How a Hong Kong Hike Paved the Way for a Revolutionary Crypto Trading Product

In 2015, Ben Delo, co-founder of BitMEX, was on a hike in Hong Kong, discussing a problem that had been plaguing him for months. His customers were complaining about their positions closing without warning, and they wanted a product that looked and traded like spot but offered the leverage of a derivatives exchange. Delo's friend, Bavik, a derivatives trader, suggested creating a future that never expired, which led to the concept of the perpetual swap. Initially, Delo was unsure how to make it work, but Bavik proposed charging traders the bitcoin overnight rate. Delo built the product, and it became one of the most significant financial innovations of the 21st century. The perpetual swap was launched in May 2016, with a core mechanic that was straightforward: 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 early funding rate was derived from third-party lending markets, but it eventually had to be dynamically adjusted to keep the contract price aligned with the actual price of bitcoin. The solution was to look inward at how the swap was trading rather than outward at other markets. The exchange began measuring how far the swap was trading above or below spot over an eight-hour window and back-calculating the annualized rate from it. This dynamic equilibrium allowed market makers to anchor the swap back down to the spot price. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion a day, with the perpetual swap at its center. The product's success led to its adoption by other exchanges, and it is now considered one of the most successful products in the history of capitalism, with an estimated $40-50 trillion in turnover per year. Delo believes that traditional finance will eventually recognize the benefits of the perpetual swap, and it will become a staple in the financial industry.