How a Hong Kong Hike Revolutionized Crypto Trading

In 2015, a hike in Hong Kong's countryside led to the inception of the perpetual swap, a concept that would forever alter the landscape of crypto trading. Ben Delo, BitMEX's co-founder and a mathematician, was on a hike with Bavik, a derivatives trader, grappling with a problem that had plagued him for months. BitMEX had experimented with various futures contracts, but customers consistently complained about positions closing without warning, seeking a product that mimicked spot trading but offered the leverage of derivatives. Delo posed a question: what if a future never expired? Bavik's response was immediate: it would be worth infinity. However, he also proposed a solution - charging traders the bitcoin overnight rate. The challenge was that this rate did not exist, prompting Delo to create it. This innovation would become one of the most significant financial products of the 21st century. BitMEX was initially designed for institutional hedgers, but it eventually attracted retail traders seeking high leverage and size. By October 2015, the exchange offered 100x leverage, courtesy of Delo's real-time margining system. The perpetual swap, launched in May 2016, was a futures contract with no expiry date, anchored to the spot price via a daily funding rate. Initially, the funding rate was derived from third-party lending markets but was later adjusted to a dynamic rate based on the swap's trading activity. This mechanism has become the standard for major derivatives exchanges worldwide. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The concentration of liquidity was a direct result of the swap's design, allowing traders to consolidate their capital into one instrument. Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap. Delo views the widespread adoption of the perpetual swap as a testament to its financial innovation, with an estimated $40-50 trillion in annual turnover. BitMEX chose not to patent the perpetual swap, focusing instead on building and letting the market dictate its value. Now, traditional finance regulators are taking notice, with the CFTC reportedly making room for perpetual swaps and speculation about the CME listing them on equities. For Delo, this is the ultimate validation of a concept born from a question on a Hong Kong hillside.