Fundamentals don’t matter If counter parties don’t care Koxoy may disrupt insurance.
Two startups – Kalshi and Koxoy – have shaken up the gamblers den (also called the venture capital industry). Kalshi claims that they will grow at 100x per year in topline. Koxoy thinks it can outpace Kalshi.
What both these companies do is to create an efficient marketplace for trading in risk. And this market threatens to kill the insurance industry and disrupt venture capital.
Kalshi calls this prediction trading with a target increase in revenues from USD 24 million in CY 2025 to USD 50 billion in CY 2026. Koxoy hopes to go from 4 million in CY 2024 to 10 billion in CY 2026.
Kalshi is now in the open with a market cap of USD 10+ Billion. Koxoy is in stealth mode and growing faster.
Both are built on the fundamental premise that fundamentals don’t matter.
Only counter parties matter.
When you buy a life insurance, what you get is a death insurance. The insurance company basically says that if and when you die, we will pay Rs x. And in return, you pay us Rs z today. There are no fundamentals involved. There may be probabilities estimated but there are no fundamentals. Insurance is considered a legit industry. At least so far.
Similarly when you gamble on the outcome of a cricket match, there are no fundamentals involved. The house gives out a rate. And you can bet for or against a team. The same is true of horse racing which the Indian Supreme Court says is a game of skill (oh really !!!). There have always been taxation disputes but the business of gambling starting with lottery tickets is again legit and licensed. Casinos do just this bundled with food and dance.
Kalshi calls this prediction trading. And they will trade on anything. What they do is to find one party who bets for something. And another who bets against it. They don’t care what people are betting on. In the stock market we call it futures and options. And we think it is legit. At least SEBI does. And there is no GST on F&O. On wagering, the govt thinks that there should be a 28% gst on amounts bet.
Koxoy is smarter. They call it a surety bond. And they have the audacity to say they will insure anything. They are even willing to give a bidder in a tender a surety bond which can be used in place of a bank guarantee.
Many govt tenders now want either a bank guarantee or a Koxoy surety bond. No margin. No bank limit. Koxoy is looking at issuing USD 100 billion next year. No website. No marketing staff. They want a usd 10 billion valuation.
In fact they are no different from the CGTSME scheme of the government that I had helped set up decades ago. Banks paid a 2% premium to effectively insure a sme loan. If the business defaulted on repayment, CGTSME would reimburse the bank. So if the govt can do this, why can’t Koxoy. And why can’t Kalshi auction the risk in small parts.
Koxoy is lethal.
They may redefine startup investing.
Even kill insurance
Or redefine banking.