Speaker C: Of course.
[00:37:23] Speaker B: It was great to talk to you.
[00:37:24] Speaker C: Yeah, we'll have to do it again. Yes, I think there's a lot of.
[00:37:27] Speaker B: There's so much more to cover.
