I wanted to first understand regulatory constraints:
- Very clearly prohibited in California. See penal code section 319.
Innovators often go against regulation, but it has to be worthwhile on two fronts:
- Is this idea worth pursuing?
- Is this significantly better for consumers?
- Partial yes. It’s vaping vs. cigarettes. Odds are better, but there is new risk (smart contract risk).
- Is there significant business opportunity?
- Yes. I think so, but that’s also because regulation forbids competition.
- By launching a protocol, it’s a way to say I have no control, and unclear if that meets the bar for regulation.
- How much do I personally care about this?
- I like 1) the protocol aspect to making a significantly better system, and 2) how it’s not trying to skirt away from user’s revealed preferences.
- However, I’m not the target audience for this.
- I don’t feel strongly enough about this to test any legal boundaries.
- Will consumers have my back? The ones that succeed against regulation usually are ones that users love and are vocal about - Uber, Airbnb, Apple’s antitrust, etc.
- Would users be extremely disappointed if they couldn’t use it anymore?
- Somewhat.
- Are users happy after they use your product?
- Not really.
Thus, a no for now.
- This would change if there is a path to being regulated.
- Kalshi spent 1.5 years speaking with regulators to get permission, and now owns US market
- Contrast this to Polymarket’s approach, which was to launch, then shut down their US product after gov’t came after them
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A lottery consists of:
- A prize
- Consideration - any sort of payment.
- If some people may pay money but you’re eligible to win a prize without purchase, then it’s legal
- Distribution of prize by chance
Exceptions - charitable purposes (90% of ticket proceeds must go to charity) or bingo in senior homes.
Even these, cannot be offered or sold over the internet. Has to be in person.