The concept of the perpetual swap, also known as a perpetual future or 'perp,' was conceived on a hiking trail in Hong Kong in 2015. Ben Delo, BitMEX co-founder and mathematician, was discussing a persistent problem with a friend named Bavik, a derivatives trader. BitMEX had experimented with various futures contracts, including quarterly, monthly, weekly, 48-hour, and 24-hour contracts, but none of them met customer demands. Customers complained that their positions were closing without warning, and they sought a product that resembled spot trading but offered the leverage of a derivatives exchange.
Delo asked, 'What if a future never expired?' Bavik responded 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. The story of BitMEX and the perpetual swap is one of innovation and adaptation, as the company evolved from targeting institutional hedgers to catering to retail traders seeking speculation and high leverage.
The introduction of the perpetual swap in May 2016 marked a pivotal moment, offering a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The funding rate mechanism, which has been adopted by major derivatives exchanges worldwide, was a key innovation that enabled the perpetual swap to succeed.
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 has been acknowledged by competitors, with many exchanges offering their own versions of the perpetual swap. The story of the perpetual swap serves as a testament to the power of innovation in finance and the importance of adapting to changing market demands.