The Birth of a Revolutionary Trading Concept: How a Hong Kong Hike Changed Crypto Forever

In 2015, a hike in Hong Kong's countryside sparked an idea that would transform the world of cryptocurrency trading. Ben Delo, a mathematician and co-founder of BitMEX, was discussing a problem with his friend Bavik, a derivatives trader. BitMEX had been experimenting with various types of futures contracts, but none seemed to satisfy their customers. The issue was that these contracts would expire, causing positions to close unexpectedly. Delo asked, 'What if a future never expired?' Bavik's response was that it would be mathematically worth infinity. However, he also suggested a solution: charge traders the bitcoin overnight rate. This conversation laid the foundation for the perpetual swap, a financial product that would become a cornerstone of the cryptocurrency market. The perpetual swap, launched in 2016, was a futures contract with no expiration 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 became clear that a dynamic approach was needed. BitMEX began measuring the gap between the swap and spot prices over an eight-hour window, treating it as an implied basis, and back-calculating the annualized rate from it. This solution, known as the funding rate mechanism, has been adopted by major derivatives exchanges worldwide. By 2017, BitMEX had become the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. The product's success can be attributed to its design, which consolidated liquidity into one instrument. Competitors took notice, and soon every major exchange in crypto offered its own perpetual swap. Delo believes that the fact that every other exchange has copied the swap is a testament to its financial innovation. With the product now attracting the attention of traditional finance regulators, Delo sees this as the final validation of something that started as a question on a hillside above Hong Kong.