In 2015, a conversation on a Hong Kong hiking trail between Ben Delo, co-founder of BitMEX, and his friend Bavik, a derivatives trader, marked the beginning of a groundbreaking concept in crypto trading. Delo was struggling to find a solution to the issues faced by BitMEX customers, who were complaining about their positions being closed without warning. The customers wanted a product that resembled spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik's response was that it would be mathematically worth infinity, but he proposed a solution: charging traders the bitcoin overnight rate.
This conversation laid the foundation for the creation of the perpetual swap, a product that would change the face of crypto trading forever. The perpetual swap, launched in May 2016, was a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Longs paid shorts, or vice versa, depending on whether the swap was trading above or below spot. The funding rate was initially derived from third-party lending markets but was later adjusted to be dynamic, looking inward at how the swap was trading rather than outward at other markets.
This mechanism allowed for a dynamic equilibrium, where market makers could adjust their positions accordingly. By 2017, BitMEX had become the most liquid bitcoin market, processing $3-4 billion a day, with the perpetual swap at its core. The product's success was evident, with competitors noticing and eventually offering their own perpetual swaps.
Today, the perpetual swap is considered one of the most successful financial products in history, with a turnover of $40-50 trillion a year. Delo's innovative product has attracted the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework.
The perpetual swap's impact on the crypto trading landscape is a testament to the power of innovation and the importance of listening to customer needs.