The Inside Story of How a Hong Kong Hike Revolutionized Crypto Trading

In 2015, a hike in Hong Kong marked the birth of the perpetual swap, also known as a perpetual future or 'perp.' Ben Delo, BitMEX co-founder and mathematician, was on a hike with Bavik, a derivatives trader, grappling with a problem that had plagued him for months. BitMEX had experimented with various futures contracts, but customers complained about positions closing unexpectedly. They sought a product that resembled spot trading, offered leverage, but didn't expire. Delo asked, 'What if a future never expired?' Bavik's response was immediate: 'Mathematically, it would be worth infinity.' Although technically correct, Delo realized that by charging traders the bitcoin overnight rate, they could create a viable product. However, the rate didn't exist, so Delo built it, inventing one of the most significant financial products of the 21st century. The perpetual swap launched in May 2016, with a daily funding rate that anchored the price to spot. Initially, the rate was derived from third-party lending markets, but as demand for long exposure grew, the mechanism was adjusted to dynamically calculate the funding rate based on the swap's trading activity. This solution, which looked inward at the swap's trading rather than external markets, created a dynamic equilibrium. The funding rate mechanism is now used by every major derivatives exchange 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 design concentrated liquidity, allowing traders to consolidate their capital into one instrument. Competitors took notice, and the perpetual swap is now a staple in crypto, with a turnover of $40-50 trillion annually. BitMEX chose not to patent the product, focusing on building instead. Now, traditional finance regulators are taking notice, with the CFTC reportedly making room for perpetual swaps, and speculation about the CME listing them on equities. For Delo, this is the ultimate validation of a product that started as a question on a Hong Kong hillside.