In 2015, Ben Delo, co-founder of BitMEX, was on a hike in Hong Kong with a friend, Bavik, a derivatives trader. Delo was struggling to find a solution to a problem that had been plaguing him for months. BitMEX had tried various types of futures contracts, but customers kept complaining that their positions were closing without warning.
They wanted a product that looked and traded like spot, but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' However, he also offered a solution: charge traders the bitcoin overnight rate. Delo built it, and in doing so, invented one of the most consequential financial products of the 21st century.
The perpetual swap was born, and it would go on to revolutionize the crypto trading landscape. Initially, the funding rate was derived from third-party lending markets, but as Bitcoin's price rose, the mechanism struggled to keep up. Delo and his team had to dynamically adjust the funding rate, looking inward at how the swap was trading rather than outward at external markets.
The solution was elegant, and it worked. The perpetual swap became the core product of BitMEX, and its success was unprecedented.
By 2017, BitMEX was the most liquid bitcoin market in the world, processing $3-4 billion a day. The concentration of liquidity was a product of the swap's design, and it attracted the attention of competitors. Eventually, every major exchange in crypto offered its own perpetual swap, each one built on the funding rate architecture that Delo had created. Today, the perpetual swap is one of the most successful products in the history of capitalism, with a turnover of $40-50 trillion a year.
BitMEX chose not to patent the perpetual swap, opting instead to focus on building and innovating. Now, a decade on, the product is attracting the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework. For Delo, this is the final validation of a product that started as a question on a hillside above Hong Kong.