Up until now, there was no way to directly cover the risk that a state law might shutter your goat herding business. Prediction markets changed that.

Northern California rancher Tim Arrowsmith owns a company called Western Grazers. The business provides targeted grazing to reduce wildfire risk by clearing dry brush in hard-to-reach areas. Arrowsmith has over 4,000 grazing goats and employs eight herders who work around the clock to manage the goats.

A recent legislative interpretation eliminated California’s longstanding wage framework for goat herders, which had been designed for the realities of around-the-clock livestock care. (Interestingly, sheep herders were spared from this interpretation of the law). If California doesn’t re-examine this law by the end of August, Arrowsmith’s labor costs could rise by roughly four times, putting his business, the jobs of his longtime herders, and an important wildfire prevention service at risk.

Arrowsmith turned to Castle, a startup that leverages financial products to mitigate risk for businesses. Castle worked with Susquehanna, one of the world’s largest proprietary trading firms, to create a hedge: they translated a highly specific regulatory exposure into a tradable market by defining objective settlement criteria and structuring the contract. Castle provided the coverage, used Kalshi, the largest federally regulated prediction market in the US, to list the market, and transferred the risk to Susquehanna, which priced the contract and provided the liquidity for the trade.

Hedging on prediction markets means taking a position that reduces the financial risk you face if a particular real-world event happens. The key idea is that you’re not necessarily trading because you think the market is wrong. You’re buying exposure that moves in the opposite direction of a risk you already have. Prior to platforms like Kalshi, Arrowsmith would have had no alternative to mitigate the risk of legislation.

The contract pays up to $500,000 if California does not fix the goat-herder wage rules by the end of September 2026. Arrowsmith paid a fixed premium for the protection. If lawmakers restore the previous rules or pass a similar solution, the contract expires with no payout. That is the outcome Tim is hoping for.

The decision now sits with the Assembly, where earlier attempts died without a hearing, and the session ends August 31st – leaving only three weeks for a fix. As California moves into peak fire season, this is the one thing that will keep Arrowsmith, his eight herders, and his 4,000 goats on the hillsides.

“Businesses face risks that traditional insurance often can’t cover,” said Lucas Cavalieri, CEO of Castle. “A rancher should be able to hedge a bill just like a farmer hedges wheat.”

“Prediction markets are becoming a practical risk management tool, not just for institutions but also for small businesses facing real-world uncertainty,” said Eric Passmore, Senior Trader, Prediction Markets, at Susquehanna.

“Before Kalshi, there was no practical way to hedge against a specific legislative outcome like this,” said Nicolas Hull, Director of Business Development at Kalshi. “We hope businesses of every size and industry can use Kalshi to manage risk. This is just the beginning.”

Says Arrowsmith: “Another three-year extension isn’t a fix, it’s a countdown clock. I can’t buy animals, bid a multi-year vegetation contract, or file H-2A paperwork against an expiration date. We ran this experiment three years ago, and it ended with the state pricing my crew out of a job overnight: on July 1, every goat herder’s pay was set at $250,000 a year, a bit more than the Governor of California is paid. Castle put a hard ceiling on what the lapse can cost us while the legislature works, but a hedge buys time, it doesn’t fix the law. Pair goat herder wages back to sheepherder wages, permanently and retroactive to July 1, and let us get back to the business of providing fuels abatement to keep fire from spreading across California.”

About Castle

Castle was founded earlier this year by four Stanford graduates in math, physics, and computer science. They are backed by Micky Malka’s Ribbit Capital. The team has experience in quant trading, engineering at Palantir, and hedge fund management. They noticed the vast disconnect between the tools Wall Street used to price bespoke risk and those that corporates can access. Castle exists to bridge these worlds together. To learn more about Castle, visit www.castle.tech.

About Susquehanna

“Susquehanna” refers to Susquehanna Government Products, LLLP, a registered market maker on the Kalshi exchange. It is part of the Susquehanna International Group of Companies (the “Susquehanna Group”), which was formed in 1987, and is one of the largest proprietary trading firms in the world. Fueled by an integration of trading, technology, and quantitative research, the Susquehanna Group has forged a collaborative culture with over 3,500 employees located in more than 17 offices around the world. While trading remains at the core of its business, the Susquehanna Group is also at the forefront of innovation in institutional sales, global private equity, sports analytics, and prediction markets.

About Kalshi

Founded in 2018, Kalshi is the world’s next-generation financial exchange. Prediction markets provide accurate, real-time information on the likelihood of events, making humanity more informed about the future. As the first regulated exchange for events, Kalshi is credited with legalizing and establishing prediction markets as a financial asset class. It’s the leading safe and regulated platform, trusted by millions of people and a growing number of institutions in America. To learn more about Kalshi, visit www.kalshi.com.

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