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's co-founder and a mathematician, was discussing a persistent issue 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 worked as intended. Customers complained about their positions closing unexpectedly, seeking a product that combined the benefits of spot trading with the leverage of derivatives.
Delo asked, 'What if a future never expired?' Bavik replied that it would be mathematically worth infinity, as the value of a futures contract is partly derived from its time to expiry and carrying costs. However, Bavik suggested charging traders the bitcoin overnight rate, similar to LIBOR in traditional finance.
Delo built this concept, inventing one of the most significant financial products of the 21st century. Initially, BitMEX targeted institutional hedgers, but it eventually attracted sophisticated retail traders seeking high leverage and speculation opportunities. By Halloween 2015, the exchange 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 dynamically based on the swap's trading activity. This mechanism has become the standard for 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 product's success led to its adoption by other exchanges, with some copying it verbatim. Delo believes that the perpetual swap's impact will be further validated as traditional finance regulators take notice, with the CFTC and CME potentially incorporating it into their frameworks.