Iowa Electronic Markets vs Kalshi

The Iowa Electronic Markets (IEM) was created in 1988 by faculty members Robert Forsythe, Forrest Nelson, George Neumann, and Joel Horowitz at the University of Iowa Tippie College of Business. Established as a non-profit educational and research experiment during the 1988 US presidential election, the IEM holds the distinction of being the world's oldest continuously operating online real-money prediction exchange.

To operate legally in the United States without registering as a formal derivatives exchange, the IEM secured milestone No-Action Letters from the Commodity Futures Trading Commission (CFTC) in 1992 and 1993. Under these regulatory guidelines, the IEM operates strictly for academic research and teaching, enforcing a strict $500 maximum investment cap per participant and charging zero trading fees. The market utilizes continuous electronic limit orderbooks where participants trade binary winner-take-all contracts or vote-share contracts tied to political elections and macroeconomic indicators.

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Tarek Mansour grew up in Algeria and came to MIT on a scholarship. Luana Lopes Lara grew up in Brazil, the daughter of a schoolteacher, and danced at an elite ballet academy affiliated with the Bolshoi before choosing mathematics. They met in an MIT classroom, ended up in many of the same courses, co-authored papers, and interned at the same firms — Mansour at Goldman Sachs and Citadel, Lara at Bridgewater and Citadel. What they observed across those firms was the same thing: an enormous amount of financial decision-making was being driven by opinions about future events, but there was no clean, direct way to trade on those events. You could trade the equity of a company that would be affected by an election result, but you could not trade the election result itself. In 2018, they founded Kalshi to close that gap. The approach was different from every prediction market before them: instead of operating offshore, accepting cryptocurrency, or relying on a fragile regulatory no-action letter, Kalshi would become a fully licensed US exchange. They joined Y Combinator in 2019 and spent the next two years in direct negotiation with the CFTC — a process that had never been completed by a prediction market operator.

The CFTC approval came in November 2020, making Kalshi a Designated Contract Market — the highest regulatory designation available and the same category as the Chicago Mercantile Exchange. Mansour and Lara were among the youngest founders to win CFTC approval in over a decade. The platform launched its first contract in July 2021. Sequoia Capital led a $30 million Series A. Henry Kissinger and Robert Shiller joined as advisors. The 2024 presidential election was the inflection point: over $800 million was wagered on political markets. When the CFTC under the Biden administration moved to block Kalshi's election markets — arguing they were contrary to the public interest — Lara made the call to sue the federal government. "The only option," she later said, "was to sue." Kalshi won in federal court in September 2024. The ruling opened election markets. Sports markets followed. $238 billion in annual trading volume followed that.

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