In 2015, a hike in Hong Kong's trails led to the conception of the perpetual swap, a financial product that would forever alter the landscape of crypto trading. Ben Delo, BitMEX's co-founder and a mathematician, was grappling with a problem that had been plaguing him for months.
Customers were frustrated with their positions closing unexpectedly, seeking a product that combined the benefits of spot trading with the leverage of derivatives. The solution came when Delo asked, "What if a future never expired?" The answer led to the creation of the perpetual swap, a product that would charge traders an overnight rate, similar to LIBOR in traditional finance. However, this rate did not exist for Bitcoin, prompting Delo to build it from scratch. The perpetual swap 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.
The early funding rate was derived from third-party lending markets but later adjusted to a dynamic model that looked inward at how the swap was trading. This solution proved elegant, creating a dynamic equilibrium that market makers could respond to.
By 2017, BitMEX had become the most liquid bitcoin market, processing $3-4 billion daily, with the perpetual swap at its core. Competitors took notice, and every major exchange in crypto eventually offered its own perpetual swap, each built on the funding rate architecture Delo had pioneered.
The perpetual swap's success has been unprecedented, with an estimated $40-50 trillion in annual turnover, making it one of the most successful financial products in history. As traditional finance regulators begin to take notice, the future of the perpetual swap looks promising, with potential listings on equities and recognition under regulatory frameworks.