The concept of the perpetual swap, also known as a perpetual future or 'perp', was born in 2015 on a hiking trail in Hong Kong. Ben Delo, the mathematician and co-founder of BitMEX, was discussing a problem with a friend, Bavik, a derivatives trader.
They were trying to find a solution to the issue of futures contracts expiring, which was causing frustration for customers. Delo asked, 'What if a future never expired?' Bavik replied that mathematically, it would be worth infinity, but suggested charging traders the bitcoin overnight rate to solve the problem. Delo built the product, which became one of the most influential financial products of the 21st century.
The perpetual swap was launched in May 2016, and its core mechanic was straightforward: a futures contract with no expiry date, anchored to the spot price through a daily funding rate. The rate was initially derived from third-party lending markets but was later adjusted to be dynamic, looking inward at how the swap was trading rather than outward at external markets. This solution, known as the funding rate mechanism, is now used by every major derivatives exchange in the world. 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 been so significant that it has attracted the attention of traditional finance regulators, with the CFTC reportedly making room for perpetual swaps under its framework.