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

The concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived in 2015 on a hiking trail in Hong Kong. Ben Delo, BitMEX co-founder and mathematician, was discussing a persistent problem with a friend, Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers continued to complain about positions closing without warning. They sought a product that mimicked spot trading but offered the leverage of a derivatives exchange. Delo asked, 'What if a future never expired?' Bavik replied that it would theoretically be worth infinity due to the compounding carrying cost. However, he suggested charging traders the bitcoin overnight rate to address this issue. 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. The funding rate was initially derived from third-party lending markets but was later adjusted to a dynamic rate based on the swap's trading activity. This innovation 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. Competitors took notice, and the product was replicated across major exchanges. Delo believes the perpetual swap's success is a testament to its financial innovation, with an estimated $40-50 trillion in annual turnover. As traditional finance regulators begin to take notice, Delo sees this as the final validation of a product that started as a question on a Hong Kong hillside.