How a Hong Kong Hike Revolutionized Crypto Trading Forever

The concept of the perpetual swap, also known as a perpetual future or 'perp,' was born in 2015 on a Hong Kong hiking trail. Ben Delo, BitMEX co-founder and mathematician, was on a hike with Bavik, a derivatives trader, when he was struggling with a problem that had been bothering him for months. At the time, BitMEX was experimenting with various types of futures contracts, including quarterly, monthly, weekly, 48-hour, and 24-hour contracts. However, customers were consistently complaining that their positions were being closed without warning. They wanted a product that resembled spot trading but offered the leverage that only a derivatives exchange could provide. Delo asked, 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' Although technically correct, this posed a problem. The solution was to charge traders the bitcoin overnight rate, similar to LIBOR in traditional finance. However, Delo soon realized that this rate did not exist, so he decided to create it. This marked the beginning of one of the most significant financial products of the 21st century. The perpetual swap was launched in May 2016 with a simple yet effective mechanism: a futures contract with no expiry date, anchored to the spot price through a daily funding rate. Longs paid shorts, or vice versa, depending on whether the swap was trading above or below spot. Initially, the funding rate was derived from third-party lending markets, but this approach eventually failed to keep up with the demand for long exposure on BitMEX. The swap began trading at a persistent premium to spot, causing the contract price to drift away from the actual price of bitcoin. To address this issue, Delo introduced a dynamic funding rate that looked inward at how the swap was trading rather than outward at external lending markets. This solution proved to be elegant and effective, allowing market makers to anchor the swap back down to the spot price. By 2017, BitMEX had become the most liquid bitcoin market in the world, processing $3-4 billion per day, 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, and soon every major exchange in crypto offered its own perpetual swap, each built on the funding rate architecture that Delo had created. Today, the perpetual swap is considered one of the most successful financial products in history, with an estimated $40-50 trillion in annual turnover. Delo believes that traditional finance will eventually recognize the benefits of this product, leading to its widespread adoption.