How a Hong Kong Hike Revolutionized Crypto Trading Forever

In 2015, a hike in Hong Kong's countryside led to the creation of the perpetual swap, a financial product that would change the face of crypto trading. Ben Delo, BitMEX co-founder, was on a hike with friend and derivatives trader Bavik, grappling with the issue of expiring futures contracts. Customers were complaining about positions closing without warning, and Delo was determined to find a solution. The question "what if a future never expired?" sparked a conversation that would lead to the invention of one of the most significant financial products of the 21st century. The perpetual swap, a futures contract with no expiry date, was born. It was anchored to the spot price through a daily funding rate, with longs paying 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 was later replaced with a dynamic approach, looking inward at how the swap was trading. This solution, which has been adopted by every major derivatives exchange, created a dynamic equilibrium, allowing market makers to anchor the swap back down to the spot price. By 2017, BitMEX was the most liquid bitcoin market, processing $3-4 billion a day, with the perpetual swap at its center. The product's success has attracted the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework. Delo believes that once traditional finance sees the benefits of this financial product, it will be impressive.