In 2015, a hike in Hong Kong marked the inception of the perpetual swap, a concept that would alter the landscape of crypto trading forever. Ben Delo, BitMEX co-founder and mathematician, was pondering a dilemma with his friend Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, but customers consistently complained about positions closing without warning, seeking a product that mirrored spot trading but offered the leverage of a derivatives exchange. Delo's query, "What if a future never expired?" sparked a pivotal conversation.
Bavik's response, "Mathematically, it would be worth infinity," highlighted the technical challenge. However, he proposed a solution: charge traders the bitcoin overnight rate, akin to LIBOR in traditional finance. Delo's subsequent creation of this rate led to the invention of one of the most influential financial products of the 21st century. The perpetual swap's launch in May 2016 was understated, yet its impact was profound.
The core mechanism involved a futures contract with no expiry date, anchored to the spot price through a daily funding rate, with longs paying shorts or vice versa, and BitMEX taking no cut. The early funding rate was derived from third-party lending markets but eventually required dynamic adjustment to respond to market conditions.
This led to the development of a funding rate mechanism that 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 concentration of liquidity was a direct result of the swap's design, which consolidated market maker capital into a single instrument.
Competitors took notice, with some exchanges copying the concept, while others developed their own versions. Today, the perpetual swap is a cornerstone of crypto trading, with a turnover of $40-50 trillion annually, and is starting to attract the attention of traditional finance regulators.