Tarek Mansour, CEO and co-founder of Cal Sheet, discusses building the first regulated prediction market exchange in the US. Born in California but raised in Lebanon during volatile times, Tarek found refuge in mathematics, leading him to MIT and then finance roles at Goldman Sachs, Citadel, and Bridgewater before founding Cal Sheet.

The conversation covers Cal Sheet's five-year regulatory journey, including a successful lawsuit against the CFTC, the company's unique flat organizational structure with 127 employees, and how prediction markets function as financial instruments rather than gambling platforms.

Key topics include the distinction between speculation and gambling, insider trading policies, the growing institutional adoption for hedging purposes, and how prediction markets aggregate information to provide better forecasts than traditional polling or expert analysis.

The Genesis: From Trading Floors to Prediction Markets

The 2016 Brexit and Trump election exposed a fundamental flaw in traditional trading - traders were right about the predictions but lost money on market reactions. 'They were right about the prediction and they lost money' - Tarek

Goldman's Trump trade was shorting the S&P, expecting it to fall if Trump won. Instead, Trump's victory triggered 'the single biggest rally in the S&P's history, like ever, essentially.'

Traditional markets force traders to bet on reaction functions rather than events themselves - 'what they're really trading on is how the market was going to react to Trump, which in retrospect, and now we can't really predict.'

Five Years in the Regulatory Desert

Cal Sheet spent two years just finding lawyers willing to take on the case, with Tarek becoming 'somewhat of an expert in the law around commodities' during the process.

The regulatory process felt like 'walking in a desert' with no certainty it would end - 'you may actually just die' - requiring tunnel vision to continue without introspection.

After winning initial approval in November 2020, the new Biden administration paused everything, forcing Cal Sheet to launch with just four economic markets that gained no traction.

The company sued the CFTC in 2024 as a 'last shot' with their 'back against the wall,' winning in October 2024 after a year-long legal battle that enabled election markets.

Legal Framework: Financial Markets vs Gambling

The lawsuit redefined what constitutes gambling versus financial markets, establishing two key criteria: marketplace structure (trading against each other vs. house) and natural vs. artificial events.

The decision echoed a 1905 Supreme Court ruling that legalized grain futures, where speculation was deemed necessary for markets to exist - 'you cannot just have people that are insuring themselves against stuff because the person on the other side needs to be a speculator.'

Insider trading rules mirror stock markets - material non-public information that you're not allowed to disclose. 'Trading is a form of disclosure' and moving prices reveals information.

Business Model: Transaction Fees vs Customer Losses

Gambling businesses have 'revenue equals customer losses' as their primary KPI, incentivizing them to 'promote losses' and ban winning customers.

Cal Sheet takes small transaction fees and wants volume, creating incentives for fairness, neutrality, and transparency rather than customer losses.

Nine out of ten Cal Sheet customers don't trade traditional options or S&P because 'I don't have an edge' - they see no way to win against Wall Street's information advantages.

The platform rewards research and truth-seeking, like the 2024 election bettor who 'did the neighbor poll' and won big on Trump - 'that's the markets working exactly how they should.'

Institutional Adoption and Hedging Applications

A Federal Reserve paper called Cal Sheet's markets 'the best gauge we have on the economy,' with Main Street users outperforming Wall Street forecasters.

Florida Keys residents use Cal Sheet to hedge hurricane risk after insurance companies pulled out, buying protection that pays if hurricanes hit their towns.

Institutions holding S&P positions can now hedge election risks rather than selling positions, using prediction markets to complement portfolio protection strategies.

The 'infinite markets' theory suggests society's increasing complexity requires pricing more dimensions - AI, COVID, regulations - to accurately price traditional assets like stocks.

Scaling with 127 People: Flat Organization Principles

Founders work 'very, very hard' as first to office, last to leave, creating heightened output per person across the company.

Luana knows what 80-85 of the company's 127 people are doing because 'she probably checked with them on Slack in the last 48 hours' - minimal management layers.

The company organizes around problems rather than org charts, with people self-organizing 'like cells in an organization' that naturally move to address issues.

Tarek recommends reading the Valve Employee Handbook for insights on flat organizational structures after discussing Cal Sheet's similar approach to minimal hierarchy.

'We don't manage people, we manage work' - focusing on high-agency individuals who naturally stay busy without supervision, biasing toward execution over strategy.