Regulation-First Market Building
Trade short-term speed for durable access, trust, and scale
- Difficulty
- Expert
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 96%
Start with the durable institution the company intends to become, then work backward from the approvals, controls, and stakeholder confidence required to support it. Rather than launching outside the rules and hoping to regularize later, recruit regulatory expertise early, articulate the product's legitimate economic purpose, and turn every objection into a concrete design task. The process is iterative: present the proposed system, receive concerns, conduct analysis, strengthen surveillance or operating rules, and return with evidence. This sacrifices near-term speed but expands the eventual opportunity by enabling trusted brokers, market makers, funds, and other serious partners to participate. Regulation therefore becomes part of the product architecture and distribution strategy, not merely a compliance exercise performed after launch.
Origin
Luana Lopes Lara described how Kalshi spent roughly two and a half years working through CFTC concerns after many lawyers said event-contract approval was impossible.
Core principles
- 01Treat regulation as a design constraint, not an ideological obstacle
- 02Build for the durable opportunity rather than the fastest launch
- 03Translate regulators' concerns into technical and operational requirements
- 04Resolve objections iteratively and one by one
- 05Use compliance to unlock credible partners and institutional capital
How to run it
- 1
Define the durable destination
Describe the institution you want to build at full scale and identify which approvals are necessary for it to operate credibly.
Pro tip Use the desired partner and customer ecosystem to clarify the required regulatory status.
Watch out Optimizing only for launch speed can permanently narrow the opportunity.
- 2
Recruit regulatory expertise
Find an adviser with direct knowledge of the regulator, its principles, and its decision process.
Pro tip Seek someone who can translate between legal concerns, product design, and technical controls.
Watch out Do not assume general legal experience is equivalent to regulator-specific knowledge.
- 3
Establish economic purpose
Explain who the product helps, which risks it addresses, and why existing alternatives are inadequate.
Pro tip Use concrete everyday use cases rather than abstract claims about innovation.
Watch out A novel mechanism without a defensible public or economic purpose may look purely speculative.
- 4
Design for regulator comfort
Specify settlement rules, surveillance systems, manipulation controls, collateral requirements, and customer protections.
Pro tip Support design choices with analysis of similar markets and plausible failure modes.
Watch out Ambiguous operating rules will create unresolved approval risks.
- 5
Iterate through objections
Treat each new concern as a bounded problem, revise the system, and return with evidence that the issue has been addressed.
Pro tip Track concerns and responses in a decision log so nothing is lost across review cycles.
Watch out Do not interpret additional questions as automatic rejection.
- 6
Convert approval into scale
Use regulatory legitimacy to attract brokers, liquidity providers, investors, and institutional customers that could not participate otherwise.
Pro tip Sequence partnerships according to the liquidity and infrastructure already available.
Watch out Approval alone does not create adoption; distribution and market development still matter.
In the wild
Kalshi's computer-scientist founders first contacted lawyers who largely dismissed the idea. They eventually found former CFTC official Jeff Bandman, presented event contracts as useful hedging instruments, and spent more than two years addressing concerns about market operation, manipulation, surveillance, and customer safety.
→ Kalshi became the first federally regulated US exchange dedicated to trading event contracts.
A startup planning a marketplace for sensitive patient services maps the approvals required for nationwide provider participation. It hires a former regulator, documents its safety controls, pilots conservative workflows, and answers each agency concern before pursuing broad distribution.
→ The slower launch produces a platform that hospitals and insurers can adopt without creating unacceptable compliance exposure.
Common mistakes
Launching first and regularizing later
An unregulated launch may produce early volume but prevent reputable partners and customers from ever participating safely.
Treating objections as rejection
Regulatory questions often identify unresolved design work rather than a fixed ideological refusal.
Delegating purpose to lawyers
Legal advisers can navigate rules, but founders must clearly explain the product's economic value and intended operating model.
Is it for you?
Best for
It is best for fintech, healthcare, insurance, energy, and other startups whose long-term scale depends on regulatory legitimacy.
Not ideal for
It is not ideal for low-risk products where formal approval offers little strategic advantage and speed is the dominant constraint.
From the transcript
“We really think that the opportunity really shrinks if if you don't take regulation into account, because then you can't get real money in the…”
“The only way to do that was to do uh A right from the start, going through the regulated path and and eating on the…”
“we would go to them and they would have concerns and issues, so we would go back and solve the issues.”
From the episode
Luana Lopes Lara on Kalshi’s CFTC Approval Journey
Luana Lopes Lara