The concept of the perpetual swap, a pivotal financial innovation, was born on a hiking trail in Hong Kong in 2015. Ben Delo, BitMEX co-founder, was discussing a persistent problem with his friend Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers complained about positions closing unexpectedly. They desired a product that resembled spot trading but offered the leverage of derivatives.
Delo posed a question: what if a future never expired? Bavik's response was that it would be mathematically worth infinity, but he suggested charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance. Delo built this concept into a product, inventing one of the most significant financial products of the 21st century.
Initially, BitMEX targeted institutional hedgers, but it was retail traders who flocked to the platform, seeking high leverage and speculation opportunities. By Halloween 2015, BitMEX offered 100x leverage, thanks to Delo's real-time margining system. The perpetual swap launched in May 2016, with a daily funding rate that kept the contract price aligned with the spot price of bitcoin. The early funding rate was derived from external lending markets but was later adjusted to a dynamic, inward-looking mechanism.
This solution allowed market makers to anchor the swap price to the spot price, creating a dynamic equilibrium. The perpetual swap became a huge success, with BitMEX processing $3-4 billion daily by 2017.
The concentration of liquidity was a direct result of the swap's design, which consolidated market maker capital into one instrument. Competitors took notice, and every major exchange in crypto now offers its own perpetual swap, built on the funding rate architecture that Delo pioneered. The product's success has attracted traditional finance regulators, with the CFTC considering room for perpetual swaps under its framework.
Delo believes that once traditional finance recognizes the benefits of this financial product, it will be truly impressive.